The effect of COVID-19 on labor availability

Written by Yonantan Horovitz and SoftRide team

According to the port authorities, during February the city of Ningbo only had 800 truck drivers working, when usually 24,000 container truck drivers are on duty. This shortage was caused by truck drivers who were not able to get to work due to the quarantine set upon them, while some of the drivers feared being contaminated.

It is clear that conducting any proper commerce functions and supply chains are impossible under these circumstances.

In an interview to the Maritime Executive, Maersk CEO Soren Skou warned that the world’s biggest ocean carrier is experiencing significant disruption at Chinese seaports due to the effects of the COVID-19 outbreak. “We are experiencing huge pressure at [Chinese] terminals because there aren’t enough workers at the ports to move the containers around, not enough truck drivers to move the goods, and no one to receive them at the factories or warehouses” Skou said.

China was the first country to be affected by the COVID-19, the disease caused massive port congestion concluding in over 60 hours of waiting time (20 hours more than the average) for containers due to labor shortages caused by city lockdowns all over the country. Although China is responsible for over 30% of global traffic, with more than 715,000 containers a day, this is just the tip of the iceberg in matters concerning the effect of the global supply chain.

When people think about the benefits of automation, the first two things that they imagine are reduction of labor cost and improvement in efficiency. However, as can be witnessed today, automation is not only an incremental improvement, that bears benefits such as reduction of 10% of labor cost, or an increase of OEE (Overall equipment effectiveness) by 4% — it stands as the difference between an active supply-chain and a broken one. It’s the difference between a working site and a closed one. Zero or one.

The COVID-19 just emphasized that in order to mitigate the effect of black swans we must streamline processes and reduce the effects of volatility in the available workforce. During normal times logistics operators handle this volatility on a low-scale with somewhat of a success, but no one expected a sharp decrease in human labor as the one we are experiencing today.

We are now at the beginning of a financial slowdown. Global demand will decrease, resulting in major layoffs, something that will hit first and foremost the global supply chain. Only this week, at the Port of Los Angeles, 145 drivers have been laid off and others have been sent home without pay as massive ships from China stopped arriving and work dried up, according to the Washington Post.

But even after the effects of the COVID-19 will pass, supply chain operators will still face a shortage of employees. Once trade will go back to its steady-state (which will eventually be achieved), ports and logistics centers will face a significant increase in demand for merchandise with an insufficient workforce, as a substantial amount of it was laid off.

The shortage of employees, both currently and in the future, can be easily avoided by automating ports and logistics areas. Port and logistics operators that will utilize this downturn to improve and automate processes will be the major victors of the post-COVID-19 phase, as they will have the capability not only to achieve higher throughput and lower operational costs, but also an ability to meet future demand.

Timing

And what a better time to implement these automation processes than during a time of slow demand. The first effect of implementing new processes, especially ones that are related to automation, is a reduction in production and efficiency. Any system takes time to learn and adjust, has a learning curve that results in a sharp decrease of efficiency in the short-term. Logistics companies that will utilize this slowdown to implement the solution will not only exit the situation with a more efficient operation, but will do so with a minimal effect on their short-term operation.