COVID-19 and Its Impact on Advanced Manufacturing & Logistics
While the manufacturing and logistics industries are inherently connected, they are experiencing this crisis uniquely. If you are in need of resources, research, or assistance, please do not hesitate to reach out to GLI and the AML Network directly, via Morgan Cooksey.
In March 2020, Kenutckiana Works conducted a survey of the Greater Louisville region’s manufacturers. Of the 126 companies who responded,
- 93% report an impact (69% lost sales, 27% lost major contracts),
- 37% have laid off employees, and
- 42% are hiring.
The results affirm what global trends have modeled in terms of sales and workforce but does not reflect the impact of a potential full shut down of all non-essential businesses. If you are concerned about your businesses’ essential status, please reach out to Kristina Slattery at the Kentucky Cabinet for Economic Development. According to an analysis by the Hackett group, manufacturers most at risk to have their supply chain affected by COVID-19 “include tools and hardware, electronics & appliances, auto parts OEM, building products, diversified chemical, and industrial specialties.”
Additionally, the Kentucky Association of Manufacturers is collecting information from Kentucky manufacturers regarding their operations and how they line up with CISA and Department of Homeland Security guidelines for critical manufacturing, food and agriculture, energy, transportation and logistics. KAM is working on behalf of businesses to seek greater leniency, if possible, fully understanding the law of unintended consequences. Complete the survey HERE.
While this crisis is challenging to many, there are local companies stepping up to serve the needs of the community. See below for examples of businesses shifting their conventional production models to creatively support the community:
- HanesBrands is converting production of apparel to production of cotton masks approved by the Federal Drug Administration for use when N-95 masks are not required (or are unavailable). The company is retrofitting some of its factories produce up to 1.5 million masks weekly. Read more here.
- Ford Motor Co., 3M, GE Healthcare and the United Auto Workers union will begin organizing to manufacture medical equipment for the COVID-19 outbreak. Read specifics here.
- Distilleries like Brown Forman, Rabbit Hole, and Sazerac have made a pivot to halt their distilling production to produce hand sanitizer needed in the medical community. Read more here and here.
University of Louisville J.B. Speed School of Engineering students are using 3D printing technology to produce PPE equipment, specifically face shields, for medical professionals. Red more here.
Greater Louisville has long been a regional logistics hub, thanks to UPS’ world port, our centralized location, and access to diverse transportation infrastructure within the region. As we see manufacturing impacted by the COVID-19 pandemic logistics too will be impacted, but much differently.
Currently, bottlenecking of both finished goods and raw materials is impacting the logistics, freight and transportation businesses, especially truck and rail as a result of limited workforce and industry closures, globally. As a result, logistics companies’ short-term earnings forecasts are bleak. However, as production resumes in Asia, airline freight companies will see increased demand to make up for lost time versus a return to sea-freight. UPS’ projected earnings in Q2 have declined, but long term are projected to recover with the inundation of goods when markets shift back to normal.
While the airline freight industries could see a glimmer of hope in the future, the trucking industry faces uncertainty amidst years of declining demand. According to Chicago Business, trucking demand is at its lowest and three years and declined even more sharply during the last week of February. Cass Information Systems calculates that freight shipments have declined 7.5% since February 2019, but volume could build as production picks back up around the world. Even more concerning though, is the import status at ports. The Port of Los Angeles has “reported a 23% year over year drop in imports for February,” which is a cumulative result of the pandemic and months of contentious trade policy between the US and China.
A longer-term consideration, if a recession doesn’t permanently dismantle the supply chain, is the potential ‘equal and opposite’ reaction flooding the American logistics industry beyond capacity. This “pendulum swing” could present a variety of other problems including warehousing capacity, infrastructure overuse, and workforce readiness. Bart DeMuynck, Gartner research vice president who focuses on supply chains, questions if we will domestically have the systems and workforce in place when production resumes “to absorb [the] surge of inbound movement and … get product back to all of the distribution centers?...This is going to create inefficiency and complexity in the supply chain of companies.”
Quite opposite from the dismal projections for trucking, domestic logistics services and some third-party logistics companies are experiencing an uptick in demand. As hundreds of millions of Americans are shuttered in their homes, either by mandate or choice, they are resorting to online delivery services to meet their essential needs. In order to meet demand of e-commerce, companies like Amazon and Kroger are hiring thousands of extra workers nationwide. Amazon is Greater Louisville’s sixth largest employer with nearly 6,000 employees in the region. These are likely temporary positions, but this pandemic has the potential to permanently alter human behaviors regarding delivery services and e-commerce. As a result, temporary positions may become permanent.
Greater Louisville is both large and small logistics companies. While large corporations like Amazon and Kroger have adapted, many smaller businesses may experience cost constraints as they strive to stay open and maintain production. If you are a small business and need assistance, please reference the Small Business Association’s COVID-19 resource page or contact your local SBDC representative, David Oetken, to learn more about small business loans and resources.
As production declines at a majority of manufactures, companies shift to retrofit community needs, and logistics’ demand dries up, the industry will suffer. However, economists and government leaders hope that once the pandemic is controlled, consumer spending, supported by government assistance, will be shock the economy enough for most companies to recover.