COVID-19 and the Impact on Logistics

Power Retail By Power Retail | 27 Mar 2020

Living in uncertain times means it’s hard to predict what will happen next, but it’s necessary to understand what is changing and how it affects retail. Jessica Ip, Chief Transformation Officer at CouriersPlease has provided insights on COVID-19 and how it’s impacting logistics at this current state. 

Significant changes are occurring for retail across the entire globe; it’s a strange time we’re living in, and it appears that everything is changing. As Australian spend more time at home and less at the shops, the way consumers shop will also change.

With the majority of Australian retailers relying on international manufacturers, it’s becoming increasingly difficult to manage the supply chain. For countries that are going into full lockdown and closing their borders, there are expected delays to occur. Countries such as Italy have been severely impacted with their international shipping and logistics, which, in turn, will impact the rest of the world.

China is Australia’s leading trading partner for imports and exports – particularly manufacturing, education and tourism. Throughout the country, logistics services and factories began closing their doors as a measure to combat the virus, resulting in serious delays for imports and exports to the rest of the world. Without these trade partners readily available, retailers may be experiencing difficulty to maintain a healthy flow of stock in the coming weeks.

After almost two months of mass isolation, businesses in China are slowly returning to their regular schedules. “We were back to normal and very confident,” said Bryant Zhang, owner of Ennoplus Technology Co in Shenzhen, China. There’s a long way to go, especially as borders shutter across the globe to reduce the virus’ impact.

In Australia, the impact of these logistics changes are already in full force. “Fashion brands would usually be pushing out their autumn/winter stock around this time, but instead, many are holding back what remaining stock they have left and pushing it out slowly,” explained Jessica Ip, Chief Transformation Officer at CouriersPlease.

“New product hasn’t arrived in the country due to factories and ports closing, with some still in the production phase. This has been made all the more difficult, with the Chinese New Year closures between January and February each year, so brands are essentially feeling that operations haven’t happened since the start of the year.”

As ports close across the nation, some may turn to air freight for logistics. However, this is a costly option that retailers should carefully consider. “What might usually cost about $2 per kg is now costing around $10 per kg,” Ip explained. “To make matters worse, airlines have significantly cut back their international flights in and out of Asia. While these are passenger flights, the belly of the planes carry goods, so there are also fewer planes taking stock to Australia. Supply of international goods is becoming limited.”

As factories across China begin to re-open, Ip warns that it may not be a ‘first-in best-dressed’ opportunity. Instead, it may those who are willing to ‘fork out’ the increased costs of manufacturing who may get the priority. As such, the businesses who re-open in China will look at ways to recuperate their business losses due to business shut-downs across the world and see this as an ‘attractive means’.

Due to the business closures, factory shortages and increased costs to import goods, business are expected to face challenging times. “The retail industry was already suffering before coronavirus, and their margins have been tight,” Ip explained. “Some retailers are pushed to breaking point as a result of paying higher costs to move stock. Among those retailers who are unable pay for air freight, we’ll start to see stock run very low by June as they won’t be able to stretch their existing inventory to last the next three months. This has a ripple effect, and some businesses will be forced to make redundancies.”

Australia has seen brick and mortar stores closing indefinitely, such as Michael Hill, Colette and Rivers. As such, there are already flow-on effects from this, with staff redundancies, stock shortages and voluntary administration filings.

It’s no secret that times are tough, and everyone is currently battling the same fight. What are some ways that retailers can try to compensate for these increasingly difficult circumstances? Maintaining a strong relationship with suppliers is the best way to go, Ip recommends.

“Your usual suppliers will be experiencing a surplus of demand, with limited supplies and capacity to take on work,” she said. “Consider sourcing multiple suppliers, who have varied production and delivery schedules. Retailers should be speaking with their suppliers to get assurance their suppliers have a plan in place for operations should conditions worsen. Retailers need to have regular and transparent communication with their suppliers. Therefore, strong relationships with suppliers are vital. If your business is facing cash flow issues, your suppliers may be able to support you and be flexible. For instance, they may alter their payment terms and allow you to change stock order quotas.”

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