In 2020, the market of transportation and logistics differed greatly from the previous periods. The experience of a logistics operator acting in conditions of economic and political recession gained before was applied only partially last year – the major factor influencing the entire world economy was the COVID-19 pandemic.
Top managers of TELS Group – Olga Leonidovna Novik, Executive Director, and Andrey Petrovich Abragimovich, Director of Transport Business at TELS CARGO – share preliminary results for the year 2020 and give an outlook for 2021 including the most significant trends.
The market of logistics services in 2020 and the outlook for 2021
Andrey Abragimovich: After a relatively good start in 2020, the market of international road freight transportation was “petrified” by the COVID-19 pandemic in the spring. March started with many-kilometer queues of trucks at the borders causing an increase in delivery time and the shipping costs. In places where the car had passed without stopping, to pass the border in the new situation we had to change the routes, provide the drivers with all the required documents, including registration documents, and personal protective equipment as well as replace the drivers when necessary. Above all, we became unable to transport to mainland China.
Olga Novik: From the moment the pandemic began and until the end of April, two stages in the relationship between logistics providers and cargo owners can be distinguished. At the first stage, customers did not understand the gravity of the problem and did not know how to develop quarantine measures for various markets. This stage was characterized by certain panic from their part, tougher requirements and sometimes even threats for contract non-compliance. It was a period of a great demand for transportation leading to an increase in freight rates.
At the second stage, when cargo owners developed a deeper understanding of the problem, everyone started rebuilding business processes at all levels. This stage was marked by a decrease in traffic volumes, reduction of freight rates, revision of tender obligations, pauses in decision-making and suspension of tender procedures. A significant reduction in traffic volumes affected metalworking, automotive, construction and HoReCa industries. Negative trends in these industries were partly offset by the increase in the sales of food and hygiene products.
From the middle of May, traffic volumes started to recover, tender purchasing resumed.
A. A.: In the summer, the situation stabilized and became manageable – new transportation schemes were created, the border-passing requirements did not change much and the demand for transportation was recovering.
Despite the overall negative market trends and the reduction in freight rates by an average of 5% during 9 months in 2020 (the rates were reduced to 15% in May), our company managed to preserve positive trends in all key figures. We resumed the purchase of new heavy trucks in autumn.
O. N.: The recovery from the crisis began in the third quarter. For example, the decline in the market of international road freight transportation in the Russian Federation decreased from -11.6% in the second quarter to -2% in the third quarter, while the Ukrainian market moved from negative trends (-4.2% in the second quarter) to positive (+7% in the third quarter).
We expect market recovery and positive trends for most sectors in 2021. The market for all target products of TELS Group will grow by 4.1% (for automotive – by 4.87%). In general, the market volume in 2021 is expected to reach the pre-crisis figures of 2019 provided there are no new pandemic waves or other negative factors.
Logistic industry trends in 2020
O. N.: The development of trade with Asian countries and the redistribution of freight traffic in this direction reduce transportation capacities, as direct road transportation from point A to point B becomes impossible. This means the potential of 3PL market is growing. This trend is also promoted by constant expansion of the list of goods that require labeling before being imported to the territory of the Russian Federation – that is why the delivery of goods is in two legs and requires unloading and processing at the warehouse.
The number of delivered cargoes is decreasing while the number of groupage cargoes is increasing. The interest in railway transportation is increasing against more complicated conditions for international road transportations – quarantine, border checks, replacement of drivers, etc.
Due to the high uncertainty and volatility of rates for air and sea transportation, the volumes are redistributed towards land transportation between Asia and Europe.
Factors and trends affecting the logistics industry
O. N.: The impact of COVID-19 was and remains, perhaps, the most negative factor, although the recessional trends in the global economy had started before. The pandemic only intensified the decline creating conditions of the so-called “perfect storm”. This “perfect storm” triggered several trends, which were no longer unambiguously negative for all the market players:
- Small and middle-sized companies leave the market – the reduction of market players and their consolidation.
- Increased competition and higher requirements for service quality.
- Accelerated implementation of IT solutions and digital platforms.
- Development of collaboration and cooperation.
A. A.: The coronavirus pandemic has intensified the growing protectionist tendencies in the world. Economic sanctions, trade wars and rising political tensions reinforce the localization trends, which will reduce international trade and increase domestic trade. At the same time, the international cargo transportation market will not disappear anywhere, and we will continue developing in it.
The strategy of TELS Group for the coming years
O. N.: The events of 2020 have not changed our strategy fundamentally. We are consistently solving tasks for further development of:
- integration with our Customers at all levels,
- delivery of small consignments,
- warehouse logistics services,
- industry specialization,
- intra-European transportation (between the EU countries),
- our competencies in Asian countries.
There is no doubt that after everything what happened – the COVID-19 pandemic, economic recession, political events in the world – we have made certain conclusions and applied them to our understanding of the future we will aspire to. We understand that our future implies:
- Creation of a logistics ecosystem for supply chain management.
- Automation of all the areas that can be automated.
- Constant development of new competencies via new projects and improvement of the existing business model.
- Flexible response to market demands.
- Creation of synergy with our customers.