UTIKAD Analysis: COVID-19  Impact on the Logistics Sector
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UTIKAD Analysis: COVID-19 Impact on the Logistics Sector

Issue 4 - 2020
UTIKAD Analysis: COVID-19  Impact on the Logistics Sector

The coronavirus (Covid-19) outbreak, which was first reported in Wuhan, China in December 2019, affected the entire world in a short period of time. Concerns about the outbreak, which has since been declared as a pandemic by the World Health Organization, continue to increase. With the effect s of Covid-19, China’s exports, with the second largest economy in the world, decreased by 17.2 percent in the first two months of 2020. The trade war between the US and China was a factor that had negatively affected global demand, trade and the investment environment for more than 2 years. Even if the parties reached an agreement in January 2020, the deal promising China’s purchase of services and goods worth US$ 200 billion from the US is believed unlikely to even happen now due to the coronavirus pandemic. The coronavirus epidemic has turned out to be a major phenomenon that threatens economic and social systems all over the world, especially human health. The logistics sector has also started to suffer in terms of transportation amid the spreading coronavirus outbreak.

A very significant portion of cargo (70-80%) in air transportation is carried in the lower compartments of passenger aircraft, and due to the cancellation of passenger flights there has been a significant decrease in the volume of cargo transported in passenger aircraft which has resulted in an increased demand for cargo aircraft. The number of passenger flights canceled in this current situation is so high that the demand for airlines is many times more than the current supply. At this point, airlines that charged 80 percent of the cost of passenger aircraft to passengers and 20 percent to cargo were suddenly obliged to charge the full cost of the aircraft to cargo alone.  Airlines have started to organize their passenger aircraft quickly and are now using them for cargo transportation due to increasing cargo demands which fill the void caused by the drastic decrease in passenger demand.

THY Cargo currently provides service with 26 cargo aircraft and MNG Airlines with 8 cargo aircraft in order to fulfill all demands at maximum capacity. However, due to the sharp decrease in the capacity of passenger aircraft, and the high cost of carrying cargo with cargo aircraft, an increase in air freight in the coming period is inevitable.

Cargo flights and transactions in warehouses are being carried out under challenging conditions as all airline companies strive to conduct cargo flights without stop-overs, and flight crews perform their duties by staying in self isolation at hotels.  According to the latest announcement, Sabiha Gokcen Airport has been closed to flights for one month as from April 1st. Air cargo agencies that continue to perform their activities at both Ataturk and Istanbul Airports, face financial difficulties due to the decline in their business volumes. Despite this, the rental payments of the offices at both airports continue even though the air cargo volume has decreased significantly and these offices have become almost nonfunctional. For this reason,  UTİKAD has made a request  to the IGA for Istanbul Airport and for Turkish Airlines, and to the DHMI for Ataturk Airport, to temporarily suspend the rental payments of the offices at these airports.

When we look at global air transportation, we can say that we come up against another handicap. The International Air Transport Association (IATA) predicts that global air transport will fall for the first time since 2009 due to the coronavirus outbreak. The IATA estimates that the aviation industry in 2020 will remain 44 percent below the 2019 figures and below US$ 252 billion. The IATA is focusing primarily on a scenario where these serious travel restrictions last up to three months and then a gradual economic recovery comes later this year.

Airline agencies continue their activities with the minimum number of staff. We are going through a period in which payments are delayed, especially since foreign agencies have minimized their activities. Fluctuations and increases in prices received by agencies from airline companies cause problems due to the commitments they have previously given to their customers. Due to uncertainties in prices and flights, there are disruptions in air transportation of export and import cargoes.

During this period, it is also necessary to understand the situation of airline companies. Due to flight cancellations, airline companies have grounded their aircraft and unfortunately grounding equates to losses for the company.  Flight crews can also be placed under quarantine in the countries that they visit, and it is also problematic to return equipment that has been transported. Increasing expenses and shrinking transportation operations also challenge airline companies in the face of significant costs.

In addition, air cargo agencies are not able to collect the transportation fees of the cargo they transport, but at the due date they must make payments to the CASS, the collection system of IATA member aircraft companies. UTIKAD made a request to the IATA for the extension of these payments but the request was rejected for now. Such payments should be delayed; otherwise many small and medium air cargo agencies will be stuck between a rock and a hard place, a very difficult situation that will have a ripple effect on many businesses in many sectors, locally and globally.  

Within the scope of the measures taken for the coranavirus outbreak, Habur Border Gate, which is Turkey’s gate to Iraq, one of the most important trading points, was closed to passenger entry and exit as of March 1, 2020, and commercial passages have started to be realized under strict control. In this context, exports to Iraq have been carried out as “contactless” through containers, trailers and driver changes in the buffer zone between Habur - İbrahim Halil Border Gates since March 1, 2020. At the entry point to Iraq, only Turkish drivers are allowed entry  subject to quarantine requirements, while foreign drivers are not allowed to enter Turkey. Vehicles coming from Iraq are disinfected in the buffer zone and a driver change is made.

The "locomotive" solution has also facilitated trade with Iran. For the time being, Iranian transport freight trains that are sterilized at the Kapıköy border gate are dispatched after a 4-hour wait outside the station. In order to avoid any physical contact, freight wagons are transported to the Iranian side behind the locomotive or to the Turkish border region from the Iranian side. During this process, the locomotive and personnel do not cross the border. Within the EU, there were no internal border controls before the outbreak, but the member states have reintroduced internal border controls, and such controls at the border gates have led to long vehicle queues. As a result, both transit time and freight fees have increased. However, the EU requires all member countries to ease and speed up vehicle crossings through border gates as much as possible. The EU also expects the same from Turkey.

As an alternative to the compulsory 14-day quarantine applied to truck drivers, we as UTIKAD conveyed our recommendation to the Vice President Mr. Fuat Oktay, suggesting that drivers having no symptoms of COVID-19 can continue their drive through the help of rapid diagnostic tests. We have to overcome this problematic issue immediately with the test laboratories to be established by the Ministry of Health at Kapıkule and other border gates.

 

Expectations and Recommendations

• Turkish and foreign drivers arriving at the Turkish border at the Kapıkule border gate should be allowed to continue their journey after a rapid diagnostic test has been administered, instead of 14-day quarantine.

• For export transportation, after applying rapid diagnostic tests to the drivers and provided that their test results are negative, border crossings of vehicles to headed to European countries should be allowed, by reporting the details to Bulgarian authorities.

• This precaution, which will be taken primarily at the Kapıkule border gate, should also be applied at other border gates. 

• Urgent action should be taken before the EU border to automatically extend the Schengen visas of Turkish drivers until a specified date.

• Urgent action should be taken before the EU border to suspend the quota and transit permit system applied by the EU states to Turkish transport vehicles.

• Freight should be able to cross the borders within 15 minutes, transport corridors should be kept open for freightage, national restrictions on transportation should be lifted and administrative procedures applied to all of those working in the transportation sector should be minimized.

In addition, due to the suspension of visa issuance by some EU member states, the operation and transportation of the Turkish truck fleet has almost come to a halt.

In order to ensure the continuation of necessary commercial activities and the logistics flow between Turkey and European countries without a complete interruption, according to the measures taken for the coronavirus outbreak, our Association conveyed its request to the Ministry of Commerce, General Directorate of Free Zones, Foreign Investments and Services to take steps with the relevant authorities in the direction of immediate visa issuance to the drivers in Turkey that cannot renew their visas.

Our aim is to continue, without interruption, the international transportation and logistics activities, which are vital for the foreign trade of our country. For this reason, on our website (https://www.utikad.org.tr/Covid-19), announcements about restrictions or developments and precautions taken by countries are updated, and are presented to both logistics companies and foreign trade companies.

In maritime transportation, carriers have reduced their voyages to/from China due to the outbreak, which negatively impacted container traffic across the world. Vessels not accepted to ports cause delays in cargo and causes an increase in transportation costs. Due to blank sailing, global volume loss reached 1.9 million TEU (twenty-foot equivalent) in the first two months of 2020. Due to the decrease in imports from the Far East, no empty containers are available to load export goods. Due to the unloaded export loads, space problems on vessels have started. The reason for this is that vessels coming from banned countries are not accepted to ports in Turkey before the end of the 14-day quarantine period. Assuming that the vessel`s voyage takes 8 days in average, it is not accepted to the port without completing the remaining days in this case. This, of course, leads to a serious cost increase and a delay in export. On the other hand, in transportation conducted with the combination of railway and seaway, high demurrage and warehouse fees continue to occur due to delays in railways.

We can observe that overall, the mode of transport that has been least affected by the coronavirus pandemic is railway transport. Railway has come to the fore as the preferred mode of passenger transportation, since physical contact is less likely in railway transport compared to other modes of transport. We can say that the negative impact of the measures taken by countries on railway transport is relatively low. Railways are positioned in much better condition for the current situation compared to highways, especially for departures towards European countries. We observe that there has been a considerable increase recently in demand for railway transport. In response to this rise in demand, it may be possible to conduct more efficient railway transportation with an increase in frequency and the supply of additional wagons. Regarding this issue, Turkish State Railways also announced that it would increase its capacity in the Baku-Tbilisi-Kars line.

As UTIKAD, we continue to exert efforts to ensure that our country, our industry, our members and stakeholders can overcome this pandemic and its economic impact with minimum commercial losses. We wish to leave these days behind us, where we once again understand the importance of protecting human life and nature. Stay healthy and safe! 


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