Logistics for MSMEs: The last 24 months have seen wave after wave of adversities for the traditional logistics players, especially the micro and small businesses. As we are weathering the second wave of the pandemic, how have micro and small logistics businesses been impacted, and what is expected for them in the coming months? This can be assessed by zoning in on medium and long-distance transportation. At the start of 2019, 75 per cent of India’s medium to long-distance trucks were owned by small players having five trucks or fewer. Some of these are owned by small groups, some owned by drivers, and others by small business owners. The trouble for the sector was triggered by the slowdown in the auto sector, which uses a significant number of these trucks. In the second half of 2019, as auto sales dipped, companies reduced production or even halted factory operations temporarily.
This was a major stressor for the sector, and its impact can be seen in the lower number of new truck purchases in that year – 40,000 fewer trucks were sold that year compared to the previous one. The fleet owners were reeling under the financial pressure brought about by the slowdown, and as things were starting to look up, the pandemic hit without warning. The truck purchase numbers for 2020 were lower by a similar number and the expectation in 2021, even lower.
Impact of first wave and initial road to recovery
In the immediate aftermath of the first set of lockdowns in early 2020, cross-border movement across states remained tricky, and what businesses could be operated varied. This led to a significant drop in the daily availability of long-distance loads from any given city. The government announced loan moratoriums to support the truckers, and they could afford to be in business while that relief started. The expectation at the time was that once the first wave was brought under control and loan moratoriums being in place, fleet owners could stay in the game and get back to normal operations at the end of the pandemic.
Amid attempts to cope, a significant number of long-haul trucks shifted to doing shorter trips within a state and across nearby cities while the very small fleet owners moved to the agricultural sector. The Agri sector is centered around a different set of geographic clusters than the industrial ones but could offer prompt payment and even premium rates. These shifts and coping strategies could still not absorb the stress in the system, not by a long shot.
A significant number of fleet owners reduced their truck holdings, and another big chunk had to exit the business altogether. Many sold their trucks at the first opportunity they got, and many others surrendered their vehicles to the financiers. By the time the second wave rolled in, there were 30 per cent fewer small and medium traditional logistics businesses in the sector compared to the previous year.
Things could have improved had the economy been continued on the recovery trajectory we saw in the early months of 2021. But the timing and the severity of the second wave points to the inevitable outcome – a lot more small and micro logistics companies will have to adapt, resize, or quit.
Difference in impact between first wave and second wave
During the first wave, there were no clear policies in any organization about how to handle the pandemic and lockdowns. And as the scare of the first wave abetted, everyone found a rhythm to work through the situation. There was a sense that the challenges are temporary and short-term, there will be financial support to manage loans and EMIs, and business will get better as more loads become available in the market. During the second wave though, companies had more clear policies. There were thresholds and rules about when to reduce capacity or shut down production. And with prior experience of how long the first wave took to subside, the outlook for many has been to drastically cut losses and reduce risk from the pandemic.
Players now know the risks and unpredictability associated with long-distance trips. There could be delays in getting return trips, there could be lockdowns. Drivers are also less willing to do long hauls for the same reasons. And there is a real fear of getting infected and health being impacted.
Generally, monsoon season is a trough for logistics, barring those operating in a few segments. The impact of the second wave is also to be expected to last through this period. The recovery could start with FMCG as their demand can bounce back faster than most other segments. On the other hand, the auto sector will still struggle and is not expected to be part of the first recovery cycle.
Anjani Mandal is the CEO of Fortigo Logistics. Views expressed are the author’s own.