Paving way for the ‘next normal’ in logistics

The year 2020 was tumultuous for the world, and while everyone was affected, trucking and logistics was by far one of the most severely disrupted sectors. The Indian logistics industry is mind-numbingly complex in its operations—scattered ownership, varied laws and infrastructure across states, and a vast country that needs to be serviced. The entire industry came to a standstill with the sudden lockdowns at the start of the year, which exposed underlying fault lines in the sector.

The unpredictability of economic activity across geographies and times meant that organizations with unhealthy cash cycles and profitability found it difficult to survive. The lack of necessary levels of technology adoption was also an impediment—there was chaos caused by lack of supply chain visibility across the value chain. Together, this resulted in organisations being unable to capitalise on huge pandemic-driven opportunities materializing right in front of them.

Transport costs went up during this time period—a paradox of trucks being idle and trucking costs being high at the same time. The reduced economic activity made more trucks idle and transporters scrambling for liquidity. This meant that trucks were concentrated in specific locations, and were idling. Meanwhile in a large number of locations, the number of trucks available at any given point in time dropped due to the reduced truck movement, driving the costs up. Companies across the board faced the problem of contracted transporters being unable to fulfill their commitments, and having to go to the open market to procure trucks at higher rates.

The recovery of the sector happened as economic activity restarted, but across the board, long term fixes for the issues which surfaced are not being implemented. Manufacturing and distribution companies are calibrating their logistics to better handle such shocks in the future, but this is not necessarily propagating down the sector to transporters.

Most transport companies are happy just to stay in business after this disruption, and are still recovering from their losses. This is one of the key factors preventing logistics companies from proactively solving fundamental problems. Lower operating margins, lack of consolidation in operations, deficiencies in cash cycles, lack of business continuity plans, lack of technology adoption, and a lack of risk mitigation in customer dependence are some of the key problems to be addressed. The deficiencies in cash flow are also preventing them from utilizing the disruption as an opportunity to introduce changes and grow further.

The other key factor that will drive change in the sector is customer behaviour—how manufacturing and distribution companies are calibrating their process for the Next Normal. Many manufacturing organisations have decided to proactively solve the problems exposed. They are looking at various factors, like dependence on specific transporters, fleet tracking, lack of supply chain visibility due to paper based documents and bills, route optimisation, visibility of sales and marketing from a fulfilment perspective, and improving predictability.

There is a clear pattern among organisations which survived the pandemic unscathed—investment in digital technology, driving efficiency through the period, a profitable business model, and managing their cash collection cycles well.

In this backdrop, 2021 becomes a crucial year in observing whether the logistics industry would merely try to catch up, or be proactive and gain competitive advantage.The year 2021 is viewed as the year of digital— when the adoption of digital technologies in the sector could catch up with that of the rest of the economy. Focusing on productivity, efficiency, and digital technology deployment with a rationalised profit and cash-flow model will be what the winners of this year do.

The industry has accepted the changed normal, and everyone will be looking forward to succeeding in the Next Normal defined and shaped by the hard learnings from 2020, the 'Year of the Covid-19 Pandemic'. In the industry, food, agriculture, and FMCG by and large has come out with fewer scars, though their product and geography mix may have gone through a reshuffle. Earth products such as minerals and metals will continue doing well. The core sectors are expected to move up fast now, to catch up on lost time. The auto-sector has seen a clear bounce back, although we should still expect to see repercussions of the pandemic-induced damage.

The transport industry will also move to the next-normal—characterized by learnings from the pandemic, forced consolidation, rationalized assets in terms of number and types of trucks, rationalized pricing for customers, and exit of several unorganized players who were over-leveraged and were barely surviving in the pre-Covid times. The likely restructuring of the industry along with the exit of several unorganized players and subsequent reduction in fleet strength will allow those that are capable and ready, to grow further.

The changing geopolitical landscape of the world is presenting the country with a plethora of new opportunities, and as a nation we feel ready to fight for those openings. Indian manufacturing joining the global supply chain is going to be a further driver for the adoption of technology, and the growth of the logistics industry in 2021.

Views are personal. The author is CEO, Fortigo Logistics.