Third-party logistics providers engaged in international trade are facing the difficult decision of whether to thin staff or even close altogether in the face of a prolonged economic downturn caused by the coronavirus pandemic.
“We are in a tough spot,” Gabriel Rodriquez, president of Doral, Florida-based A Customs Brokerage, told American Shipper. “Situations like this will likely cause the closure, consolidation or mergers of smaller businesses that simply do not have the means to withstand this sustained drop in business.”
Rodriguez, who also is an officer with the Florida Customs Brokers and Forwarders Association, has not yet heard of any layoffs among the highly competitive Florida community of customs brokers and forwarders firms. “However, I would anticipate that as the coming days and weeks go by and the reality of the impact the virus is having on trade is felt that we will start to see a larger number of employees affected by companies instituting these measures,” he said.
Lance Malesh, chief commercial officer of Philadelphia-based third-party logistics services provider BDP International, said how the COVID-19 pandemic ultimately affects individual firms — no matter how large or small — will largely depend on how diverse their business portfolio is.
“If any 3PL is heavily focused in the retail and automotive sectors, they will likely see a more significant impact than those in other sectors, such as health care,” Malesh said.
With the exception of health care, as well as food and household product imports, overall shipping volumes are declining as the coronavirus’s impact ramps up across the nation.
“For the general broker/forwarder, volumes are down, staff is teleworking, and the uncertainty is making forecasting very difficult,” Rodriguez said.
As COVID-19 risk exposure continues to dent commercial activity in the U.S., however, Malesh expects most 3PLs will consider it necessary to institute cost-reduction measures across their organizations. “Layoffs, furloughs, salary reductions and suspension of nonessential programs will all be on the table,” he said.
“This is an unprecedented event and no one has a perfect game plan, but you have to pay attention to your current liquidity, as well as trying to predict what your future liquidity needs will be if the crisis extends into 2021,” Malesh said.
The country’s small customs brokers and forwarders may be hardest hit by the pandemic in the months ahead.
According to a U.S. Chamber of Commerce and MetLife survey conducted March 25-28, one in four small businesses said they would permanently close in two months or less if the economic downturn continues. One in 10 is less than a month away from going out of business, the survey said.
“This is an ever-evolving story and I don’t believe anyone has any real answers since none of us has ever experienced anything like it,” said Albert Saphir of ABS Consulting, a longtime consultant to many small and midsize customs brokers and freight forwarders, based in Weston, Florida. “So, any estimates and reports out there are at best estimates by organizations trying to figure this out.”
Saphir expects 3PLs of all sizes will first consider layoffs and furloughs before closing their doors outright. “It is the one item that is a flexible expense and likely the way for small and large companies to survive,” he said.
Brandon Fried, executive director of the Washington-based Airforwarders Association, said he recently polled his membership and 65% of firms that responded said they report layoffs are either imminent or underway.
A glimmer of hope for a multitude of U.S. customs brokers and forwarders is the $350 billion small business support package in the recently enacted $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act. This support includes special loans and financial aid, and suspension of payroll taxes for small businesses.
“While we are thankful that Congress recently passed the CARES Act and specifically its Paycheck Protection Program and the Economic Industry Disaster Loan Program, we are concerned that the relief provided will be insufficient for the financial needs of the freight forwarding and related industries in the long run,” Fried said.
Applying for CARES Act financial programs, however, remains a fraught administrative process as the banks try to figure out how to administer them.
“I don’t believe it is easy for small companies, or larger ones for that matter, to keep all employees and get emergency funding from the relief programs,” Saphir said. “This seems to be a complicated and time-intensive process, and I don’t think small companies have the resources to try and figure this out.”
The National Customs Brokers and Forwarders Association of America (NCBFAA) has provided its members with information about how they might take advantage of the CARES Act’s small-business benefits.
In addition to sustaining overhead costs, many customs brokers and forwarders have traditionally advanced funds for their shipper clients to cover freight and import duties.
“We are halting the advance of these funds and many carriers are now asking for prepayment of freight to avoid accumulating open balances,” Rodriguez said.
“The White House has held firm in not providing any relief on the payment of duties,” he added.
NCBFAA President Amy Magnus, who also serves as director of customs affairs and compliance for Saint Albans, Vermont-based A.N. Deringer, said even before the pandemic many customs brokers had stopped advancing funds to cover import duties to protect their cash flows, instructing their importer clients to make those payments directly to U.S. Customs and Border Protection (CBP) through the Automated Clearinghouse (ACH) program.
“Even now, CBP is processing ACH account requests as quickly as possible,” Magnus said.
She credited the agency for its support of the customs brokerage industry during the COVID-19 supply chain upheaval.
“CBP has been very mindful of our concerns and has asked us how they can help,” Magnus said. “We’re aligned here. Customs is really partnering in this regard.”
Some large 3PLs, such as CEVA Logistics (OTCMKTS: CVLGF) and DHL Global Forwarding (OTCMKTS: DPSGY), have recently taken the extraordinary measure of declaring force majeure with regard to their carrier and logistics services contracts. This action, which may be used during times of national emergencies or industry crises, allows these companies to adjust their rates and services to meet the global COVID-19 supply chain disruptions.
The two most important aspects of successful non-asset-based third-party logistics providers are their information technology and people. One without the other is generally useless when it comes to managing complex supply chains.
That’s why for most 3PL owners and managers it is a gut-wrenching decision to figure out which staff to furlough or lay off, if the coronavirus continues to hamper the U.S. economy, and be able to adequately respond to the recovery.
“The risk is twofold,” Malesh said. “You want to manage the business in the most responsible fiscal manner possible, while not impacting the service levels that we provide our clients. “Secondly, you want to make sure you are prepared if there is a V-shaped recovery and that you have the staff on board to keep the clients’ supply chains running.”
“I believe trade will continue to flow and brokers will continue to be needed, perhaps more than ever before,” Magnus said. “Importers continue to have gaps in their knowledge, which brokers can fill.”
She noted how some importers are shifting to products that are used to combat the COVID-19 pandemic, such as the personal protective gear for the nation’s health care workers. Customs brokers, which regularly interface with the U.S. Food and Drug Administration on these imports, can assist these importers on how to bring these goods quickly and compliantly into the country.
For the immediate future, U.S. cross-border supply chain managers should expect a rough road ahead in terms of their business.
“We need to assume that it will be some time before things even remotely come back to where we were before,” Saphir said. “It will eventually be a gradually improving business, but in my mind it is not going to happen overnight or very soon.”