Impact of COVID-19 on shipping and logistics

Industry stalwarts discuss threadbare the prevailing logistics and supply chain scenario and issues in clearing cargo during the COVID-19 lock down

The debut webinar by Maritime Gateway brought together industry leaders representing ports, CFS, shipping lines and the shippers to discuss the state-of-affairs across the supply chain during the lockdown. Setting tone for the hour long discussion which was followed by a quick Q&A session, Ramprasad, Editor-in-Chief and Publisher, Maritime Gateway shared an eagle’s eye-view of the current scenario in movement of cargo and operations of service providers at sea and shore.

The logistics chains are going through unusual and massive losses from the disruption caused by the COVID-19 pandemic. The disruption is both from supply and demand side. Terminals, CFSs, ICDs and warehouses are feeling the heat. The shutdown of factories and scarcity of manpower to de-stuff cargo as well as drivers to operate trucks for cargo evacuation has derailed the trade and smooth functioning of the logistics industry. The estimate is a cumulative loss of $9 trillion to the global GDP and the world trade has already witnessed a decline by 32 per cent. India’s exports plunged by 35 per cent and imports by 29 per cent. The ports witnessed a 50-60 per cent fall in traffic, operating at 30-40 per cent capacity. There is a 5.25 per cent decline in cargo volume in March vs March of 2019. In case of containers the downfall is about 12.51 per cent. The turnaround time at ports is around 12.2 days, which was about 3 days in pre-COVID-19 scenario.

An estimated 1.5 million truck drivers have gone to their native places and there are a lot of restrictions on inter-state and intra-state movement. This also caused a spike in freight rates ranging from 15 per cent to nearly 80 per cent. A similar situation we are witnessing at neighbouring ports of Sri Lanka and Bangladesh with huge container pileup happening. Currently it is estimated that 80,000 containers are stuck at CFS in and around JNPT and about 50,000 containers at Chennai Port and we are hearing similar situations at other private terminals.

With this background, Ramprasad placed the first question before the panellists:

In the second phase of lockdown what is the ground reality? What are the container evacuation strategies?

Capt. Deepak Tewari, Chairman, CSLA: We are not in a good position. As far as shipping lines are concerned, globally volumes have gone down by more than 15 per cent and they are likely to go down during the course of the year to 28 per cent reduction Y-o-Y, as compared to last year. And this goes well above than 10 million to 15 million teus. Shipping lines have had to resort to blank sailings and this number since the COVID-19 hit us is 435 blank sailings globally. In India alone 43 blank sailings have taken place between March 22 and April 22. This indicates the lack of export cargo and not only the shipping lines will feel it, but the ports, supply chain and ultimately the exporters/importers will feel it.

Today we are facing congestion at the ports, CFSs and if the importers don’t trigger the supply chain for clearing the imports from the ports we will witness a pretty shocking situation. There may come a situation where ports are totally congested and ships are not allowed to berth. A private port in India has already given a notice effective April 18 that they are not going to gate-in any further export containers.

What is the situation at private ports regarding container movement?

Capt. Sandeep Mehta, President – Business Development, APSEZ: Being an essential service all our 10 ports are functioning but the need to maintain social distancing has put certain limitations on the performance of the ports. Lack of clearances of imports at our ports has caused one of them to put restrictions. The larger issue is that when the truck drivers vanished and about 40,000 trucks were stranded at various places and there was again a mismatch between the government instructions and the execution by state machinery, resulting in interstate restrictions, but they were gradually resolved. Railways came to a great support and as the tracks were totally free of passenger traffic, the railways were able to move the cargo from gateway ports to the hinterlands, taking away some of the load from the ports.

The local CFSs at the ports have done their bit and have taken as much cargo as they could. As the government issued a number of directions/advisories due to which there emerged a false sense of casualness in the people to delay taking deliveries, which has caused a log-jam at the ports. People may now wait till May 2nd to clear their cargo, but the capacity at the ports, CFSs/ICDs is limited and unless the imports are moved out there is no port in the world which can accept indefinite deliveries. We have been lucky at Mundra and Kattupalli as we have large space available there.

The Customs, shipping lines and CFS have come forward, now it’s the turn of importers to take their cargo deliveries. CHAs have a larger role to play in this.

What is the situation at CFSs?

Adarsh Hegde, Joint Managing Director, Allcargo Logistics Ltd: We have been through what Capt Sandeep Mehta has summarised, but the ports and CFS were back in action maximum in 72 hours calling back our operators, drivers, providing them all the incentives and stuff required to make sure the evacuation of imports starts. As we were in this process we had pressure from the government and there was some misinformation making the rounds continuously due to which people never came forward to pick their containers, enjoying the free days they were given. The forwarders and the CHAs should have come forward as well, they are a part of the essential service act, but they are not contributing to evacuation of cargo. Even after 3 to 4 weeks passing by the importers again complain they are not getting free time at the CFSs.

Please note that CFS as an industry also has a cost. While the transport cost has gone up by 70-80 per cent, CFSs have offered free time from March 22-31, but people still expect more from us. Today every CFS is loaded to its brim, thankfully the evacuation has started, but if it doesn’t continue then no port will be able to move the exports. Today, just to pick one container about 9 to 10 shiftings of containers is happening and this adds to our cost. About 100,000 teus were moved till April 22 out of which 25000 teus have been evacuated from the CFS. We are still stuck with 75,000-80,000 teus at CFSs just in JNPT and about 50,000 containers in Chennai CFSs. CFS have invested in infrastructure and have payments to be made which comes from turnaround of containers. It is not the ground rent that pays us but the turnaround of containers generates our revenue. And today the turnaround has come to a standstill. In the past 7 days there has been a huge improvement with transporters and CHAs coming forward to pick the containers but there is more to be done. In JNPT 4,500 containers get evacuated in a day from a CFS in a normal situation. Today the number has come down to 2300 containers.

What is the scenario in the lockdown 2.0? Has the transport been restored to any extent? Post lockdown can we expect the drivers to come back and normalcy be restored?

Jasjit Sethi, CEO, TCI-Supply Chain Solutions:  When the lockdown was announced on March 23rd there was no proper place for the truckers to go. With all the dhabas shut down the truck drivers abandoned their trucks took whatever commute they could find and rushed to their homes. Since all the factories were closed the trucks could not be unloaded. The result is that across the highways there will be around 100,000 trucks parked at the dhabas or petrol pumps, waiting for things to normalise. Most of the driver community is from UP, Bihar and Jharkhand, and now there is no transport for drivers to comeback easily. The only option is to board any truck which has space for one more person.

Besides essential goods whatever was moving on the roads is at a standstill. Private companies such as we worked out to get and secure the cargo and the industry has been successful to about 75 per cent. For the sake of social distancing the driver community is not willing to come out. Now we need to inspire the drivers to come out with safety as a COVID-19 warrior. So, before talking about life after COVID-19 we need to talk about life with COVID-19. I can see a growing frustration in the industry because I can see this lockdown pushing us more backward than moving forward. Lockdown 2.0 will be very bad for everyone including supply chains, essentials and non-essentials, for any trade to start and for people to start coming out.

We have to look at getting normalcy back into the industry. The Prime Minister has spoken about supply chain being an essential service but the Disaster Management Act of 2005 doesn’t speak of supply chain being an essential service. At the same time we need to ease the production units, don’t burden them with penalties in case of any issues. Finally, it is time to get back to work with the new normal.

Since we have heard all the versions of the service providers, please tell us what is the situation with the shippers?

Tarlochan Singh Ahluwalia, President, Northern India Shippers Association: There is congestion at the ports and the CFS have rightly put their operational issues, but at the last mile of this is the receiver. The factories, warehouses are closed and even if any cargo reaches any factory or warehouse there is nobody available to take the delivery or get it de-stuffed. When we approach the bankers, the courier services are not functioning so the documents are not moving. If an exporter/importer is approaching his banker the documents are still not moving and so there can’t be any further development.

Imports also form a source of quick revenue to the government, so imports should be cleared on priority basis. We give priority for clearing but there are some shortcomings – getting permission for stuffing exports is a big problem. I have spoken to railways and CONCOR to utilise this opportunity and reverse the case by moving more cargo from road to rail. Clearance of cargo at ports/CFS has started only after April 15-16, so there will be a gradual improvement in evacuation of cargo. Courier services have started operating but still people are scared to come out, so the documents are not moving. Until the documents are cleared and payments are made, people will not get the documents. On the expenses side, even importers/exporters are paying rents, salaries and utility bills, so everyone is loaded with expenses. But still I appeal to all my FIEO and NISA members to get their import cargo cleared as soon as possible.

Do you anticipate accelerated empty container movement into the country to make up for the equipment shortage?

Capt. Deepak Tewari: If shipping lines do not get any exports the ports get congested and shipping lines cannot discharge their imports. The shipping lines are going to be hit so badly with tonnage lying idle – some with cargo and some empty. This is how bad the situation is. When people talk of losses we are talking of billions of dollars of loss. As Adarsh Hegde mentioned earlier, we are pushed by the government for allowing free time to importers/exporters. Since we all are in some or other form of financial distress, it’s time we get together and work the situation in the best way forward.

To answer the question, we will not bring empty containers into the country. We have sufficient number of loaded containers lying here which need to be de-stuffed and we cannot afford to run our ships on empty containers. When the imports are de-stuffed, the empty containers can be used for stuffing exports.

Will there be demand for duty paid domesticated containers by the CFS or OEMs in order to save cost or store imports coming in?

Adarsh Hegde: That’s the only possibility looking forward if the cargo is to be de-stuffed. If the importers don’t come forward and clear their cargo or request to move their cargo into a domesticated container, such request has not yet come. With warehouses fully chocked I believe this could be a possibility.            

Customs has facilitated electronic movement of documentation, is it working well?

Adarsh Hegde: It is working well atleast in our system as we are also into forwarding business. The transactions are being processed smoothly.

Capt. Deepak Tewari: as far as Customs facilitation is concerned, I must take my hats off to the Customs for the fantastic facilitation they are doing, because during these challenging times they have moved most of the manual processes to electronic interfaces and this is for clearance of returns, giving NOCs and even clearing cargo, etc. they have come forward to make clearance as smooth as possible. We are trying to move electronic Bills of Lading from the shipping company’s office to the shipper (exporter) who can digitally forward it to the bank and the bank can send back the same document to the shipping company’s office for the delivery order to be handed over to the consignee. Last week the Ministry of Shipping has sent a letter of request to the Commerce Ministry to direct the banks to start accepting electronic bills of lading. If we can accept electronic bills of lading in India, it will smoothen the process for Indian exporters.

Is this the right time for modal shift from road to rail?

Jasjit Sethi: Rail freight is already happening. Going forward multimodal logistics could be the new normal. Railways has taken a greater share of cargo movement in the last month and it’s a welcome change when the cargo gets more multimodal. India is largely moving cargo on open trucks and customised trucks which will enable things to move better into the hinterland. In the post COVID-19 scenario, the hygiene standard that is required both in terms of handling of cargo and personal hygiene of truck drivers will also improve. There will also be a lot more automation, to stuff a truck if we do a head-load of 30-40 kg, for stuffing a 20 tonne truck you require about 400 trips. Now compare that with a palette which is much faster and has got less human touch. So you will find more automation coming into the entire supply chain for handling of cargo in a multimodal network.

You will also see a lot of automation into warehouses with less staff and more of machines doing the job. This is not only a commercial consideration but also a business continuity necessity.

Given this situation what will be the scenario of liquidity and cash flow issues in our industry?

Adarsh Hegde: All the CFS/ICDs are going through a cash flow crisis. When we evacuate containers from port into the CFS everything has to be paid upfront – be it drivers or leased trucks because our own trucks are operating at 25-30 per cent capacity. So our cash outflow is bigger than the cash inflow, because containers are not moving out continuously and if this continues for another 15-20 days then we all will get strangled. If the situation continues for next 2-3 months wherein there are no exports/imports happening then the shipping lines will also stop calling at our ports.

What do you visualise immediately after the lockdown is lifted?

Capt. Sandeep Mehta: Nothing major is going to change because several areas will still continue to be under lockdown. There will be red zones, limitation in transportation, migrant labour who have gone home will not return so easily, so the economy is going to be impacted in any which way you look at it. This is the new realty of the world and we need to provide safety for people to come in but you won’t see any mad rush as people will not come out immediately after the lockdown is opened.

How is the logistics sector operating in the work-from-home scenario?

Capt. Deepak Tewari: This has taught us to go digital and its major benefit is the social distancing required under the current circumstances. The little things that we were used to do physically work just fine in digital mode, it’s a learning curve.

Jasjit Sethi: Quite similar, the lockdown has brought us much close socially, so it is physical distancing and not social distancing. The desk jobs are working fine but the field work done either by personnel or machines has taken a back seat. For us the front line workers need to come out for the actual work to happen.

Recently there was an appeal made by logistics service provider associations for clearing dues and making 100 per cent advance payment. What is the reaction from the shippers’ community?

Tarlochan Singh Ahluwalia: Clearing of cargo happens only when the importer gets the documents. In the present scenario movement of documents is a big challenge. The second thing is when the importer gets the document he should make the payment, but the banks are not as cooperative as they appear on the media. Anything coming beyond the limit, be it the request for making advance payments, is just impossible at the moment.  I have managed to persuade CONCOR to get permission state-wise for moving empty containers to be stuffed and import containers to be unloaded at the factories, but the factories are closed. But the railways have offered floating cargo for 15 days.

The consumer sentiment being low now and considering economic downturn across the globe, what will be the scenario of warehousing requirement in the next couple of years?

Adarsh Hegde:  I think the warehousing requirements will keep going up, I don’t see there will be any change because the entire logistics ecosystem will undergo a change in the coming months. Digitalisation is the way forward. Even during the lockdown we have been getting a lot of enquiries for warehouses. It’s not just because of COVID-19, but it’s a long-term requirement of the people.

Jasjit Sethi: There will be more warehouses coming in because of the safety stock. Lot of people had moved to an environment of just-in-time leaving out the inventory in between. We run a warehouse for FMCG outside Delhi where in the last one month dispatches were 60-70 per cent of the normal but inwards movement is only 20-30 per cent, because the plants are shut down and it is the safety stock that is being supplied. Across the country whatever is being supplied is the safety stock that we had.

When do we see business get as usual?

Capt. Sandeep Mehta: business as usual is what you see now and this is going to continue for the next two quarters. People need to realise they will have to work remotely, conserve cash, invest in technology, maintain mental health and this is the new normal.

Capt. Deepak Tewari: I agree with Capt. Sandeep Mehta that this is the new normal. We need to get more digital, reduce human interface as much as possible until a proper medicine is available to cure COVID-19 we are going to continue like this and we need to make the best of it.

Concluding the webinar Ramprasad announced the poll results:

  1. Post lockdown how long would you estimate it would take for our industry to get back to business as usual?
  2. The participants have voted that it will take atleast 6-12 months before we can see any normalcy is restored.
  3. What are your top 3 concerns with respect to COVID-19?

The participants voted for:

  1. Global recession
  2. Financial impact
  3. Supply chain issues

The COVID-19 scenario has once again underscored the significance of logistics and supply chain and everybody has to get used to the new norm. Stay home and stay safe.