COVID-19 Outbreak in India:
Impact of The Nationwide Lockdown on Supply Chain Operations

COVID-19 Outbreak in India:
Impact of The Nationwide Lockdown on Supply Chain Operations

Executive Summary

  • On April 14, Indian Prime Minister Narendra Modi announced that the government will extend its nationwide lockdown in response to the COVID-19 outbreak until May 3 with some relaxations possible after April 20. The decision came after an initial three week nationwide lockdown period was completed and at least ten states already announced their own statewide lockdown extensions. 
  • The nationwide lockdown mandates the closure of all non-essential businesses but provides exemptions for the flow of essential and non-essential goods. Integrated checkpoints at all airports, seaports, land ports, rail ports, and river ports are closed, although vehicles and trains carrying essential goods are officially exempted.
  • The nationwide lockdown has had a devastating impact across various manufacturing industries with non-essential businesses being forced to halt production, although reports have surfaced that the government is considering allowing partial resumptions in other sectors. Notable industries that have been severely impacted include firms and suppliers in life sciences and healthcare; automotive and mobility; engineering and manufacturing; technology; and energy and chemicals. 
  • Airport operations have been severely impacted as hardly any flights, including freighters, are coming into India due to the lockdown and resulting cargo terminal congestions. As has been the case for Intra-Asia routes, air freight rates in and out of India are also subject to considerable volatility amid heavy cargo capacity reduction due to passenger and freighter flight cancellations. 
  • Major Indian ports have declared force majeure after the Indian shipping ministry issued a letter allowing ports to consider COVID-19 as valid grounds for invoking the clause. Severe cargo congestion has been reported with only a fraction of containers currently being picked up by containers at ports and container freight terminals. 
  • Road movements have been impacted due to inter-state restrictions and the lack of available drivers. Despite some states putting up additional notices allowing the movement of goods, there have been continued cases of vehicles carrying essential goods being stopped by local-level policemen. 
  • Given the fluidity and uncertainty posed by COVID-19, supply chain professionals will need to continue to be prepared for further disruptions irrespective of the Indian government’s decision on whether to completely lift, phase-out, or extend the nationwide lockdown again beyond May 3. 

Background

On April 14, Indian Prime Minister Narendra Modi announced that the government will extend its nationwide lockdown in response to the COVID-19 outbreak until May 3 with some relaxations possible after April 20. The decision came after a 21-day nationwide lockdown period was set to end on April 14 and at least ten states already announced their own statewide lockdown extensions in Maharashtra, Telangana, West Bengal, Odisha, Punjab, Tamil Nadu, Karnataka, Puducherry, Mizoram, Arunachal Pradesh, and Meghalaya. 

The nationwide lockdown mandates the closure of all non-essential businesses but provides exemptions for the flow of essential and non-essential goods. Integrated checkpoints at all airports, seaports, land ports, rail ports, and river ports are closed, although vehicles and trains carrying essential goods are officially exempted despite inter-state restrictions, administrative hurdles, and a shortage of available truck drivers. All domestic and international passenger flights have also been canceled and curfews are in effect with severe restrictions on the movement of people. 

The measures come after over 75 districts including those in the major states of Maharashtra (Mumbai), New Delhi and the National Capital Region (Delhi and Gurugram), Karnataka (Bangalore), Kerala (Cochin), Tamil Nadu (Chennai), Kerala (Cochin), Punjab, and Haryana were already placed under stringent lockdowns with all non-essential businesses being ordered to close. The district-level shutdowns were preceded by a 14-hour voluntary curfew on March 22 that did not outright ban the movement of people but became part of a broader national appeal by the central government for social distancing in a bid to contain the epidemic. 

This Resilience360 Special Report takes a closer look at the impact of the nationwide lockdown on manufacturing operations at a sectoral level and how it may impact firms sourcing critical products and raw materials from suppliers in India. It also examines the impact on air, ocean, and ground freight transportation and logistics both in light of the current extension as well as in the event that the restrictions are prolonged again beyond the extended end date of May 3. 

Impacts on Manufacturing And Business Operations

The nationwide lockdown has brought Indian manufacturing operations to a standstill with various sectors being forced to temporarily close down operations unless deemed to be providing essential goods or services. At the moment, the central government is reportedly directing some ministries to come up with plans to open up certain critical industries (such as auto, textiles, defense, electronics, and other sectors) and the resumption of limited operations under these guidelines are being drafted. However, no official government announcements have been made at this point. 

The sections below highlight the key industries facing severe supply chain disruptions in India, with local suppliers possibly experiencing difficulties during the extended shutdown period. 

Life Sciences and Healthcare

India plays a crucial role in the global pharmaceutical supply chain and produces around 20 percent of the world’s generic medications by volume. After previously placing an export ban on 26 key Active Pharmaceutical Ingredients (APIs) in early March due to supply shortage fears and disruptions at the height of the COVID-19 outbreak in China, India agreed on April 7 to partially lift restrictions with exports of hydroxychloroquine and paracetamol allowed depending on the availability of stock after meeting domestic requirements and existing orders. 

The decision comes after India ramped up export bans and restrictions on critical APIs, drugs, ventilators, diagnostic kits, protective equipment, and medical masks over recent weeks. The U.S. applied heavy pressure on India to lift its export bans, particularly for hydroxychloroquine, a drug used to treat malaria with 47 percent of U.S. supplies coming from India last year. Shipments of hydroxychloroquine remain restricted to foreign governments only and not to private companies, with private-to-private company or domestic exporter-to-foreign importer trade being banned. Notable Indian suppliers include Zydus Cadila Ltd. and Ipca Laboratories Ltd. – only a handful of leading suppliers are non-Indian, such as Israel’s Teva Pharmaceutical Industries. 

Figure 01: Manufacturing and supplier locations for the life sciences and pharmaceutical sector in the Mumbai area. Source: Everstream Analytics

An earlier Everstream Analytics report found that the export bans on Indian APIs and medical materials pose major challenges to U.S. and E.U. pharmaceutical supply chains, where India accounted for 24 and 26 percent of generic drug imports respectively in 2018. In particular, Everstream Analytics data reveals that Mumbai and its surrounding areas play host to hundreds of manufacturing and supplier locations with around one-third (33.3 percent) coming from the life sciences and healthcare industries. For instance, notable suppliers with manufacturing operations in the Mumbai area include Indian healthcare producers Piramal Enterprises and Solvay Pharma, a leading supplier of sodium bicarbonate and anhydrous sodium carbonate which are used as APIs. 

Automotive & Mobility and Engineering & Manufacturing

Notable suppliers that are currently impacted include Rockman Industries (aluminum die-casting), Minda Industries (auto components supplier), Sumi Systems (wiring harnesses), Lumax Auto Technologies (sheet metal parts), and ZF India (motor vehicle parts) which service major OEMs such as Ford and Honda. Leading auto manufacturers that have also halted production are India’s Maruti Suzuki and Tata Motors; Japan’s Toyota and Honda Motor; and Ford Motor and Fiat Chrysler. 

Figure 02: Sector breakdown of manufacturing and supplier locations in Pune, Maharashtra. Source: Everstream Analytics.

Similar disruptions can be seen for engineering and manufacturing suppliers, particularly for iron, steel, and aluminum producers, amid declining global demand. Despite appeals to the government to allow for operations to continue as “essential services”, several leading Indian steelmakers – including Tata Steel, ArcelorMittal, and the Steel Authority of India – have reported scaling down production in order to comply with the government lockdown. Pune, a major auto and engineering hub subject to state-wide restrictions in Maharashtra even prior to the nationwide lockdown, is home to a 38.9 percent of manufacturing locations for engineering and manufacturing suppliers, as indicated by Everstream Analytics data. Other notable supplier clusters for these industries include Bangalore (35.9 percent), Delhi (34.7 percent), and Mumbai (20.2 percent). 

Technology

The nationwide shutdowns pose a serious challenge to India’s smartphone industry that has become the world’s second-largest after China and accounted for around 16 percent of global production in 2019. Smartphones and handset manufacturing, around 95 percent of which is assembled locally, has seen considerable growth over recent years but could be hit with a revenue loss of INR 15,000 crore (USD 1.98 million; EUR 1.83 million) amid production halts over the three-week lockdown period. The disruptions come after the industry was already severely hit by shipment delays for critical components sourced from Chinese suppliers at the height of the COVID-19 outbreak in China back in February and early March. 

Several global tech manufacturers, including Taiwan’s Foxconn Technology and Wistron Corporation that assemble Apple iPhones that are made out of India, announced production suspensions until further notice amid the current government restrictions. Other OEM smartphone producers have been impacted by the shortages such as China’s Xiaomi (which is also serviced by Foxconn), Oppo, RealMe, and Vivo; South Korea’s Samsung and LG; and Indian device maker Lava. 

Figure 03: Manufacturing and supplier locations for the technology sector in Bangalore area. Source: Everstream Analytics

According to data from Everstream Analytics, notable suppliers in the Bangalore area – a leading tech manufacturing hub for India – include U.S. circuit board manufacturer Jabil Inc., Chinese handset component manufacturer BYD Electronics, and Swiss-based sensor product producer TE Connectivity, as well as domestic wiring harness assembler Essem Srinisons. 

Energy and Chemicals

The energy and chemicals industry has likewise been hit hard by the lockdown with a number of major domestic firms – including the Indian Oil Corporation, Petronet LNG, Hindustan Petroleum Corporation, Gail India, and Mangalore Refineries and Petrochemicals – halting payments to suppliers and declaring force majeure amid ongoing disruptions and collapsing oil prices worldwide. With the exception of essential services, the lockdown has forced companies in manufacturing, fertilizer, and gas distribution supply chains to cut their output. The Chemicals and Petrochemicals Manufacturers’ Association, a forum representing the Indian petrochemical industry, estimates that around 25 percent of its members have invoked force majeure. 

Impact on Logistics And Transportation

Air Freight

Air freight operations in and out of India have been significantly impacted, as all domestic and international commercial flights continue to be halted until April 30, with the exception of freighters. Airport operations have also been severely hit with hardly any flights, including freighters, coming into India due to cargo terminal congestions triggered by a lack of operational staff, especially for temperature controlled facilities where the inflow of further temperature control shipments have stopped being accepted or permitted, for instance, at the Mumbai airport. Terminals continue to be highly congested and the movement of shipments are constrained at major airports including at Mumbai, Delhi, Kolkata, and Mangalore due to limited operational staff and manpower restrictions. 

As has been the case for Intra-Asia routes, air freight rates from and to India have surged amid considerable cargo capacity reduction due to passenger and freighter flight cancellations. A high number of freighter cancellations have been reported in Delhi along with cargo-only passenger flights being canceled in Mumbai due to the current situation. These disruptions pose particular challenges for the transport of high-value goods (such as electronics, medical products, and fresh produce) that have traditionally been carried through belly capacity on passenger flights. 

Ocean Freight

The nationwide lockdown has already had a devastating impact on ocean freight with major ports across the country declaring force majeure after India’s shipping ministry issued a letter allowing ports to consider COVID-19 as valid grounds for invoking the clause on port activities and operations. Some of the major ports impacted by the force majeure declaration include Dharma, Karaikal, Gopalpur, Gangavaram, Krishnapatnam, Adani-Mundra, Haizra, and Angre, as well as all 44 ports under the Gujarat Maritime Board. 

Severe cargo congestion has also been reported at major ports and container freight terminals with only a fraction of containers currently being picked up by importers. Several international container shipping firms have all omitted calls at the Jawaharal Nehru Port Trust (JNPT) and Mundra Port where uncollected import cargo is causing backlogs. 

Transport to and from ports and container freight stations has also been slowed down, with only a few exemptions for essential goods, and the handling of non-essential services has been stopped. Although the handling of essential services is available, transportation is hampered by the lack of available drivers and burdensome approval processes with local government authorities and police. In addition, customs delays have been reported with several locations indicating no officers being available even for direct port delivery movements. 

Ground Freight

While freight movement is permitted amid the nationwide lockdowns, road movements have been severely impacted due to inter-state restrictions and the lack of available drivers. Inter-state borders within India continue to be monitored, but the movement of essential goods are subject to permission from state police. Despite some states putting out additional notices calling for the movement of goods not to be interrupted, there have been continued cases of policemen stopping vehicles carrying essential goods in transit. Further administrative delays have also surfaced with firms needing to negotiate with inter-state authorities to be classified as an essential supplier. 

The ongoing shortage of available truck drivers has been underlined by the fact that out of 1.2 million trucks with national road permits, only 120,000 trucks are currently on the road due to the ongoing restrictions. Nearly two-thirds of truck drivers in India are facing unemployment as manufacturing continues to be impacted with around 60 percent of road cargo coming from the manufacturing sector, while another 10-15 percent from the export and import sectors. 

Rail services have thus far remained unaffected but this could soon become a potential issue due to the lack of available inventories required to deploy trains. 

Outlook and Recommendations

Given the fluidity and uncertainty posed by COVID-19, supply chain professionals will need to continue to be prepared for further disruptions irrespective of whenever the central government decides to further extend, phase-out, or completely lift the nationwide lockdown. The extension of the nationwide lockdown is likely to be accompanied by more sub-national governments at the state and city level potentially adopting harsher restrictions in more heavily impacted COVID-19 hotspots that may include additional curtailments if the situation does not improve. 

Everstream Analytics outlines several recommendations below on how to cope with the impacts of India’s nationwide lockdown on supply chains during this period: 

  • Continue monitoring state- and district-level restrictions: Customers should closely monitor ongoing regulatory developments at the state- and district-levels and the specific restrictions that may be relaxed after April 20. In addition, firms should assess whether additional sectoral exemptions will be made for particular industries that are deemed essential for manufacturing. For instance, the states of Tamil Nadu and Karnataka has provided exemptions to the global aerospace and defense industries as “essential public utilities.”
  • Identify production resumption schedules: Customers should continue to monitor when production resumption will be permitted as businesses prepare to bring manufacturing operations back online. Taking into consideration that the government is drafting guidelines to allow some more additional industries to restart operations, customers should monitor developments closely to assess whether restrictions on their respective sectors could be lifted. 
  • Assess supplier impact and financial pressures: Customers should be developing multi-tier visibility across their supply chain to identify which suppliers have been impacted and the extent to which they may be subject to severe financial pressures due to the production shutdowns. Companies can also evaluate whether alternative sourcing outside of India will be sufficient in the short-term to mitigate the current impacts. 
  • Consider ocean freight for non-time critical shipments: Given the volatility and unprecedented surge in air freight rates for Indian and Inter-Asia trade lanes for the foreseeable future, customers may want to consider ocean freight for less time critical shipments as the lockdown measures look to carry on further. 

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