Covid crisis: How the pandemic determined the impact and recovery trajectory for MSMEs in the logistics sector

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Logistics for MSMEs: The past 24 months have been marked by waves of adversity for traditional logistics players, especially micro and small businesses. As we move through the second wave of the pandemic, how have micro and small logistics companies been affected, and what is expected for them in the coming months? This can be assessed by zoning to medium and long distance transport. At the start of 2019, 75% of medium to long haul trucks in India were owned by small players with five or fewer trucks. Some of them are owned by small groups, some are owned by drivers, and some are owned by small business owners. The sector’s woes were triggered by the downturn in the automotive sector, which uses a significant number of these trucks. In the second half of 2019, as auto sales plummeted, companies cut production or even temporarily halt plant operations.

This was a major stressor for the sector, and its impact can be seen in the lower number of new truck purchases that year – 40,000 fewer trucks were sold that year compared to to the previous one. Fleet owners were under financial pressure from the downturn, and as things started to improve, the pandemic struck without warning. Truck purchase numbers for 2020 were lower by a similar number and expectations for 2021 even lower.

Impact of the first wave and initial path to recovery

In the aftermath of the first round of lockdowns in early 2020, cross-border movement between states remained delicate and the businesses that could be operated varied. This has resulted in a significant drop in the daily availability of long distance charges from a given city. The government announced loan moratoriums to support truckers, and they could afford to be in business while this relief began. It was expected at the time that once the first wave was brought under control and the loan moratoriums in place, fleet owners would be able to stay in the game and resume normal activities when the pandemic was over.

Amid attempts to cope, a significant number of long-haul trucks have turned to shorter trips within a state and through neighboring towns, while very small fleet owners have turned to the agricultural sector. The agricultural sector is centered on a different set of geographic clusters than the industry, but could offer prompt payment and even premium rates. These changes and coping strategies still couldn’t absorb the stress in the system by far.

A significant number of fleet owners reduced their truck inventories, and another big chunk had to pull out of the business altogether. Many sold their trucks at the first opportunity they had, and many others gave their vehicles to financiers. At the time of the arrival of the second wave, there were 30% of small and medium traditional logistics companies in the sector compared to the previous year.

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Things might have improved if the economy had continued on the recovery trajectory we saw in early 2021. But the timing and severity of the second wave indicates the inevitable outcome – many more small and micro. – logistics companies will have to adapt, resize or leave.

Difference in impact between the first wave and the second wave

During the first wave, there was no clear policy in any organization on how to handle the pandemic and lockdowns. And as the fear of the first wave intensified, everyone found a rhythm to overcome the situation. There was a feeling that the challenges are temporary and short-term, that there will be financial support to manage loans and IMEs, and that business will improve as more loads become available in the market. During the second wave, however, companies had clearer policies. There were thresholds and rules on when to reduce capacity or when to stop production. And with previous experience of how long it took for the first wave to subside, the outlook for many has been to significantly reduce losses and lower the risk of a pandemic.

Players are now aware of the risks and unpredictability associated with long-distance travel. There could be delays in getting return trips, there could be blockages. Drivers are also less willing to make long trips for the same reasons. And there is a real fear of getting infected and having an impact on health.

Expectations

Usually the monsoon season is a low point for logistics, with the exception of those that operate in a few segments. The impact of the second wave is also expected to last throughout this period. The recovery could start with FMCGs, as their demand may rebound faster than most other segments. On the other hand, the auto sector will always be struggling and should not be part of the first round of recovery.

Anjani Mandal is the CEO of Fortigo Logistics. The opinions expressed are those of the author.


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