How Is the Distribution Industry Coping With the Pandemic?
The global pandemic, COVID-19, has quivered all the major pillars of the distribution industry. It has compelled organizations around the world to set up crisis management systems through which they can react to the ambiguities and adapt to the new normal. Now that the strict lockdowns, border closures and movement restrictions have been eased a bit, companies are looking forward to sketching recovery policies to safeguard themselves in the longer term.
How Was the Distribution Industry Disrupted?
Although the tremors of this crisis were first felt in China, it did not take any longer than a month for the pandemic to strengthen its grip over the entire world. For the uninitiated, the most powerful countries in the distribution industry rely on the production and supply of China and other South east countries, at large. Apart from this, China was also one of the paramount consumers of globally-produced goods and agricultural products.
Limitations imposed on travel invited backlog of cargoes at China's chief container ports, shortage of drivers to pick up the containers, and sailing cancellation of the ocean carriers. A lag on the part of the distribution industry thus, automatically affected the manufacturing operations overseas. The stalwarts of the distribution industry such as pharmaceuticals, automotive, electronics, medical equipment and supplies had to absorb this shock.
Other than this, the rigid norms regarding social distancing of the distribution industry at the warehouses to contain the spread of the virus made the situation grimmer for freight.
- Air freight for distribution industry - The distribution volume dropped by 19% due to the cancellation of passenger flights and temporary halt. Because the total capacity reduction is greater than the net reduction, the higher air freight rates are justified.
- Ocean freight for distribution industry - The restraints on ocean freight impacted the export operations from China, Brazil, Mexico, and India and the importers of the European Union. These weak demands are still exerting pressure on the routes between Latin America, Asia, Europe and the United States.
- Land freight for distribution industry - It was only the means of land freight that was partially available to the distribution industry during this span. Hence, the trucking capacity experienced a setback because of additional demand and consequently, surged their transportation rates.
How Are the Companies In the Distribution Industry Coping?
Operational curtailment was the direct impact of the pandemic in the distribution industry. It opened doors to delivery delays, higher freight rates and unavoidable congestion. But, this is not true for every company in the realm. In fact, e-commerce platforms that delivered essential goods like food and medicines saw a rise in demand because customers preferred shopping online rather than visiting the market. The silver lining here was that record-low fuel prices came as a relief to transport operators to get their momentum back in the distribution industry.
- Impact on small businesses in the distribution industry- The biggest hindrance for the small distribution businesses happened to be their lack of ability and technological backing to create intermittent plans of operation, or recovery plans. Moreover, as a result of not being well-versed with the health guidelines, their responses were debilitated.
- Impact on large businesses in the distribution industry- Several distributions during the initial months of the pandemic, rolled out a clause that declared their contracts that were affected by unforeseen circumstances, as null and void. Besides, those organizations that didn't abide by this policy also went through decline in their credit metrics.
Long Term Impacts On the Distribution Industry
Although the future still remains extremely unpredictable, there are certain evidences that are hinting at long term shifts in the distribution industry. The COVID-19 situation has prompted the distribution companies of the US to pull their supply chains closer to their homes like Mexico and protect themselves from vulnerability of future risks by expanding to countries like Thailand, Malaysia, Indonesia and Vietnam.
If forecasts are to be believed, China might be on the verge of losing their status as the primary entity in the supply network of Mexico, Brazil and other Southeast Asian nations. There could be two reasons driving this change; a) it can be the US-China trade war that has already kindled substantial uncertainty across the entire distribution industry, and b) the disturbance ensuing from the China-centric supply chains caused due to the sudden and extensive shutdowns in February, March and April.
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