Unprecedented COVID-19 Crisis in India Disrupts Supply Chains

Unprecedented COVID-19 Crisis in India Disrupts Supply Chains

Executive Summary 

  • As of May 5, India has recorded more than 20.6 million COVID-19 cases, making it the country with the second highest number of reported cases after the United States. In response, the government has banned the use of oxygen in industrial applications, with the exception of nine industries. 
  • Automotive manufacturers, such as Maruti Suzuki India, Hero MotoCorp, and MG Motor India, have halted production to save oxygen supplies for critically ill patients. Others have reduced output capacity due to COVID-19 restrictions or are using the shutdowns to carry out planned maintenances.  
  • Lockdown measures have been implemented, but they remain targeted in the most-affected areas. A full nationwide lockdown is unlikely, given the devastating economic impact of such a measure last year.
  • At least more than 10 countries, such as Italy, Germany, and Singapore, have imposed new bans on flights to and from India as of April 28. Airfreight capacity is likely to dip further as international flight services remain severely constrained.
  • To cope with the crisis, the government has banned vaccine exports to prioritize domestic vaccination. The ban created a dilemma for the Serum Institute of India (SII), which has been designated by COVAX to produce vaccines for 172 countries that are depending on the global alliance for their vaccine supplies. A continued ban may pose challenges for other regions depending on the vaccine alliance to aid their own recovery efforts.
  • Due to the unprecedented nature of the pandemic, customers with suppliers based in India are advised to assess the business continuity plans of local partners, as statewide lockdowns, curfews and other measures may be extended to curb the spread of the virus.  
  • In case the situation does not improve in the coming days, other industries relying on oxygen for production may follow suit and curb manufacturing activities. The country’s economic recovery trajectory is likely to remain weak as industries including textile, consumer, steel, and automotive sectors continue to be affected by limited freight capacity and production halts.

Background 

India, a country of 1.3 billion people, has become the latest hotspot for the COVID-19 pandemic as the country grapples with a second wave with a record high number of infection cases and deaths. As of May 5, India has recorded more than 20.6 million COVID-19 cases, making it the country with the second highest number of reported cases after the United States.

Infection rates soared during the week between April 18 and April 25, after Prime Minister Narendra Modi held large election rallies and failed to prevent people from attending a religious festival on the banks of Ganges River that attracted millions during the second week of April. In total, 226,188 people have died in India due to the virus though reports suggest that the actual numbers are likely to be two to three times higher. 

Figure 1: Daily new COVID-19 cases in India. Source: Johns Hopkins University

The dire situation has overwhelmed the nation’s healthcare system as hospitals in urban centers like Delhi and Mumbai are filled to the maximum capacity and are faced with oxygen shortages. According to a government statement on April 15, India has a daily production capacity of 7,700 tons of oxygen, most of which are for industrial purposes. However, the current situation requires 8,800 tons per day, which is beyond its normal production capacity.   

In response to the crisis, authorities on April 22 banned the use of liquid oxygen in industrial applications with the exception of the following nine industries: ampoules & vials, pharmaceuticals, petroleum refineries, steel, nuclear energy, oxygen cylinder manufacturers, waste water treatment, food & water purification, and process industries. However, there remain challenges in the transport and storage of oxygen as liquid oxygen at very low temperatures has to be transported in special cryogenic tankers, which the distributors then convert into gas for filling cylinders. When filled, these tankers are required to be transported by road due to safety reasons. In recent days, the government issued a regulatory advisory to not restrict the movement of medical oxygen supplies despite the statewide lockdowns and curfews in certain parts of the country. 

However, India is currently running short of the crucial cryogenic tankers. Most of the oxygen producers are concentrated in India’s east and are trying to cater to the soaring demands from all parts of the country, including Mumbai in the west and Delhi in the north. Various sectors, including the military, have been mobilized to transport tankers as emergency medical supplies including liquid oxygen, cryogenic tankers, concentrators, and ventilators are being flown in from other countries as part of a massive aid effort.

Automotive manufacturers halt production 

A number of automotive manufacturers have halted production across India to limit employee contact in order to curb the spread of the virus as well as to limit the use of oxygen, which is needed for production purposes.  

Maruti Suzuki India Limited, a subsidiary of the Japanese carmaker Suzuki, announced on April 28 that its plants in Haryana and Gujarat states will temporarily halt production from May 1 until May 9 in order to make more oxygen cylinders available for COVID-19 patients. Suppliers of vehicle component makers use a large quantity of oxygen, particularly in the steel-making industry. The automotive industry is the biggest consumer of steel and thus, halting operations is expected to facilitate the flow of additional supplies of oxygen to critically ill patients. In recent days, the price of oxygen cylinders have skyrocketed due to high demands. 

Automotive manufacturersProduction haltDate of suspension Other measures
Maruti Suzuki India LimitedYesMay 1 – May 9, 2021
Hero MotoCorp LimitedYesApril 22 – May 1, 2021
M.G. Car Company LimitedYesApril 29 – May 5, 2021
Hyundai Motor No COVID-19 relief fund, volunteering work
Tata Motors LimitedNo Output capacity reduced
Mercedes-Benz India Pvt LtdNo Output capacity reduced
Mahindra GroupYes4 days in May, exact date unspecified –
Honda Motorcycles and Scooter IndiaYes May 1 – May 15, 2021– 
Figure 2: Automotive manufacturers in India that have halted production. Source: Everstream Analytics

Hero MotoCorp, a two-wheeler maker, has also followed suit by halting operations at all of its plants in India, including at its Global Parts Center (GPC), temporarily  from April 22 until May 1, while office staff have been advised to work from home. During this time, the company will carry out maintenance work across its plants. The company also confirmed that the shutdown will not have a severe impact as the production loss will be compensated for during the remainder of the quarter. Similarly, Honda Motorcycles and Scooter India have also planned to use the suspension period, May 1 – May 15, for maintenance work.  MG Motor India, a subsidiary of automotive manufacturer SAIC Motor, has also shut down its plant in Gujarat from April 29 until May 5.  

While Hyundai Motor has not announced any production halts, the South Korean car maker has donated INR 200,000,000 (USD 2,694,692; EUR 2,221,785) to help hospitals set up oxygen-generating plants. Volunteers from the company will also support hospitals and support their operational costs for the next three months. The assistance may be extended depending on the severity of the situation. Similarly, Tata Motors has reportedly reduced workforce at its plant in Pune, likely due to COVID-19 safety restrictions in the workplace. Mahindra and Mahindra group has also decided to shut for at least 4 days sometime in May across its plants in Chakan, Nashik, Kandivali, Zaheerabad and Haridwar, which was initially planned for June. The exact date of the suspension was not disclosed.

Other companies that have reduced outputs include Havells India Limited, an Indian electrical equipment company that produces consumer electronic goods and induction motors for industrial applications; Nippon Paint, a large coating manufacturer; Panasonic; Mercedes-Benz; LG; and Tata Motors. 

In case the situation does not improve in the coming days, other industries relying on oxygen for production may also follow suit and curb production activities due to the imbalance of supply and demand. As businesses continue to be impacted by the pandemic, prolonged production halts to limit contact between staff and subsequent transmission are likely.

Lockdowns measures to remain targeted 

Some industries, such as automotive, have already voiced concerns around the return of a nationwide lockdown similar to the one in April 2020. Several states have begun imposing strict lockdown-like restrictions, where businesses are likely to be impacted. However, such a scenario is considered unlikely and the federal government of India is expected to impose a full nationwide lockdown similar to 2020 only as a last resort to curb the spread of the virus. Last year’s lockdown devastated India’s economy and spread panic amongst the public when it was announced with little notice, leading to a migrant labor crisis. This year, the government has made it clear that its focus will be on a “test-track-treat” protocol rather than shutting down business establishments. 

Nevertheless, the authorities have agreed on statewide, district, sub-district, and city-level lockdowns as an option to control the spread, particularly in those states with high number of COVID-19 cases. For example, the state of Delhi has followed Maharashtra in imposing a complete lockdown, while other major states have implemented night curfews or weekend lockdowns. Currently, 10 states including Maharashtra, Delhi, Uttar Pradesh, Chhattisgarh, Karnataka, Gujarat, Jharkahnd, Rajasthan, Punjab, and Madhya Pradesh accounts for over 76 percent of new COVID-19 related deaths in India in a day. 

StatesType of restrictionDuration
MaharashtraLockdownMay 1 – May 15, 2021
DelhiLockdownApril 19 – May 3, 2021
Uttar PradeshLockdownApril 30 – May 4, 2021
28 districts in ChhattisgarhLockdownApril 9 –  May 15, 2021
KarnatakaLockdown, night curfewApril 27 – May 12, 2021
GujaratLockdown, night curfewApril 27 – May 5, 2021
JharkhandLockdownApril 22  –  May 6, 2021
RajasthanLockdownApril 28 – May 17, 2021
PunjabLockdownApril 30 – May 3
Figure 3: Current lockdowns in place across India, as of May 3, 2021. Source: Everstream Analytics

Reduction in flights to and from India 

The exponential rise in COVID-19 cases has also triggered concerns around the spread of the virus,  including a dominant mutated variant, elsewhere. Sichuan Chuanghang Logistics Co Ltd, the logistics arm of China’s Sichuan Airlines, on April 26 suspended all cargo flights on six routes to India for 15 days over concerns around imported cases from India. The announcement came as a surprise, affecting private traders and freight forwarders as shippers rushed to secure the procurement of oxygen concentrators and other medical supplies from China. Reports suggest that supplies are now being rerouted via Singapore and other neighboring countries through different airlines, thus causing delays in shipment transportation. 

At least more than 10 countries, such as Italy, Germany, and Singapore, have imposed new bans on flights to and from India as of April 28. Other countries, like Australia, France, and the United Kingdom, have reduced the number of incoming flights or extended mandatory quarantines for travelers arriving from India. The Indian government has also announced a reduction of the maximum passenger capacity for domestic airlines to 60 from 80 percent. While inbound international mail & parcel services to India are still in operation, India Post forecasts delays in its standard delivery times due to the current limitation in domestic transport capacity. 

As international airlines suspend flights to and from the country, airfreight capacity is likely to dip further as international flight services remain severely constrained. 

Export ban creates vaccine bottleneck 

The current crisis in India has prompted the government to halt all vaccine exports, despite being the world’s largest manufacturer of COVID-19 vaccines, and prioritize domestic vaccination for its own population. The export halt comes at a time when the Serum Institute of India (SII), the world’s largest vaccine maker, had been designated by COVAX to produce a third of the global supply of the AstraZeneca vaccine in 2021. COVAX, an abbreviation for COVID-19 Vaccines Global Access, is a global collaboration of various health organizations including the World Health Organization to ensure that countries get equitable access to COVID-19 vaccines. 

Around 172 countries are relying on COVAX for 2 billion vaccines to be distributed by the end of 2021 in order to vaccinate frontline healthcare workers and other vulnerable age groups. Thus, India’s sudden export ban on vaccines may delay the target production, delivery, and vaccination distribution schedule for other regions. At present, India is also reportedly short of 80 million doses of the total vaccines it had agreed to provide to other countries via COVAX. 

When the pandemic first broke out in 2020, countries had imposed varying degrees of export bans on raw materials for vaccine production and active pharmaceutical ingredients (APIs) for medicines. The export ban by the former U.S. President Donald Trump on raw materials had impeded India’s ability to produce enough vaccines before the current crisis. The continuing ban has now prompted SII to appeal to U.S. President Joe Biden to lift such embargo of raw materials, which are needed to ramp up global vaccine production. The Biden administration had recently agreed to ship raw materials required by SII to ramp up vaccine production India. 

However, with the pandemic’s adverse impact on supply chains, including disruptions at manufacturing plants and limited international logistics routes to and from India, some Chinese companies have taken the opportunity to gain new market share in the global pharmaceutical supply of vaccines as countries from Americas, Europe, and Southeast Asia that import pharmaceutical products from India are now increasingly looking to China for alternative supplies. According to reports, multiple Chinese active pharmaceutical ingredient (API) makers saw orders from third markets increase by 10 percent in the past two weeks, the same time when India’s COVID-19 situation started deteriorating. 

If the situation in India worsens, it is highly likely that pharma manufacturers may look to other countries like China for their sourcing needs. In India, the price of APIs that are used in manufacturing COVID-19 drugs have increased significantly by up to 200 percent in the past month. In the event that the Indian government fails to contain the spread of the virus, a shortage of key drugs may materialize in the coming months due to the unavailability of APIs. 

Recommendations 

  • Keep abreast of the situation: As the situation remains fluid, companies should remain vigilant by using supply chain intelligence monitoring solutions, where information on regulations, production halts, logistics capacities, trade restrictions, etc. are updated constantly by a team of analysts. Having near real-time alerts will enable organizations to make informed decisions and take swift actions in identifying threats and responding to them.
  • Seek alternative shipping capacity: Organizations should work closely with freight forwarders to secure alternative logistics options. Due to limited capacity amid reduction in international flights, customers with critical shipments may explore securing additional air freight capacity through charter flights. 
  • Assess existing suppliers’ business continuity plans amid the crisis: For organizations with suppliers based in India, particularly in a state where lockdowns have been imposed, it is imperative to proactively assess suppliers’ production capabilities and the feasibility to continue operation amid the crisis. Everstream Analytics’ network risk assessment capabilities can assist in evaluating a supplier’s standard operating procedures and its long term production capabilities. 
  • Diversify sourcing: Organizations can minimize the risk of supply chain disruptions by diversifying the sourcing & procurement of raw materials & components needed for manufacturing. Identifying alternative suppliers are important if and when a critical supplier becomes unable to produce. 

Outlook 

Although a number of countries including the United States, United Kingdom, Germany, China and Singapore have pledged support in providing oxygen cylinders and vaccines to ease the impact of the crisis, it is projected that India’s current infection rate will continue until mid-May. At the same time, the country’s economic recovery trajectory is likely to remain weak as manufacturing industries including textile, consumer, steel, and automotive continue to be affected by limited freight capacity and production halts. 

Although industry reports suggest that there is currently no major impact on demand in the automotive sector, there will be a slowdown with subsequent effect on the steel industry in the event that the COVID-19 situation in India does not improve in the next 7-10 days. At the same time, Ashok Leyland, an Indian automotive manufacturer, announced on May 3 that it is scaling down production capacity in the anticipation of low demand amid the COVID-19 outbreak. It likely that other automotive makers in India may follow suit and take a wait-and-see approach amidst the uncertainty. The automotive industry may also face shortage of some key components, as producers of these parts may not fall under the government’s current list of essential commodities and thus may have to halt production.

At the time of writing, the Indian steel industry is not part of the government restriction on liquid oxygen use for industrial application. However, the decline in demand in the automotive industry may subsequently affect India’s steel industry as the former reportedly accounts for 12 percent of total steel demand in the 2020-2021 period. The current statewide lockdown until May 15 in Maharashtra state, a major steel consumption hub, may not only impact demand but also production across sectors that are co-dependent amid labor shortage and unavailability of raw materials in the market. 

The suspension of cargo flights have also caused manufacturing prices to soar up to 35 to 40 percent, while freight charges have increased to over 20 percent, according to Siddarth Sinha Sino Global Logistics, a Shanghai-based freight forwarding company. This indicates that the transportation impact of the second wave of the pandemic may intensify in the coming weeks. Similarly, ocean freight may also see challenges as some countries have extended the COVID-19 quarantine period for crew members on cargo vessels from India or those that have transited from Indian ports. Longer berthing times, delays in cargo processing, and customs congestions can be expected. 

Despite the rising number of cases, it remains highly unlikely that the government of India will impose a full nationwide lockdown like last year due to its devastating impact on the economy. However, states have been advised to implement targeted lockdowns to prevent further virus transmission. 

Due to the high transmission rate of the mutated virus, it is imperative for the world to assist in alleviating the crisis in India, particularly, when it is one of the key countries designated to produce the COVID-19 vaccine — around 172 countries are relying on the Serum Institute of India to contribute to the global vaccine supplies. Recently, India and South Africa have also appealed to the World Trade Organization to temporarily relax patents rights related to the COVID-19 vaccines to make the manufacturing process faster. If approved, this may trigger regulatory changes in the pharma industry in the coming months. 

Customers are advised to monitor Everstream Analytics to keep abreast of the situation and make informed decisions on their risk mitigation efforts. 

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