Freight forwarding sector on the verge of failing?

The outbreak of Covid-19 has paralysed the communication between men to men, border to border and sea to sea. Therefore, all the ports (sea, land, air) have become idle across the world. 

Like any other country of the world, Bangladesh is also facing a sharp decline in trade volume since the lockdown started from March 25, 2020. 

Moreover, it appears total foreign trade will remain negative till 2021 and,  will only get back to positive in 2022, according to the regional update report on South Asian economies of the World Bank published on April 12, 2020. 

As a result, the business-freight forwarding sector which, directly depends on export & import - which carries about 100% of Bangladesh's trade - will be hampered most. 

Although freight forwarding is an important service sector and is recognised as an industry globally, Bangladesh is still lagging behind in developing a one-stop service for this sector, whereas neighbouring India has recognised it as an industry and included it in the commerce ministry. 

Since the sector is not the apple of the eye of the authorities in Bangladesh, it is difficult to extract secondary information regarding this sector. 

And during this lockdown, it has become more difficult to collect primary data as people cannot get out of their homes or region. 

Amirrul Islam Chowdhury Mizan, senior vice-president of Bangladesh Freight Forwarders Association (BAFFA) and managing director of Transworld Logistics & Distribution said that logistics- Freight Forwarding, Transportation, Distribution etc- holds about 5 to 7 percent shares of the trade. 

Of which, 2.5 to 3 percent shares is held by the freight forwarding sector, which means if the amount of Export-Import stands at BDT 100, freight forwarding sector earns BDT 2.5 to BDT 3. 

According to the World Bank report, the total export and import of Bangladesh may decline by 19.8% and 10.9% respectively in the financial year 2020. 

Now, the loss of this sector can be can be calculated if we consider a 2.5 to 3 percent market share of freight forwarding sector of total trade, and a constant price of USD in terms of Taka, $1 = Tk 85. 

By this simple calculation, we find that the loss of Freight Forwarding sector is about BDT 6,719 crore to BDT 8,063 crore in 2020, compared to 2019. This is 0.3 percent of the GDP of Bangladesh. 

Besides, BAFFA has appealed to the government for a stimulus package worth BDT 1,600 crore as a temporary help to finance the operating costs including employee salary, office rent etc. This is also a loss incurred to the freight forwarders in the lockdown period. Therefore, the total financial cost amounts up to 10,000 crores. 

Job losses have not even been quantified here. 

The prolonged factory closure had badly affected those who are dependent on daily wages and people of low-income groups, as many have been rendered jobless during the lockdown. 

Although the lockdown was lifted on May 31, 2020, no significant progress has been made yet. 

However, due to the lack of information regarding the sector, we could not find how many companies may have been bankrupted in the meantime. According to Amirrul Islam Chowdhury Mizan, around 1,100 companies could be bankrupted or shut down completely.

Meanwhile, most buyers are cancelling orders as they have low demand in their shops, and as a result, it may take more than one year to overcome the effects of Covid-19. 

The World Bank data also indicates a negative business activity in this sector until 2022 as the country's export and import is showing a negative trend up to that year. 

According to CEL- A Vietnamese supply chain consultancy firm, the world is facing a decline in consumer demand. The firms managing partner Julien Brun stated that "The demand on shoes, clothes, phones, appliances, cars and tools, which are mostly exported by Asian countries, is declining in America. Besides, CEL also identified that around 84 percent of French people want to have locally produced goods instead of imported goods from Asia. Also, the shutdown may cause a long-term shift from a worldwide supply chain to localised supply chains which will affect export economies. As a result, fewer choices for imported goods will reduce the export of Asian countries in the long run and it will take time to gain the previous volume of trade." 

Despite a sharp decline of South Asian products, the World Bank anticipated that the declining trend will recover by the end of 2020. 

Furthermore, Moody, an international credit rating agency, expected that demand of readymade garments from Bangladesh and the supply chain shocks will be solved by the end of the year.

If the worldwide demand for the goods (besides necessary products) does not recover soon, the effect of this pandemic will not only shrink the export and import but also diminish the country's economic growth. Eventually, it will push us back from achieving sustainable development goals. 

The authors are postgraduate students of economics at East West University. The views expressed here are the authors' own.