Logistics Sector Expected to Grind to a Halt

A third-party logistics service provider in Bangladesh manages and executes transportation and warehousing on behalf of a shipper. The logistics sector in Bangladesh consists of three types of firms: Clearing and forwarding agents, Carrier and transport operators, and Warehouses.

Currently, 837 freight forwarding companies are registered under Bangladesh Freight Forwarders Association (BFFA) and the estimated industry size is more than $1.5 Billion (Source BFFA Senior Vice President).

One of the industry leaders is MGH Group with seven freight forwarding agencies and six shipping lines. MGH accounted for 30% volume share of export sea freight in Bangladesh and 55% of total European exports. The industry has directly generated 40,000 jobs in the last three decades.

Immediate Ramifications in the Third-party Logistics Sector Due to Covid-19

Covid 19 has significantly disrupted the global supply chain and hence, will dampen Bangladesh’s global import-export targets for the year. This will automatically trickle down its impact on the logistics industry and the following ramifications may take place in the short term:

1. Weaker demand for services would lead to dried revenue streams
2. The freight rates are seasonal and vary heavily. Price war would lead to the death of small and micro organizations
3. Unfair competition would lead to bigger firms getting the majority of the limited opportunities
4. Unutilized blue-collar workforce will fail to maintain economic sustenance because of the payroll structure
5. Contraband items smuggling may increase due to lucrative offerings
6. E-commerce logistics, the recent horizontal extension of the logistics industry, will also be severely affected by social distancing among citizens and work-from-home mandates followed by different organizations across the country which would lead to lower domestic demands.

Interventions to Minimize Losses

The government may introduce policies to minimize associated trade costs for logistics providers in order to help them stay afloat. The industry association needs to support the small players in order to minimize degrowth while also paying attention to the blue-collar workforce’s economic sustainability.

Author: Sanjir Ali, Senior Business Consultant, LightCastle Partners

The LightCastle team has been analyzing the macro and industry level picture and possible impacts wrought about by the Covid-19 crisis. Over the following days, we’ll be covering the major sectors shedding light on the possible short and long term ramifications of the global pandemic. Read all the articles in the series.