Virus Smokescreen for Hidden Charges

Covid-19 disruptions could prove the perfect smoke screen for unscrupulous breakbulk operators, as they attempt to recoup some of their previous losses in an industry that was already stretched thin before the virus hit.

Speaking exclusively to Breakbulk, Dharmendra Gangrade, head of logistics at L&T Hydrocarbon Engineering, saw an opportunity for breakbulk carriers to raise freight rates to capitalize on the current uncertainty in the market.

“Who is going to bear the cost of that?” he asked, adding that the ongoing crisis is expected to lead to huge losses for engineering, procurement and construction companies.

“If people declare force majeure, what do we do then? Remember that this is not just a freight cost, it’s also a labor cost and other associated loss due to schedule delay, which is much higher than the freight cost,” he said.

The cascading effects of delays have also become more visible as supply chains are pushed to breaking point.

In a recent move, Gangrade explained how a two-day delay over the holiday period snowballed into a 30-day delay, with a cost increase on a project of close to $200,000. “In our root cause analysis, we learned to include the inspection guys in the chain in future. The cascade effect led to a great failure – we paid a heavy freight cost and we still couldn’t meet the schedule,” he said.

In the current crisis, the industry will only see the true impact of disruptions when the 30-day cushion of inventories runs dry.

“We have already seen the impact on automobiles because of just-in-time logistics,” Gangrade said. “This is when just-in-time doesn’t work. There needs to be a Plan B and an agile supply chain.”

However, in a period of high supply chain uncertainty, there are still no guarantees that a Plan B will be effective. “No matter what you plan you cannot predict this kind of disruption – this makes us all more conscious of the cascading effects of delays,” Gangrade said.

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