The Novel Coronavirus (“COVID – 19”) has brought in a new level of havoc human life, businesses and the overall economy on and from its declaration as a “pandemic” by the World Health Organisation. The resultant impact of the outbreak has left humanity fragile, businesses high and dry and governments and policy makers in a tizzy.
We have since then, extensively covered the impact of COVID – 19 on business, employment, real estate and the advisories issued by the Central and State Governments from time to time, all of which may be accessed in our previous blog posts here. This post seeks to analyse the impact of COVID – 19 on SCM industry players, the measures adopted by governments to overcome the repercussions of the outbreak and a post pandemic perception of the industry.
On account of the widespread outbreak of COVID – 19 and proliferation of hotspots in several parts of the country, the primary measure imposed under the Disaster Management Act, 2005 (“DM Act”) was a nation – wide lock – down which restricted the movement of citizens save and except for essential purposes. While the move certainly helped curb the spread of the disease, the lock – down orders until the middle of May 2020, placed an absolute embargo on the conduct of any business which does not constitute “essential services”.
SCM businesses throughout the country were disrupted on and from the imposition of lock – down orders. The primary reason for such disruption was that supply chain is the cycle of delivery of goods or services and is a multiple stage process commencing right from the sourcing of raw materials and ending at the delivery of the product or service to the ultimate consumer. Hence, an obstacle to one component of the cycle, adversely impacts the others in the cycle causing a “domino effect” on the entire eco-system. It is thus safe to conclude that the lock – down impacted not just the global supply chain but also the supply chain operations of key sectors in India viz. e – commerce, transport, and logistics to name a few.
Key Issues faced by logistics service providers (“LSPs”)
LSPs have faced the brunt of the outbreak particularly after the imposition of the nation – wide lock – down. The issues faced by LSPs can be categorised into the following:
- Leasing of Commercial Real Estate: Industry players are facing difficulty in honouring the timelines for payment of rent / license fees under leave and license agreements / lease deeds entered into with owners for taking commercial spaces such as warehouses on lease / leave and license basis to conduct business.
- Vehicular movement: While several government directives have permitted activities of essential service providers including transport of goods from and across state borders, LSPs are even today facing vast confusion due to closure of state borders followed by restriction in movement of vehicles carrying goods. The ground level effects of the directives are that LSPs are required to obtain permits from various state enforcement authorities leading to delay in delivery and performance of services. Mandatory scrutiny and health checks at all state borders is causing vehicular jam delaying their efficient movement in the country.
- Manpower availability: While movement of trucks and goods carriers and facilities in the supply chain of essential goods (wholesale and retail) is permitted, LSPs are facing a severe shortage of manpower to facilitate the actual movement of goods from warehouses / retail locations to designated delivery points.
- Health and safety of workers: As a corollary to the issue of manpower availability, those LSPs commencing operations of essential deliveries requiring manpower are having to conduct mandatory testing to ensure their fitness. Any slip – up or lack of monitoring of manpower would lead to immediate closing or suspension of operations of LSPs.
- Suspension of business contracts: The restrictions imposed on conduct of business have halted the normalcy of commercial operations of LSPs due to invocation of suspension clauses by customers in their business contracts. Typically, as most service contracts executed between LSPs and their customers contain specific circumstances under which the provision of services and payment of service charges would be suspended, most customers are resorting to their contracts and bringing into operation the widely worded “force majeure” clauses calling upon for the suspension in payment of service fees.
- Minimum guaranteed business: Many service related contracts impose conditions upon customers to generate minimum business requirements in favour of LSPs. Under such circumstances, minimum business generation poses difficulty for customers and triggers resolution mechanisms / remedies under the contract which includes levy of penalties and / or termination of the contract. Contrary to such obligation of customers, LSPs are not bound to adhere to business generation commitments. As a result, LSPs are incurring financial losses owing to low deliveries and are unable to claim service fees in turn, impacting their payment obligations to their vehicle leasing and financing institutions, manpower and so forth.
- Employer – employee relationship: Compulsory lock – downs and temporary shut – down of businesses has raised widespread fear and confusion regarding the rights of workers vis a vis employer’s obligations to pay wages / salaries and refrain from termination of employments under applicable labour legislations irrespective of the nature of employee is either on the rolls of the employer or contract workers which are deployed by LSPs on a large scale for providing services.
Key Governmental Reforms – Central and State Level
The Ministry of Home Affairs (“MHA”) published detailed guidelines under the DM Act right from the effective date of the lock – down and continues to do so in light of its extension. The functioning of LSPs (prior to the lockdown 4.0 guidelines) was treated in the following manner:
|Date of MHA Guidelines||Whether exemption was given to logistics / transport services?||Nature of exemption explained|
|MHA Order No. 40 – 3/ 2020 dated 24th March 2020||YES||· While all commercial and private establishments were directed to be closed down, warehousing, and cold storage services were permitted to function.
· Transportation for essential goods was permitted.
|MHA Order No. 40 – 3/ 2020 dated 26th March 2020 – Standard Operating Procedure for maintaining supply of Essential Goods||YES||· Facilities of storage of essential goods such as warehouses and transporters / loaders / drivers etc. of essential goods from the place of manufacture to wholesalers / retailers was permitted be it inter-city, inter – state or intra – state was permitted.
· Warehouses having essential goods should not be closed down if non – essential items are also stored.
· Retail end of supply to operate only in essential goods.
· Commercial entities to engage bare minimum staff and be permitted to commute on the basis of certification issued by local authorities.
· Supply chain facilities to conduct regular health and sanitation check – ups for employees engaged by them and provide proper protective gear.
|Revised MHA Order No. 40 – 3/ 2020 – DM – 1(A) dated 15th April 2020||YES||· Goods traffic allowed to proceed.
· Movement of trucks and other goods carriers / vehicles was permitted for pick – up and delivery of goods.
· All facilities in the supply chain of essential goods whether involved in manufacturing, wholesale or retain of goods through local stores, large brick and mortar stores or e – commerce companies were permitted to operate (without restrictions on opening and closing timings) subject to strict enforcement of social distancing rules.
|MHA Order No. 40 – 3/ 2020 – DM – 1(A) dated 1st May 2020||YES||· E – commerce activities were permitted only in respect of essential goods in Red Zones (outside Containment Zones).
· All states and union territories were mandated to allow inter – state movement of goods / cargo, including empty trucks.
The Maharashtra government has published guidelines for lock – down based on the directions revised by MHA from time to time. The Maharashtra Government has in its Order dated 31st May 2020 has clarified that e – commerce activities for both essential and non – essential material is permitted.
Changing Labour Regulations
The Ministry of Labour and Employment (“Labour Ministry”) had as early as 20th March 2020 issued an advisory to employers of all public and private organisations to refrain from terminating the services of employees or reduce wages particularly of casual or contractual workers. The advisory further provided that any worker taking leave would be construed as deemed to be on duty and his wages shall not be subject to deduction. Further, any place of employment, if made non – operational on account of COVID – 19, the employees of such employer shall be deemed to be on duty. The Labour Ministry vide its notification dated 30th March 2020 further advised all regional labour departments to rigorously ensure the compliance of the advisory with employers subject to their jurisdiction.
Based on the aforesaid guidelines issued by the Labour Ministry, the Maharashtra Government and several other State governments adopted the advisory and directed all employers within the state to refrain from terminating employees and / or reducing wages of employees. Further, the Order of Industries, Energy and Labour Department of Maharashtra dated 31st March 2020, made the earlier issued advisory mandatory for all employers of private establishments, factories, companies, shops (except essential services), etc. to ensure that all employees and workers (including employees provided by contractors, outsourced workers, temporary workers and daily wage workers) are compensated in full (i.e. paid entire salary and allowances) during the period of lockdown. It was further stated that violation of the said Order would attract penal provisions as stipulated under the DM. A detailed analysis of the measures taken for regulation of employer employee relations is covered in our previous posts here and here.
The above mandatory directives issued to employers left many LSPs in a state of confusion leaving them to grapple on issues such as reduction in workforce, grant of leave and closure of offices / centres in light of COVID – 19. While the aforesaid advisory of the Labour Ministry ceased to have its effect from 18th May 2020, several petitions were already filed before the Supreme Court of India challenging its validity and the obligation of full payment of wages stated therein. The Supreme Court has, on 12th June 2020 issued an interim order directing employers and workers / employees to enter into initiate negotiations and arrive at a settlement between them. In the event the employers and worker s/ employees are unable to do so, they are at liberty to approach the competent authorities constituted under different labour legislation to bring about such settlement. Further details on the Supreme Court’s observations have been analyzed by us in our recent post here.
[See Part II for our analysis of potential changes and the ways of dealing with the Impact of Covid-19.]
–Sanjana Buch (Associate)
Official Declaration by the World Health Organization available at https://www.who.int/docs/default-source/coronaviruse/transcripts/who-audio-emergencies-coronavirus-press-conference-full-and-final-11mar2020.pdf?sfvrsn=cb432bb3_2