‘The Covid-19 outbreak has been contained’

06 May 2020
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Connecting the world: Implication of Covid-19 virus for the German business climate

The number of new infections has dropped significantly. Daily number of people recovering from the coronavirus is higher than the number of new infections. “The outbreak has been contained and is more manageable,” says German Federal Minister of Health Jens Spahn at the press conference on current developments. According to him, the health system never became overwhelmed.

View over Frankfurt

After almost four weeks of forced closure, last week the federal and state governments agreed that from this Monday small and medium-sized businesses with an area of up to 800 square meters are allowed to reopen, and from 29 April 2020, larger businesses are also allowed to reopen provided that they restrict their sales area to 800 square metres. Everyday masks or other protective equipment are mandatory in all federal states, especially in local public transport and in shops.

And suddenly Germany’s offices have gone digital. There are a few obstacles here and there, but basically the coronavirus has achieved what many digitisation consultants could not. It is like a movement. The interim result as it stands: It’s working.

What are the current economic prospects?

The leading German economic research institutes anticipate a severe recession due to the corona crisis. In their spring report for the federal government, the economists expect gross domestic product (GDP) to shrink by 6 to 7 per cent this year. The unemployment rate will increase significantly in 2020 and the number of short-time workers will rise to 2.4 million. However, in the coming year the economy will recover and grow by 5.8 per cent.

The mood among German companies is catastrophic. The ifo Business Climate Index fell from 85.9 points in March to 74.3 points in April. This is the lowest value ever recorded, and the index has never fallen so drastically. This is primarily due to the massive deterioration of the current situation. Companies have never been so pessimistic about the coming months. The corona crisis is affecting the German economy with full fury.

Effects of the corona crisis on road, inland water, rail freight and combined transport companies

Rail freight transport - The Federal Office for Freight Transport (BAG) carried out a survey among 11 railway companies. Production restrictions or shutdowns, particularly in the automotive industry, and a drop in fuel and container transport is leading to a decline in demand for rail freight transport services.

The main results of the BAG survey regarding combined transport (CT) are:
The CT terminals in Germany are still fully operational. The data indicates that this also applies to the terminals in other European countries that are part of the CT network. Due to a decline in container volume, the hinterland transportation systems are operating at a reduced, but very stable rate. There is generally sufficient capacity on almost all combined transport connections. Terminals require lorry drivers to wear protective masks while on the premises.

For inland water transport, the BAG surveyed 12 predominantly large (non-private) inland water companies. The worsening order and employment situation is leading to a significant fall in sales and a sometimes significant company profitability deterioration. In tanker shipping, the lower consumption of diesel, petrol and kerosene due to the crisis is leading to a decrease in shipping. In dry goods shipping, transport volumes are falling significantly, in particular as a result of the decline in production in the mining industry.

Development of the various economic sectors

On 20 April 2020, the Automotive industry, along with suppliers and service providers, decided to gradually restart vehicle production. The production of spare parts and engines was not interrupted, only reduced.
In-house ‘corona expert teams’ are developing strategies to enable employees to work safely, taking into account prescribed measures and recommendations.

The Chemicals industry has largely offset the decline in sales due to the increased need for disinfectants and the production of raw materials to make protective clothing.

The Mechanical engineering industry is facing the loss and cancellation of orders. Around 84 per cent of companies do not expect an order growth in the next three months. Most companies (43 per cent) even expect the situation to worsen.

Orders in the Electrical industry have collapsed and the German Electrical and Electronic Manufacturers Association (ZVEI) is expecting a double-digit drop in sales. For example, 55 per cent of the participating companies are already receiving fewer orders than before the crisis. As many as 26 per cent have reported a drop in orders. Companies expect an average drop in sales of 14 per cent.

Retail: Consumer behaviour – dependent on the development of unemployment and short-time worker rates – is currently difficult, if not impossible, to estimate. Even online retail is experiencing a decline in sales, despite the fact that physical stores are closed.

“The budgetary measures amount to a total of EUR 353.3 billion and the scope of warranties amounts to EUR 819.7 billion. The federal government will take out new loans of around EUR 156 billion to finance the debts. The cabinet has approved a corresponding supplementary budget.”
Ingrid Rossmeier, Rotterdam Representative Southern Germany

Coronavirus protective measures and exit strategy

The impact of the exit strategy cannot be assessed yet: The exit strategy must happen swiftly, but also with caution and in increments. An increase in infections, which would lead to another shutdown, would be the worst possible scenario.

The biggest impact in the logistics sector is a disruption of the logistics chain. The interlinking nature of the global economy has shown the vulnerability of our economy and society.
Just-in-time deliveries and the use of the logistics chain in order to procure vendor parts as cheaply as possible and to deliver them on demand, were essentially disrupted and can only start up again slowly.

Who knows if things will have changed forever. We were forced to realise that we are not in control of the world. But society has changed – will it be permanent? Solidarity, the willingness to help and togetherness among different social classes and generations are suddenly all possible. It is doubtful whether the appreciation and gratitude regarding systemically relevant professions today will last. The procurement markets are likely to change, for example by relocating systemically relevant production sites to Germany or to neighbouring European countries. The extent to which the changes will also affect climate change policies cannot yet be assessed. This depends on whether these ‘coronavirus protective measures’ will be linked to climate policy requirements in Europe and internationally.

About the author

Ingrid Rossmeier is the official representative of the Port of Rotterdam Authority for Southern Germany. She works from Nuremberg. Ingrid has a background in logistics (for companies in the Retail and Services industry). She has been working for the Port of Rotterdam Authority for more than 6 years.

Together with her colleagues in Germany, Roland Klein (Southwest Germany), Dr. Wolfgang Hönemann (North Rhine-Westphalia) and Michiel Messchaert (North Germany), she represents the port of Rotterdam in Germany and establishes the link between shippers, logistics service providers, operators and industry organisations.

When asked about the greatest similarity between the importance of the port of Rotterdam for German shippers and forwarders, she replies: Germany is a strong economic nation and the port of Rotterdam is the ideal partner for handling its products. Moreover, the port is easily accessible without restrictions (draughts and locks). Many loops of the deepsea carriers have chosen Rotterdam as the first or last port of call in Europe, which leads to shorter transit times. And this is to name but a few of the obvious advantages.

And how can she convince a shipper from Germany to ship freight through Rotterdam instead of German ports? She has the mentality of solution-oriented work: “Impossible” is not in her vocabulary. Rotterdam is the smartest port and our customers are assured of our opportunities to increase efficiency with the help of digitisation and the optimisation of supply chains. These convincing arguments also reassure the German customers.

Sources:
https://www.deutschlandfunk.de
https://www.ifo.de/
https://www.vdma.org
https://www.elektroniknet.de