Coronavirus – April 2020 Update
In a few short weeks, COVID-19 has spread on an unprecedented scale, touching every corner of the globe and impacting all walks of life. In our industry we have seen automotive supply chains ground to a halt as manufacturers shut down plants in order to prevent the spread. Of course, we see annual shutdowns and even ‘unplanned’ shutdowns in normal business, but we are now in unprecedented territory with factories shutting without notice and without any real knowledge of how long for. This means that when things return to normal we will be facing one of the biggest threats to supply chain resilience – confusion.
Before a planned shutdown starts, the return to production and the increase back to full capacity is carefully considered before the plant closes. But with this shutdown initiated so quickly, businesses will need to be flexible and reactive when it comes to decisions on shift patterns and speed of return to capacity when production does recommence. The situation is so fluid that we don’t know which markets will recover from a consumer demand point of view, and therefore which models vehicle manufacturers will need to make. We also have no idea, from a supply perspective, which countries will be able to restart production first. The supply chain will continue to shift and evolve as time passes and restrictions are lifted in each country. Evolution is constantly consulting with key customers to assess the impact of the sudden stop, identify existing gaps in supply and put in place plans to react quickly as customer demands change when production resumes.
The question will not only be are there enough parts to produce cars, but also will there be an availability of labour to fit those parts? Car dealerships are also seeing a substantial decline in demand, with reports of a drop of 22% in some areas hardest hit in the first half of March. While the shutdown is ongoing, manufacturers are having to review their order banks and forecasts, which will have implications deep in the supply chain. Focus will be on which areas are recovering quickest and capacity will be focused on supplying these regions.
International air freight capacity has been slashed and with passenger numbers the lowest they’ve ever been, airlines are facing a cash flow crisis with many removing credit lines and switching to payment on an upfront basis. Indeed, some industry sources are estimating that up to 80% of air freight capacity might be lost for an unknown period. With a substantial drop in international capacity, airlines are becoming creative; even putting cargo on passenger seats in order to maximise the amount of product in a single consignment.
Land borders are also posing a major challenge. The EU has now shut its external borders to people, although goods are currently still allowed to pass through. However, with amplified measures to slow the spread of coronavirus, delays of up to 18 hours are being seen at borders. With the increased shutdown of production globally, these queues should decrease but transporting goods by land remains incredibly challenging at this time.
Our role is to balance urgency and risk and to propose the most appropriate logistics solution, taking into account the current situation on the ground; considering space, cost, the criticality of the shipment and availability, among other factors. One of the most challenging aspects of this global pandemic is not knowing where we are in terms of trajectory of the virus. While there does appear to be light at the end of the tunnel, no-one knows how long the tunnel itself is.
With the levels of uncertainty in both manufacturing and transport, the role of emergency logistics providers is to remain agile and support manufacturers as they change schedules and volumes, assessing the most appropriate transport routes, analysing the risks and proposing cost effective solutions to ensure supply.
The global automotive sector has one of the most flexible and pragmatic supply chains that has shown it can deal with almost anything. It has gone through challenging times before, and it will most certainly do so again. The premium logistics sector is well placed to support clients in planning ahead for contingency solutions and being on hand to react immediately to emerging issues.