Logistics after Covid-19: just repair the chains, or is it time for reset?

By Markus Hesse, University of Luxembourg

One of the most significant and visible impacts of Covid-19 and the related lockdowns has occurred in logistics. Empty shelves in supermarkets gave a clear indication of what happens when the fine-tuned just-in-time flow of goods is disrupted and has highlighted the vulnerability of logistics chains to potential disruption caused by other events and developments, such as Brexit, or natural disaster.

Covid-19 and the related policy measures put in place to mediate its health impacts, are creating disruption all along supply chains. Taking an Apple iPhone for example, the closure of manufacturing plants in China started to block the replenishment of components in global production networks (GPNs),meaning companies such as Foxconn were unable to produce as many iPhones than before the lockdown. Likewise, the slowdown in economic activity of many countries caused by the pandemic has compromised the purchasing power of consumers, meaning Apple is selling fewer than usual of its devices.

Covid-19 has also led to significant drops in global container traffic over Spring 2020, with annual losses possibly reaching between 10% and 30% on particular routes. This is happening in a sector that has experienced unfettered growth over recent decades.

A few sections of the logistics business have enjoyed a rise in demand for its services due to the pandemic, most notably the long-distance shipment of medical equipment, appliances and pharmaceuticals, which is in the hands of specialised air-cargo service providers, but this is an exception not the rule. A similar case of rising demand for freight distribution had evolved from customers’ calls for home delivery, which in combination with rocketing e-commerce has brought a temporary growth of shipments via parcel services and delivery vans.

The dark side of distribution

Functionality is key to logistics and supply chain management, yet it is far from the whole story. There is also a darker side of distribution, one that is associated with land take for roads and terminals, for ports, warehouses and inland distribution, with environmental factors of various kinds, which place the toxic impact of freight vehicle operations overwhelmingly onto disadvantaged urban communities. Alongside this companies exploit a cheap labour force of truck drivers and warehouse workers.

This element of the logistics industry has gained public attention during the Covid-19 outbreak, when warehouses and distribution centres became hotspots of new infections. This has less to do with the epidemiology of the virus and more to do with workplace conditions: poor health protection measures combined with high pressure on performance and also a rogue corporate climate in the workplace created conditions that offered a hotbed for the virus.

Geography offers a better understanding of these matters through providing context. A recent review paper in Geography Compass, written before the Covid-19 outbreak, emphasises three key aspects of this context, notably a recognition of the interdependence of logistical movements and geographical spaces, the implicit emphasis of functionalist approaches in most research and practice, and various external factors that can disrupt the global economy’s imperative for seamless, efficient goods flow at minimal cost.

Is it time for repair or to reset?

In light of both enduring problems and the current disruption, one might wonder whether the industry now envisions a business model which is more sustainable in the longer term and more resilient to short-term shocks? In other words, does the logistics industry want to repair the chains and thus return to the status quo, or could Covid-19 provide a reason to reset the sector, making it more robust for an uncertain future?

So far, it looks as if energy is mainly being devoted to reinstalling chains, keeping circulation going, and overcoming the short-term friction that hinders the constant flow of commodities. Covid-19 however coincides with several longer term issues however, meaning this perspective risks short-sightedness. In particular, it is important to note that:

Globalisation is already cooling down. Due to a combination of global political instability, a revival of nationalism, and the possible return of trade barriers that render it unreasonable to carry goods and components across the globe for marginal profit. As one logistics executive in the global air freight industry told us, “if globalisation comes to a halt, we’re done”

The growth of global freight volumes has placed pressure on key nodes and infrastructures. Over previous years national governments and port cities had been called on to finance the infrastructure needed to expand the logistics industry, often at the expense of other public spending. It seems that these cities and governments are questioning the logic of this model and may no longer participate to the same extent.

The inclination of the industry to create oligopolistic or monopolistic structures has come under critical scrutiny. This is true for shipping alliances that dictate freight rates for ports and carriers (while receiving enormous state subsidies), and the ubiquitous power player Amazon.com, which not only aims to dominate the market but seeks to become the market – an idea that would definitely be bad for a market economy. The related dissatisfaction of decision makers in public policy is growing and should no longer be disregarded by the industry and its well-organised lobbies;

Most importantly, energy and climate issues have the power to change the entire logistics systems. While circulation has been largely dependent on fossil fuels until now, logistics and freight distribution systems are lagging considerably behind carbon policy goals, as does the transport sector generally. Policy inertia adds to this challenge: if the recent finding of a survey is only half-true, saying that two thirds of the maritime industry are not considering any particular measures in support of de-carbonisation at all, then this would leave a huge policy problem.

Perhaps Covid-19 will provide a much-needed wake-up call to the industry and the time is right not to just repair, but to reset supply chains and their management. Doing so will help to more carefully take into account the systemic environment, its various externalities, and also its workforce.

This should involve a few adaptations that need to push, not just nudge the industry into a better direction. The ingredients of such a policy path might be as follows:

A higher cost for the use of fossil fuels is needed, in order to meet the overall targets of national and supra-national decarbonisation policies;
State subsidies for air-cargo and shipping businesses should run out, subject to stepwise implementation;
A geographical re-alignment of chains, hubs and networks should enhance the reliability and sustainability of supply chains (this is already being discussed in response to COVID-19)
Fair salaries for employees on ocean carriers, in trucks, vans and warehouses would also be essential.

The most relevant lesson provided by the virus is that short-term disruption may give good reason to re-think the longer-term sustainability of the sector, going for transformation rather than just repair.

About the author: Markus Hesse is professor of urban studies at the Dept of Geography & Spatial Planning of the University of Luxembourg and fellow of the RGS. @markushesse60

The cover image is by ArnoldReinhold and is reproduced from WikimediaCommons under under the Creative Commons Attribution-Share Alike 4.0 International license.