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How COVID-19 has had an impact on international trade, transport and infrastructure.

Darren Rigden, Partner, Corporate Audit
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COVID-19 is having an unprecedented impact on global trade and the transport and infrastructure sector. Supply chains are being disrupted, the movement of goods and people nationally and internationally are being restricted in a way not previously seen. Overall, this is putting an increased pressure on the transport and logistic sector, which was already struggling with Brexit, a lack of drivers (made worse by sickness and increased demand for home deliveries) and other industry wide problems.

Freight costs are already increasing with average costs increasing from $1.5-4.5/kg to $6-7/kg, according to the Institute of Export and International Trade. Green lanes are being introduced in an attempt to streamline freight services through EU countries.

The Institute of Export and International Trade reported on the 25 March that "demand for freight charters is going through the roof with prices for capacity spiking as a result. The spike in demand is due to China's return to manufacturing production, together with diminished belly cargo capacity that began as the country's economy began its shutdown in December last year."

With China now waking up and hopefully the rest of Asia, Europe and the US following suit soon, there will be a huge pressure on the sector to ship orders in order to fuel a recovery as demand for parts and manufacturing stock increases.

The industry has been calling out for help since the start of the COVID-19 outbreak.

Those working in the sector are now being seen as key workers and many will argue the sector is now starting to get the recognition and attention it deserves in its pivotal role in international trade.

As ever the industry is responding practically with examples including the use of passenger planes as cargo planes to meet the demand. From our own clients we are seeing new initiatives which we thought would be useful to share.

Client initiatives to manage the impact

The food industry is generally buoyant but it's not universal. Food services have been decimated by the 'shutdown' of the hospitality and leisure sector. Conversely, supply chains to retail food outlets have seen a surge in demand.

Businesses are reviewing their fleets to identify where they might be applied to sectors that remain strong, such as food supply and retail food distribution, and are then approaching potential customers.

As well as varying demand, the other main issue is staff resourcing. We have seen businesses initiate additional social distancing measures in relation to both their workforce and their customers' workforces. These include isolating their drivers from their customers' workforce, not allowing external drivers into their site and removing direct interaction during deliveries by replacing hard copy delivery documentation with electronic alternatives or document drops.

All visiting staff are being triaged via questionnaires regarding their whereabouts to assess their risk of infection, augmented by temperature checks of visitors.

The three month MOT holiday is useful but there is a risk that when it ends there will be a shortage of MOT capacity. To manage this, businesses are reviewing their fleets and doing pre MOT prep work where efficient to do so.

Carriers are working closely with their customers to minimize the amount of repacking that they have to do. Customers are wary of their personnel working in close proximity while un-packing/re-packing products. Logistics firms are therefore working with the customers to package their loads in smaller more specific load sizes and composition to reduce or eliminate the need for re-packing by the customer.

Office and support staff are being furloughed but frontline warehouse and driver teams, while being re-deployed where appropriate, are mainly being retained.

What to consider to protect your business

The impact of the disruption will correlate with the number of components in the supply chain and the number of countries goods need to pass through. Therefore by reviewing your supply chains you might be able to reduce the level of disruption if you can by-pass countries or part of the supply chain.

It is also worth considering the concentration of your suppliers and, if possible. Now would be a good time to try to broaden the number of suppliers you are reliant on and the sources of your supplies. Think not only of suppliers but also the countries/locations they are based in - the more breadth you can incorporate the safer your supply chain will be.

Some of the mega-vessels are now bypassing certain ports in an attempt to speed up deliveries. It is important that you understand where your goods are expected to arrive and any issues with re-routing, along with the impact that will have on the timing of your deliveries.

The fall in the Dollar and the Euro highlights the need for business to continue to cover their foreign exchange risk.

You should also continue to review your payment and Incoterms to ensure they remain appropriate, both for buying and selling.

Where possible you should make use of electronic sources of documentation.

Check customers can take deliveries, especially if there have been delays since the order as many businesses will now have closed down. Communication with your suppliers and customers is key.

Continue with your due diligence and credit control procedures, unfortunately in the current climate many businesses will be struggling and some will not survive.

Consider holding goods at multiple warehouses to reduce risk.This might reduce efficiency and increase costs but could ensure you can maintain your supply chain.

Manage your cash and stock very carefully to ensure you can keep your businesses going as long as possible during the disruption.

What support is available?

Support is available to the sector and we are helping a lot of clients to interpret the rules to ensure they obtain the relief as soon as possible, to maintain business continuity. Some of the support available includes:

To stay updated on how you can manage the impact of COVID-19 and help you and your business through the challenges, visit our COVID 19 hub.

As things develop we will endeavour to keep businesses informed. For more information, please contact Darren Rigden, Mark Evans or Chris Mould, or your usual Crowe contact.

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Darren Rigden
Darren Rigden
Partner, Audit and Business Solutions