Working Capital Crisis

Working Capital impact in the Logistics Sector During Covid19 crisis

Supply chain is most crucial to flow of goods and services to distribution channels like retails and consumers. Covid19 and lockdowns has impacted this industry and lot of people are out of job due to less demand. There are five players involved to transport goods in long haul from point A to B, those are

  • Customers (Load giver), it can be the manufacturing unit/warehouse
  • Logistics company (Transporter)
  • Agent –  who supply the Truck
  • Truckers – who drivers the truck from point A to B
  • Customer, also known as end-consumer of goods
Logistics Goods Cycle
Logistics Goods Cycle

All the above stakeholders’ coordination and payment flow are required to move goods to end destination.
We would like to cover how money flow happens and it impacts here.

Logistics Payments Cycle
Logistics Payments Cycle

Covid19 has impacted consumer demand sentiment resulting in delayed payments. Same is trickling down to the entire supply chain affecting productivity and revenue loss. Among Stakeholders most impacted one is trucker, who needs money immediately to drive from point A to B to meet en-route expenses such as Diesel, toll, food.. etc.  If truckers do not receive money from the logistics company or Agent, he ends up halting the truck which is more expensive for him without any revenue.

To solve the issue, Logistics companies are borrowing working capital at the rate of 18% which will further cut existing very thin margins in this space. Some time few brokers finance truckers without halting and end up taking more freight rate from the logistic company. In reality on the ground, many logistics companies are facing severe working capital issues due to increasing credit cycle of payment which is on average is more than three months. These kinds of payment issues creating huge operational issues for logistic companies and losing goodwill in the market in front of truckers and brokers.  At the same time truckers, halting times are increasing coupled multiple issues in amid Covid19 pandemic and delivery time is delaying at point B.