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Rajesh Yabaji is a Cofounder and the CEO of Blackbuck which is India’s largest trucking platform, powering over 30% of India’s trucks. A tech-enabled long haul logistics platform, it is simplifying the trucking industry with more than 1Mn+ empanelled fleet owners. Armed with data from the Blackbuck’s platform, Rajesh shares insights on the impact of COVID-19 on the logistics sector with trucking as the core focus.

The economy of a nation is like a human body. Infrastructure forms the skeletal frame. If manufacturing, agriculture, and other industry are the heart of the economy, then the arteries and veins that keep the blood flowing throughout can be equated to the logistics sector. Without a robust and efficient logistics infrastructure, industries will find it hard to ensure smooth movements of goods across the value chain.

The impact of COVID-19 on the logistics sector is quite clearly visible in this heatmap of trucking movement across the country. As soon as the lockdown was announced on March 25, 2020, the movement came to a near standstill with the exception being the transportation of essential goods.

In this article, I’ll share some insight into the logistics industry in India and how COVID-19 has impacted the sector. I’ve included some of our data on vehicular movement to give a deeper view of the industry. As a platform aggregating demand and supply for the trucking industry, Blackbuck’s data is indicative of overall industry performance.

Snapshot of Trucking and Logistics pre-Covid

Logistics employs over 8 million people in India and is a leading indicator of the overall health of the economy. During the early stages of an economic upswing, customers begin to ship more goods in anticipation of stronger business conditions. Conversely, a decrease in logistics demand may signal the beginning of an economic slump. Therefore, logistics has a strong correlation with key economic indicators including Inflation, GDP and Unemployment.

The months preceding the pandemic were fairly stable, except for a minor slump in the volume of shipments during the 2nd half of 2019. This was largely due to the economic slowdown that India was experiencing on the backdrop of weak global business sentiment, the China-US trade tensions, and demonetisation.

While transportation stands to be the backbone of logistics, the industry serves as an umbrella to other key business areas like material handling, warehousing, packaging, shipping security, inventory management, supply chain management, procurement, and customs service.

According to the Logistics Skill Council – a non-profit organization set up by the Ministry of Skill Development and Entrepreneurship – logistics is a $150 billion industry where 99% of the market is unorganized (such as owners of less than 5 trucks, affiliated to a broker or a transport company, small warehouse operators, customs brokers, freight forwarders etc). Hence, the sector has seen a very slow uptake in technology adoption.

The emergence of e-commerce in India has changed the face of the logistics industry in the country. The implementation of GST has streamlined the state-wise tax structure ensuring the seamless movement of goods across the nation. The government has recognized the need to promote growth in the sector, launching projects focused on infrastructure development – Sagarmala and Bharatmala.

The government initiated ‘Make in India’ program is a significant leap towards making India the manufacturing hub of the world. Add to that, the enforced paralysis due to Covid-19 has resulted in a lot of backlash against China – the current manufacturing hub for many countries. These events have given India an opportunity to make its mark on a global level and the need for that is unprecedented.

COVID-19 Impact on Logistics Sector

It’s Gonna Be A Bumpy Ride

As I’ve mentioned previously, logistics is a leading indicator of the business sentiment in the country.

The strongest impact of COVID-19 was seen on the 2nd or 3rd day of the lockdown, when movement of trucks fell by 90% – 95%. The little movement witnessed was of essential goods which had not come under the purview of restrictions imposed due to the lockdown.

There has, however, been a slow and steady recovery of goods movement through the months of April and May. This was largely due to relaxations of the lockdown in the non-hotspot regions of the country.

As of April 30, 40% of the trucks seem to be back on the roads. Primary drivers are Agriculture and FMCG, with some recovery in industries like metals, chemicals, and infrastructure.

While it is difficult to forecast how individual industries will fare, we estimate a sustained impact on some sectors like Infrastructure and Metals leading to dampening of volumes for a longer duration. In contrast, sectors like Agriculture and FMCG seem to have recovered to 70%+ of their stable state volumes.

With the loosening of lockdown across the country, the sector is set to bounce back. However, it is ultimately dependent on other industries resuming operations and reaching previous levels of activity.

Editorial Note: The Transporting India smallcase is a basket of stocks which comprise of rapidly growing logistics companies that are fueled by GDP revival, GST, and e-commerce growth. It benchmarks the performance of companies in the logistics sector listed on the National Stock Exchange (India).

A smallcase is a basket of stocks/ETFs based on ideas, themes and strategies. smallcases are professionally-managed, offering investors more transparency and control over their investments.

Trucking – The Road Ahead

The impact of COVID-19 on logistics sector has brought with it a number of challenges.

From a stakeholder’s lens, lack of health security and protection for drivers is a major concern and this causes drivers to refuse trips. Along with that, small transporters and fleet owners face cash flow issues as large parts of the economy were on a standstill.

On the supply-side, challenges such as labour shortage, distributed supply base, volatile oil prices, poor infrastructure to access demand, and uncertainty around regulations with respect to the movement of goods are leading to disparate freight prices and creating an imbalance between demand and supply.

The Need of the Hour

The government has been very proactive in trying to control the outbreak of COVID-19 until now. The tapering growth rate of COVID-19 and removal of restrictions over time in a phased manner will significantly contribute to the recovery process of the logistics sector.

But, there is a slew of other measures that need to be taken so that the logistics/trucking industry gets back to normal.

• We need to resume the manufacturing of goods – this is needed to re-establish the mismatch balance between supply and demand. This mismatch will also be addressed by providing wider access to trucks and loads
• There is a need for financial relief to truck owners, transporters, distributors, farmers, and the agent community to help them recover from the loss of business due to the lockdown
• At the forefront of these is a need to ensure health security to the blue-collar workforce including truck drivers. They should resume working in a way that is safe such that they aren’t exposed to the dangers of COVID-19

Having seen the impact first-hand, our team at Blackbuck have launched ‘Move India’. The initiative aims to use our technology and strength of truck and transporter network to kick-start the movement of goods across the country & revive the broken supply chain. Three weeks into its launch, #MoveIndia has enabled 120,000+ trips to be secured by the Suraksha scheme (Insurance).

But the road to recovery is steep and there’s a lot that needs to fall in place for the sector to see a recovery to pre-COVID levels.

Light At The End Of The Tunnel?

While the future remains largely uncertain, we could hope to see a modest recovery in the trucking sector. It took 33 days from the announcement of lockdown for China’s trucking industry to recover to 44% of pre-COVID levels. India took 35 days for the same. The industry in China recovered close to 70% by the 46th day, and we have seen a recovery in India’s trucking industry to be along the same lines as that of China.

COVID-19 will accelerate trends

While the majority of the trucking industry works offline even today, there are 3 broad structural shifts taking place within the industry:

• All stakeholders are looking for a larger pool of carriers and shippers today due to the disruption in their already fragmented ecosystem. This is pushing people to adopt digital discovery platforms to look for relevant demand and supply channels.
• The demand-supply patterns have reset the pricing benchmarks – people prefer to have data-backed insights to price their freight.
• The documentation and payments in this industry are heavily dependent on manual intervention – to the extent of needing hard copy documents to receive payments. We are seeing many of the shippers moving to e-documentation and digital payment methods. This has accentuated even more now, because of social distancing norms related to avoiding human contact.

Apart from these, we also think that there will be various efforts to democratise goods movement for farmers, small-time shopkeepers and distributors in the country – this will enable them to fetch a better price for their goods.

While GDP growth will slow down over the next few quarters, it will only be a matter of time before things get back to normal.

Disclaimer: This is a guest article. The views and opinions expressed are those of the author in his personal capacity and do not necessarily reflect the views of smallcase Technologies. None of the opinions in this article should be construed as investment advice.

Read about the impact of COVID-19 on the Indian economy and how one should consider investing during COVID-19.

This article is a part of a new series – Through the Looking Glass. It will explore trending topics in business + finance, the impact of COVID-19 on the Indian economy, and other relevant topics to help you see beyond the news. The series will feature insights from industry leaders, experts, and our editorial team.