Everything you thought you knew about managing your key spend categories has just gone out the window, thanks to COVID-19. You need new information and guidance, fast.
What’s changed? What hasn’t? What should you do right now? What about in three or six months?
We provide critical insights, facts and figures in our special post-COVID-19 Category Outlook & Market Intelligence Report. Authored by GEP’s world-class category experts, this report examines changes in the top direct and indirect spend categories, helping you get a fast, firm grasp of the new market dynamics.
A must-read for those who want to make informed decisions that will put their companies on the path toward recovery and success.
For more than 20 years, GEP’s global team of category advisory groups has managed billions of dollars of spend for leading Fortune 500 and similar businesses in all major industries, helping to chart their course through any and every economic environment. These efforts generate unparalleled market access to a deep pool of relevant, broadly generated knowledge capital. The end result: compelling supply market intelligence, resulting in new ideas and actionable insights brought together in one report that we create and share with the procurement and supply chain community on an ongoing basis.
The impact of the COVID-19 pandemic on companies large and small has been unprecedented, with rapid and thorough disruption of our interconnected global supply chain networks. Supply chain and procurement organizations are indispensable in managing this crisis. Businesses face the intense challenge not just to survive, but create opportunities that drive positive outcomes. Robust market intelligence is more important now than ever in the effort to achieve this goal.
This edition of our Category Outlook and Market Intelligence report explores top trends, challenges, and opportunities in every major category of spend, with focused, real-time perspectives on global developments around the COVID-19 crisis. During this trying time, our experts will not only provide the latest market intelligence and informed perspectives, but will also offer practical guidance to help business leaders navigate their organizations through rapidly changing market dynamics.
Providing supply chain stakeholders across the globe with the most current insights and actionable opportunities is our goal and motivation for publishing this report. For additional advice and materials, you can visit GEP’s COVID-19 Resource Center.
The start of 2020 was an optimistic period for global chemicals, which had ended 2019 with nearly 2% yearon-year growth.1 Britain exiting the European Union and a partial resolution to the U.S.-China trade war had provided impetus for the market.
However, the COVID-19 pandemic coupled with an oil price slump and increased volatility have resulted in a bleak outlook for the year. The industry is expected to grow by just 0.2%; or it may even contract if the pandemic does not end soon.2
Swelling supplies of natural gas and oil are pressurizing the prices of key feedstock, thus providing favorable opportunities for large-scale buyers. The industry is already grappling with overcapacity for key chemicals such as C2, C3s, and derivatives — mainly resins. On the demand side, an overall decline in manufacturing, including production cuts by major automobile manufacturers across all regions, will free up plenty of chemicals, resulting in a supply-demand disparity in the near term and a mid- to long-term imbalance for the market.
In 2020, the United States will continue to be a major chemical producer due to massive capacity expansion of basic feedstock such as ethylene and propylene along with key derivatives due to the abundant availability of shale gas and oil. However, with a slump in key demand sectors, prices are expected to plummet with marginal stabilization by the end of the year.
The European chemical market will continue to be marred by high operating costs and not-so-attractive margins, which might result in the industry contracting further. From a U.K. standpoint, decarbonization and policies post Brexit will dictate the overall impact on the European chemical industry.
The Asia-Pacific market will be driven by China and India, with the former looking at alternative markets for many chemicals due to the uncertainty over its trade terms with the U.S. Though the Chinese chemical industry has been under tremendous pressure due to environmental policies and the COVID-19 lockdown, production is expected to return to normal by the end of the second quarter. China’s central bank is also expected to cut lending rates to boost manufacturing.
Most polymers are driven by crude oil, and with oil prices not expected to recover anytime soon, most of the polymers market may remain bearish for the rest of 2020. Though the demand for PET packaging is on the rise, an overflow of cheap Asian supply offers is putting pressure on prices.
Polypropylene demand remained steady for March, but we forecast a significant drop in demand on the back of massive cancellations of orders by large-scale converters. The demand for polymers from the global automotive sector is also expected to remain poor. This will lead to a further waning of demand and escalate the oversupply situation.
Aromatics and Solvents
Major chemicals such as benzene and toluene have seen massive price drops in all regions since the beginning of March, and the implications of the harm caused by COVID-19 and the oil market crash are discernible. Benzene dropped by 70% in Europe in March — the lowest since 2002.3 Closures of automobile units globally and continued overcapacity resulting in weaker dynamics for styrene have hit the benzene market hard. Key regions beyond Europe have also witnessed similar price drops.
Higher methanol demand in the U.S. caused European supply constraints. This resulted in surging value for methanol early in the quarter up until the pandemic broke out. Methanol will still be better placed than other solvents, as prices are expected to rebound in Q2 when demand revives. Spot prices across all regions are trending at historic lows, but this looks to be a temporary phenomenon.
Globally, the market for liquid caustic soda is moving contrary to the typical petrochemical market as its demand remains higher than that of its co-product chlorine. Caustic soda demand will be balanced in the near term as several planned and unplanned closures have occurred during these unprecedented market conditions. Lower demand for chlorine from the PVC industry will result in a continued shortage of caustic soda in the market, resulting in higher prices. Many caustic soda manufacturers have already announced an increase in contracts for April and May, with spot prices following suit.4
Demand for ammonia will continue to remain steady across regions, resulting in a balanced market for 2020. Quarterly contracts are likely to witness a rollover to the next couple of quarters in line with market expectations.
At this time, global category managers dealing with chemicals/feedstock/derivatives should focus on leveraging reduced feedstock prices and optimizing operating rates to take full advantage of the market situation. Formulabased pricing should be the major focus for all new contracts. Also, all fixed-price contracts will need to be renegotiated and rebates agreed upon for the next contractual purchase. Choosing the right formula will hold the key to successful negotiations. Comprehensive should-cost modeling will be crucial during supplier renegotiations, especially for the ones under fixed-price contracts. With the markets volatile, large-scale buyers ought to evaluate whether they need to postpone their contractual volume purchases and look at taking advantage of the spot market. Buyers should look at contracting only 70% to 80% of their new volumes, keeping the rest open to gain advantage from the market situation.
For the rest of 2020, we expect an overall price decrease in chemicals and plastics, allowing savings for endusers. As prices trend down at the producer level, the same trend is expected at the distributor level.
From a manufacturer’s standpoint, there will be more strategic mergers and acquisitions in the chemical industry later in 2020, probably by Q4, and in early 2021. Companies will look at rationalizing their product portfolios and how to benefit from scale and synergies to remain profitable. In general, the global chemical industry will be bracing for a protracted slump resulting in long-term implications for profitability.
|Key Commodities||Global Situation|
|Benzene||High||Low to steady||Drop*||Price dropped 28% from January across regions.5 The U.S. is a net importer. Price expected to decrease in Q2 with an anticipated marginal increase by Q4. The price change will affect the following supply chains: styrenics, phenol, adipic acid, and caprolactam|
|Styrene||High||Low||Drop||Prices dropped in Q1 and follow the benzene trend. Demand from derivatives ABS and SBR will be low due to the slowdown in the automobile and tire industries, as well as from PS and EPS following slumps in the packaging and construction industries|
|Phenol||Balanced||Low to balanced||Drop||Price dropped 17% following benzene.6 As the U.S. is a net exporter, the product will flow to Europe and Asia. Phenol derivatives demand (bisphenol and phenolic resins) may fall somewhat due to slowdown in coatings and fibrous wood market|
|Methanol||High||Balanced||Balanced||Converting natural gas to gasoline using methanol will keep the market for methanol balanced. Price expected to be stable for the rest of the year. Methanol derivatives like formaldehyde, MTBE (gasoline) and acetic acid are not expected to be affected|
|Caustic Soda||Short||Balanced||Steady to Marginal Increase||Price dropped at the beginning of 2020 due to supply-demand imbalance. A drop in PVC demand will result in a drop in the demand for chlorine which, in turn, will result in a decline in caustic soda production. Price expected to increase in Q2 and stabilize for the rest of the year|
|TiO2||Balanced||Balanced||Steady||Price has been stable since 2018. In 2020, demand is expected to suffer due to a fall-off in the coating industry following the drop in construction activity|
|Polymers||High||Low||Drop||All polymers (PE, PP and nylon) will be marred by high supply, low demand and price drops due to the auto industry slowdown. This would act as a major opportunity for large-scale buyers from the CPG industry from a plastic packaging standpoint.
Auto production accounts for a significant chunk of nylon and PP demand. Ample supply will result in a significant price drop. PE prices saw a small decline and are expected to be stable up to the end of the year due to demand from packaging (food and cleaners). Styrenics will follow styrene.
|Basic Feedstock — C2/C3/C4||High||Low||Drop||Ethylene, propylene, and butadiene will be available in plenty. BD is a feedstock for SBR, which is used in tire manufacturing. With an anticipated drop in demand for automobiles, the demand for butadiene from SBR will also be low. Prices dropped in March and are expected to stabilize after Q2 of 2020|
*Prices: Forecasted average for 2020 as compared to 2019 average
|Polymers||All Resins||Bulk buy for large volume buyers — take advantage of the present market conditions||Forward buying if the market situation continues to remain favorable||Extend contracts — negotiate rebates on previous fixed-price contracts if any|
|Aromatics and Solvents||All Solvents||Buyers to employ a waitand-watch approach to take advantage of any further price drop since the massive decline witnessed in early April
Postpone fixed-price contractual purchases and get into the spot market
|Assess arbitrage opportunity from Asia — prices to remain low in the near term||Extend contracts — negotiate rebates on previous fixed-price contracts if any|
|Inorganics||Caustic Soda||Delay purchase if possible — market price is high due to drop in chlorine demand||Build up inventory before the market tightens due to planned turnarounds||Business as usual|
The overall macroeconomic environment, including an economic slowdown, was expected to dampen commodity demand and price outlook in 2020 even before COVID-19. The possibility of weaker-than-expected economic growth, ineffective policy stimulus, resolution of trade tensions, improved supply conditions, and lower energy and fertilizer prices were some of the risks with additional downside potential.
The COVID-19 pandemic magnified these risks, creating a substantial demand slump that has driven down prices of base metals as well as agricultural commodities such as corn and soybeans, given their use in ethanol and biodiesel production respectively. Precious metals such as gold have gained an upside potential considering their status as safe havens under these volatile circumstances.
As procurement teams manage supply chain issues associated with the pandemic, there are opportunities to capitalize on declining base commodity prices across the globe, which drive a significant portion of direct material costs.
Companies should secure long-term contracts at current prices, which are at record lows; explore financial hedging to lock down futures pricing; and lower the effective commodity cost by averaging out purchases for 3 to 24 months from now. While commodity prices are facing downward pressure, basis pricing (differential between the commodity exchange price and the local commodity price) has seen a severe upside risk due to transportation and storage operational concerns. These must be mitigated by supply chain teams.
Simultaneously, procurement organizations will need to be proactive in securing immediate supply requirements through existing or alternative sources. They also have to manage supply-chain risk by ensuring the financial stability of their suppliers.
|Metals||Aluminum, Zinc, Lead and Iron Ore||Secure long-term contracts at current spot prices
Secure alternate supply if existing sources are impacted
Negotiate out of minimum contract volume levels for current quarter
Extend payment terms to improve working capital
|Secure partial volumes if lower futures pricing is sustained||Extend contracts — negotiate rebates on previous fixed-price contracts if any|
|Precious Metals||Gold and Silver||Secure alternate supply sources to mitigate any operational impact||Mitigate upside price risk potential due to weakened near-term economic outlook||Mitigate upside price risk due to potentially weakened economic outlook|
|Agricultural Commodities||Wheat and Rice||Secure supply to meet immediate demand spike, mitigate basis price impact||Business as usual||Business as usual|
|Corn||Secure long-term contracts at current spot prices, mitigate basis price impact||Monitor any sudden uptick in ethanol demand spiking prices
Secure partial volumes if lower futures pricing is sustained
|Business as usual|
|Soybeans||Secure long-term contracts at current spot prices||Secure partial volumes if lower futures pricing is sustained||Business as usual|
Before the outbreak of COVID-19, we were closely following the Duke CFO Global Business Outlook survey results to gauge the sense among finance leaders of the likelihood of a significant slowdown or a recession. In the September 2019 survey, 67% of U.S. CFOs predicted a recession by the end of 2020 with even higher pessimism observed globally.17 We now see signs of recession in several global economies, but these are unlike past recessions which resulted from weak economic fundamentals or crisis-hit financial institutions. The current situation was precipitated by government-imposed lockdowns and a sudden stop in most economic activities due to the coronavirus.
During a recession, as sales fall (especially in retail and F&B sectors — the key drivers of packaging), demand volumes of consumer-facing and secondary packaging will shrink. In the near-term, COVID-19 will add more complications, as buyer and seller facilities are forced to shut down or reduce activity, implement additional sanitation protocols and face other interruptions to normal operations. Volumes are also shifting and evolving — distilleries are making hand sanitizers, and auto manufacturers are producing ventilators.
In the immediate term, procurement teams need to proactively review pricing structures and supplier equipment footprints to ensure these reductions and changes meet the shifting requirements of their volumes and item mix.
Knowing what packaging formats will be prevalent in the post-COVID-19 world is likely impossible at this stage. But CPOs need to stay engaged with their sales and planning teams to know changes in consumer preferences or to adapt to a changing environment. Identification of secondary sources is always critical, but needs an extra emphasis during this uncertain period.
It is a natural response in many organizations to cut back on costs during challenging times. However, a Harvard Business Review study has concluded that organizations focused entirely on cost reduction did not emerge stronger from a recession. In fact, they faced the highest chance of failure.18 Instead, the study indicates that strategic cost reduction works best when coupled with smart investments to defend market share during a recession while positioning for growth once the dark clouds pass.19
In the immediate term, we are seeing clients with buy-side leverage pursuing contract renewals through this period, as suppliers shore up their books of business and revenue streams. We encourage procurement teams to take advantage of this opportunity to negotiate favorable extensions as well as secure “favored customer” status for supply allocation to weather the storm.
The stay-in-place orders are driving a massive shift toward e-commerce and home delivery, which needs to be factored in — both for design (“Ships in Own Container,” or SIOC) and volume requirements, and for the availability of certain types of packaging such as corrugated boxes, foam and paper takeout containers.
Packaging types with inherently longer lead times, such as bottles and pouches, may not be as impacted unless the suppliers are subject to shutdown orders. In that case, responding with agility to production orders as well as applying buy-side leverage to maintain priority in the production queue will be critical to get through the shortterm disruptions.
Further in the future, adaptive strategies for primary packaging (rigid and flexible containers, fiber boxes and cartons) include convening a cross-functional team to execute a redesign with new molds and labels, or exploring optimized equipment, such as corrugate-on-demand technologies, to drive agility.
For secondary packaging (corrugated, cold-chain packaging, protective packaging (foam/fiber), labels and sleeves), a full portfolio review of specifications to ensure design-to-value is critical. Secondary packaging is often designed once. Then the attention shifts elsewhere. So specifications may be over-engineered, or spend may be amassed with a maximum-performance specification, which is excessive for most products being shipped.
In both packaging categories, agile manufacturing, such as additive manufacturing (3D printing) or in-house box-making, seems poised to break out as it finds new acceptance. 3D printing and small-scale manufacturing are proving to be of significant value in COVID-19 treatment, as in a recent news story about using 3D-printed parts to keep ventilators running in Italy.20 Certain legacy players such as WestRock appear to have already invested in this vision, with its acquisition of Plymouth Packaging (“Box on Demand”) in 2017.21 Procurement leaders will need to work diligently to “sell” this vision across their own organizations as well as negotiate hard with supplier partners to buy into a long-term growth strategy that may require some short-term revenue loss.
Uncertainty is the only certainty for the near future, but with uncertainty comes the opportunity to re-evaluate the buyer-seller dynamic, strengthen partnerships and, ultimately, secure favorable commercial and supply terms. These short-term wins will endow procurement leaders with the trust and the momentum to drive designedfor- value designs, new technology adoption, and strategic spend management to protect and grow consumer share in the long term.
|Secondary Packaging||Corrugated Shippers||Extreme demand volatility; some supply-side shock depending on geography||Expect volatility to continue||Eventual return to normal operations|
|Cold-Chain Packaging||Major impacts to supply due to critical pharma demand||Expect volatility to continue||Eventual return to normal operations|
|Protective Packaging (Foam, Fiber)||Supply shock is expected in the market. Extend contracts if possible||Business as usual||Business as usual|
|Labels and Sleeves||Extreme demand volatility; some supplyside shock depending on geography||Expect volatility to continue||Business as usual|
|Primary Packaging||Rigid Resin Containers||Global oil price crash adding to overall volatility; lock in low price if not sacrificing supply availability||Continuing volatility in oil markets globally||Continuing volatility in oil markets globally|
|Flexible Resin Containers|
|Fiber Boxes and Cartons||Extreme demand volatility; some supplyside shock depending on geography||Adapt to new world — e.g. increased food carryout||Business as usual|
|Protective/ Miscellaneous Packaging||Pallets||Supply shock is expected in the market. Extend contracts if possible||Monitor hardwood availability and evaluate pallet strategy (used vs. new, wood vs. plastic)||Business as usual|
|Wraps, Straps, Tape||Business as usual||Business as usual|
Global corporate CapEx growth in 2019 was below expectations, up only 3.5% from 2018.22 North America, which accounts for close to 30% of global CapEx, saw a loss of momentum in 2019, with a tepid 2% year-onyear (YoY) increase.23 The slump was primarily because of the U.S.-China trade war and concerns over access to liquidity in times of crisis.
In 2020, due to the pandemic, we expect a sharp jump in capacity expansions within health care, food and beverage (F&B) and communications (digital entertainment and telecom), a result of greatly increased demand, government policies and supply chain disruptions. However, corporate CapEx in automotive, energy, industrial goods and construction could be dismal. In the short term, we expect the triple effect of coronavirus disruptions, oil prices and volatility to result in further drops in investor sentiments and delay in key engineering projects due to travel and supply constraints.
Thus, corporate CapEx, which we had earlier expected to decline by ~1% in 2020, is now expected to contract at a much higher rate in North America.24 Further, we are extremely cautious about relations between the U.S. and China, as an escalation could impact tariffs and supply of metals and other construction materials to the U.S.
Prior to the coronavirus crisis, in February, construction spending dipped 1.3% as both residential (-0.6%) and nonresidential (-1.8%) activity slipped.25 While many projects continue to proceed, hard-hit areas are shutting down construction sites and project delays/cancellations are mounting. Whether or not projects can continue depends on whether state or local authorities categorize construction as an essential business. Expect delays in supply of materials as nearly 30% of all U.S. building product imports come from China.26 Drywalls, glass, steel, lighting fixtures, flooring and curtainwall are some of the most affected items.
The construction industry has been persistently constrained by a shortfall of skilled labor, which will be exacerbated by quarantine requirements and the longer-term decline in labor mobility. At the same time, 39% of contractors have reported that nongovernment project owners had halted or canceled their construction projects.27
We expect the industry to be partially impacted by the pandemic. The heavy financial toll on almost all large corporations will affect order booking for the rest of this year and 2021, so we may see some of the smaller construction services and equipment manufacturing firms declare bankruptcy. The prices of construction materials and equipment will remain in check, but labor rates are expected to rise if uncertainty prevails.
Our recommendation is to continue with active RFx activities, laying greater emphasis on the suppliers’ financial performance. For ongoing projects, we suggest working closely with contractors to track inventory accurately, document project progress, identify alternative materials to absorb supply shock, and reschedule downstream equipment based on a realistic project plan so as to lower rental costs.
In the long term, investing in digitalization will enable the use of cloud-based building information modeling (BIM) and intelligent asset management. There will also be an increased adoption of robotics and digital twins (virtual models of physical products or processes) in the future.
North America accounts for almost half of engineering services revenue globally. However, travel restrictions and site closures have impacted this category, precluding site visits for surveys or taking measurements. However, due to the availability of cloud-share technologies and robust document-control tools, consultants and project managers can manage their ongoing projects and conduct regular checkpoint conversations with clients and peers. Early reports suggest that there will be at least a 19% decline in the market size for this category against 2019, as clients will defer key engineering projects.28 We expect a talent reshuffle in the short term, as contract engineers will either be laid off or make shifts voluntarily. This can be a good opportunity to renegotiate rate cards with existing service providers.
We expect a demand surge in material handling equipment (MHE) in 2020 within North America. E-tailers have been ramping up their warehousing capacity as Americans have turned to online buying because of movement restrictions. For the short term, there could be a rise in demand of gas-operated forklifts, backed by lower oil prices and lower purchase costs. In order to improve throughput, many CPG and pharmaceutical companies may also invest in fully automated conveyor and sorting systems. This will compensate for lost revenue for MHE suppliers from the struggling automotive and auto ancillaries sector.
We do not soon foresee major disruption in the supply of equipment or spares, as the government is keen to increase the capacity for essential goods, including therapeutic drugs, PPEs, medical kits, health care instruments, lab equipment and canned foods. In the long run, we see a higher adoption rate of automated guided vehicles (AGVs), industrial robots and automated storage and retrieval systems (AS/RS) across manufacturing facilities in North America, to minimize the impact on production due to lack of labor mobility.
The recent buzzwords here have been sustainability and sustainable materials, as companies have been shifting from single-use plastic materials to reusable, recyclable or compostable alternatives. The pandemic and subsequent economic decline will lead to a slowdown of these green initiatives, including investments in packaging development and subsequently in equipment investments. For the time being, plastics will become reestablished as the material of choice.
We expect a rise in the use of rotary palletizers and blister packaging, both of which were reputed for higher TCO savings, in the pharma and CPG industries. However, as sourcing packaging equipment is critical to supply chain operations, we recommend pre-evaluating alternative vendors who can supply the technology of choice, and avoid single sourcing. Where single sourcing has been the preferred option, we strongly recommend investigating further tiers of the supply chain to prevent unpleasant surprises in the future.
In addition to the ongoing oil price war between Russia and Saudi Arabia, it is expected that uncertainty and lower demand in road transport and aviation will significantly decrease investments in the oil and gas industry. Many refineries will take a good deal of time to increase their CapEx, and the demand for processing equipment will remain low.
We recommend that companies upgrade processing equipment such as air dryers and tablet presses to benefit from lower project and equipment costs. In the long term, considering the uncertain relations between the U.S. and China, many pharma companies could near-shore API manufacturing. This could significantly boost demand for production equipment locally. The F&B sector can also look to invest in non-contact, low-cost quality testing machines, which will ensure higher quality and reduce packaging time.
The supplier sentiment in this segment is positive, and most manufacturers have enough inventory to meet distributors’ short-term demand. Beyond this, there could be concerns; China, France and Italy are sources of highly engineered HVAC (heating, ventilation and air conditioning) systems, and as of now U.S. manufacturers may not have a complete mitigation plan ready. The silver lining is that Chinese factories have started resuming operations in Q2, which coincides with the season of peak demand in North America. We suggest that our clients continue with their current sourcing plans for this category.
Going forward, contractual terms will be renewed and emphasis on employee safety could change the usual business practices. Procurement leaders will have to think beyond tariffs and labor rates, and focus on supply chain optimization. Category managers will have to shift from a reactive to a proactive procurement process by integrating with business stakeholders and contractors ahead of time. Suppliers and contractors that have embraced digital technology and practice sustainable corporate policies should be preferred over savings. CxOs should not redesign their long-term supply chain strategies based on the pandemic, as the crisis is not yet over. However, they must invest this time in evaluating smart CapEx options and remain flexible with their nearterm supply chain policies to avoid failure.
|Construction||Equipment||No impact||No impact||No impact|
|Material & Services||High impact; price drop in indexed commodities||Price drop continues||Prices remain stable until market corrects itself|
|Engineering & Technical Consulting||Increased demand for offshoring; prices remain stable||Plateau may continue for 3–6 months||Higher and newer offerings at lower prices|
|Material Handling Equipment (Forklift)||Anticipated hike in forklift demand leading to price increase||Prices continue to rise||Continue to monitor; look to deploy fully autonomous capabilities as possible|
|Packaging Equipment||Higher demand and delayed delivery||The trend continues with possible bankruptcy for smaller suppliers||Business as usual with M&As|
|Processing Equipment||Payment terms requested by suppliers may shorten||Monitor suppliers’ financial risk|
|HVAC Equipment||Lower demand with significant hit on larger suppliers||Low demand continues||Demand market may start growing after 12–18 months|
The global utilities market has seen major shifts in the first quarter of the year. Both the supply and demand sides have experienced significant shocks, altering the landscape completely compared to the close of 2019. Demand has plunged as countries implement lockdowns and practice social distancing to limit the spread of COVID-19. Compounding this shift is the drop in crude oil prices to historic lows as supplier nations flood the market and wage a price war. The outlook for the rest of 2020 looks extremely unpredictable as a result of these two major disruptions.
In early March, a production cut agreement between OPEC and Russia fell apart, leading to the abandonment of production quotas. As a result, the crude market has been flooded with excess supply as both Russia and Saudi Arabia wage a price war. Further complicating the situation, Saudi Arabia and UAE have announced plans to increase production. Crude oil prices continue to be volatile with a downward average trajectory since the beginning of 2020. Price points since April 7, 2020 (USD/Barrel) are as follows:
|April 7||April 14||April 20||April 28|
Disruptions in both supply and demand caused oil futures to fall by approximately 40% in March.29 However, with the recent OPEC+ production cut deal, major oil producers will begin to reduce production, aimed at an aggregate decrease of 9.7MM BPD.30 Considering the reduced demand — standing at approximately 30MM BPD — the market disequilibrium still exists and recovery will be slow as we head into the second half of the year.31 The rate of recovery will largely depend on nations’ ability to return their economies to a working state. Until the global economy reaches this state, crude oil prices are expected to be volatile.
Due to surplus supply, electricity prices have been falling across Europe, which means the revenues of all energy generators are likely to take a hit in 2020. This has already triggered a domino effect as it has started delaying utilities’ purchasing agreements, which can cause risks and disruptions in development of renewables projects. Sliding power rates do not allow for new investments, creating a grim outlook for the short- to mediumterm future of the renewables market. The long-term impact, however, remains unchanged as corporations and nations retain their ambitious targets to utilize renewable energy sources.
There is major disequilibrium in the market from excess supply and plummeting demand. In this volatile environment, demand and future prices will hinge on the scope and duration of lockdowns; shifting oil prices; and global economic conditions after lockdowns are lifted. The benchmarks from “normal” times will not be of much use here, so constant monitoring will be necessary to fully assess the situation.
We recommend companies leverage market conditions and utilize live pricing through competitive bidding of suppliers in deregulated markets for electricity. Supplier responses will indicate the most accurate market conditions, as conventional benchmarks will not be applicable.
|Electricity||Live pricing through competitive bidding in deregulated markets||Monitor||Monitor|
The pandemic has had a profound impact on the business travel industry’s bottom line. Business travel has ground to almost a complete halt globally, as companies have canceled or suspended almost all business travel, regardless of country or region. Companies are also modifying travel and traveler safety policies, including instituting new policies pertaining to travel approval.
The World Travel and Tourism Council has stated that the pandemic could lead to a loss of 50 million jobs around the world.39 The industry will most probably take the rest of 2020 and beyond to recover, assuming travel restrictions start to be lifted by June. There has been a resurgence in China, with domestic travel almost back to normal, which provides some hope to businesses in other regions.
|Potential 2020 Monthly Revenue Loss ($ Billions)||% Companies Cancelling/ Suspending All or Most Trips to Region/Country|
|Asia Pacific (minus China, Hong Kong and Taiwan)||($19.3)||97%|
|Total Potential Monthly Revenue Loss||($119.4)|
*Methodology: GBTA (Global Business Travel Association) conducted a worldwide poll of 1,155 members from March 18-21, 2020.
The airline industry is experiencing a deep, immediate demand shock greater than the impact of 9/11 or the 2008 financial crisis. Government restrictions on travel and mandatory quarantines have absolutely decimated flight capacity. As of late April, airports were indicating that more than 160 airlines operating 10 weeks prior had no service scheduled, and an additional 91 — including Lufthansa, KLM, Qantas and Iberia — were operating at less than 10 percent of their normal capacity levels.41
U.S. airline executives are discussing the possibility of submitting a proposal to the U.S. Department of Transportation (DOT) that would allow them to consolidate services on routes during the crisis so that passengers with tickets across various carriers could all fly on a single flight. In addition to reducing capacity, low oil price expectations for the short term have been keeping operating costs low.42
Most airlines are spending more money reimbursing fliers than receiving new booking revenues. The U.S. DOT has issued an enforcement notice to airlines ordering them to provide refunds and not vouchers for future travel for flights that have been canceled or have required a significant schedule change. The IATA has estimated that the airlines’ liability for refunds globally is around $35 billion.43 Some countries — including Brazil, Colombia, the Netherlands and Canada — have eased regulations so that airlines can give passengers vouchers in place of refunds.44
Singapore, Australia, China, New Zealand and Norway have introduced financial or regulatory aid packages of either grants, loans or tax relief to supplement cash flow and ensure that there is no liquidity crisis. However, demand may not soon recover to earlier levels, as consumer confidence may be shaken and employers adjust work-from-home policies to support greater reliance on remote technologies. Considering these conditions, airlines are now hesitant to enter into long-term contracts or provide higher discounts to clients without assurances/commitments from clients about future demand. In the case of contracts that are near expiration, airlines are offering short-term extensions to allow time for a post-pandemic strategy assessment.
Car rental providers have reported a sharp drop in bookings for the months ahead, especially at airports, which are the main business of operators such as Hertz and Avis Budget. Within the U.S., domestic car rental deman has dropped between 50% and 80% month over month from February into March 2020.45 Despite the reduction in demand, many car rental branch locations continue to operate, though some are closed.
Car rental companies are looking to cut costs by downsizing both vehicles and staff to match demand. Companies are offering home delivery services and no-fee cancellation policies on pre-paid rentals — incentives to young travelers and students who must unexpectedly return home. Companies such as Hertz have also been providing free rental vehicles in New York City to health care workers.
Ride-share companies have also registered a sharp decline in bookings, especially in cities badly affected by the coronavirus outbreak. Most companies have suspended their carpooling services in major markets. When demand began to fall, companies pivoted and began striking partnerships with local businesses to help fulfill delivery needs ranging from takeout meals to supplies and groceries. For example, Lyft announced that it was piloting meal delivery services in the San Francisco Bay Area in partnership with government agencies and local nonprofits, and also suggested its drivers could find work at Amazon, which continues to hire distribution workers for its Prime delivery service.
Since the coronavirus outbreak began escalating in the U.S. in mid-February, hotels have lost more than $5 billion in room revenue.46 This figure is rapidly accelerating, with hotels currently on pace to lose more than $500 million in room revenue per day based on current and future reported occupancy rates.47 This means a loss of $3.5 billion every week — and the figures are expected to escalate further as the situation worsens.48 Overall, the hotel industry is expecting a 60–65% decline in revenue for Q1.49 And most hoteliers are already reporting projected revenue losses of 80% for the second quarter of 2020.50
Based on current occupancy estimates for the immediate future and historical employment impact rates, nearly 3.9 million total jobs have either been eliminated or will be eliminated in the coming weeks.51 With 70% of direct hotel employees laid off or furloughed, hotel workers are losing more than $2.4 billion in earnings each week.52 Individual hotels and major operators are projecting occupancies below 20% for the upcoming months.53 At a sustained occupancy rate of 35% or lower, hotels may simply close their doors, putting 33,000 small businesses at immediate risk in the U.S.54
Hotels have been offering better cancellation terms in the hope of trying to retain/delay refunds for reservations made for June and July. For example, Marriott is offering an updated new and existing reservation cancellation policy that allows guests to get full refunds for any trips planned until June 30 even if prepaid, if they are canceled or changed up to 24 hours prior to the reservation date. However, the refund will be processed with a delay of up to 90 days.55
Hotel chains such as Hilton, IHG and Marriott have made public announcements related to substantial pay cuts for executives and some pay cuts for non-furloughed employees. Hotels are also looking to eliminate nonessential and discretionary expenses, including marketing and capital investments, to manage costs during this crisis. Leased properties may face a greater cash flow risk and are either searching for corporate-backed options or negotiating with lenders to survive this period. Chains are deferring brand standards to allow local properties to avoid the investments needed to remain a part of the chain.
At present, hotels are continuing to accept reservations planned well in advance of stay. Most have not reduced rates drastically to attract travelers as offering deeper discounts or reduced pricing will only extend the recovery period for the industry.
For companies trying to negotiate better discounts/pricing with airlines, hotels or car rentals and fleet providers, negotiations may not yield any better-than-usual results as the entire industry is in survival mode. Offering deeper discounts or reduced pricing will only delay the recovery process, leading to longer-term impact on supply. Once travel demand bounces back, depending on the extent and duration of this restrictive period, there may be a general increase in pricing if supply remains constricted due to business closures, due to the demandsupply gap.
The current cash-strapped, no-guaranteed-revenue situation puts hotels under significant strain for any corporate negotiations. We see hotels being hesitant about making new long-term commitments with companies at least for the next few months. Room rates are typically negotiated on an annual basis and follow the calendar year cycle. However, we expect hotels to hold their pricing commitments for the remainder of the year.
|Airlines||Limited negotiation opportunity as industry is in revenue crunch
Extend current contracts if expiring
Build plans for leveraging previously accrued “Travel Credits” and ensure no credit loss or expiry
|Continue to monitor industry trends to reassess longer-term sourcing strategy and travel category targets (revenue vs. market share goals)
Ensure extension of corporate status and soft benefits programs for travelers
|Potentially revisit travel policies and guidelines to retain cost benefits from new ways of working (virtual collaboration) and opportunities to decrease travel spend|
|Rental Cars||Limited negotiation opportunity as industry is in revenue crunch
Extend current contracts if expiring
|Monitor and revisit sourcing strategy||Business as usual|
|Hotels||Limited negotiations opportunity as industry is in revenue crunch
Extend current contracts if expiring
|Leverage hotel marketing offers to ensure soft benefits are extended to travelers
Continue extending current contracts as negotiations may not lead to desired outcomes
|Sourcing strategy needs to be revisited; many local properties may be out of business leading to changes in traveler preferences|
The pandemic has affected many areas in this sector, including the wide range of industry partners, such as fleet management companies (FMCs), original equipment manufacturers (OEMs), dealerships, transportation and logistics, service providers, and others. It has greatly impacted the suppliers’ ability to source, lease and manage vehicles across different markets. The total fleet sales, including commercial, government and rental sales, measured across nine different manufacturers, dropped by more than 30% in March, representing an 11.4% drop year-over-year.56
The U.S. DOT’s National Highway Traffic Safety Administration (NHTSA) and the U.S. Environmental Protection Agency (EPA) have lowered the corporate average fuel economy targets and CO2 emissions standards through model year 2026 to 1.5% improvement year-over-year from the previous target of 5%.57 As the risk to revenues grows, businesses are increasing their focus on means to access funds, loan forgiveness details, understanding federal guidance, and the status of future funding legislation.
The impact on the auto industry is being felt beyond China’s borders, as shortages of supplies from China and lockdowns have stalled production around the world. To illustrate:
Over an eight-week period, the stocks of General Motors, Ford Motor and Fiat Chrysler plummeted by over 60%, and the entire Auto Manufacturers index has lost up to 20% of its total market capitalization, or $56 billion in a single month.59
Commercial fleet sales from nine manufacturers totaled 65,135 in March 2020, representing a 17.7% year-over-year decrease.60
Fleet management companies (FMCs) are working closely with their partners to ensure business continuity and to minimize the impact on clients. However, as several OEMs have halted production in North America and Europe, the FMCs’ ability to procure vehicles is affected; vehicle deliveries are already delayed.
As a result of the uncertain economic environment, the cost of sourcing funds on the bond market has increased threefold in recent weeks. The increase in spreads in the corporate bond market has a direct impact on the cost of funds and makes it difficult to price proposals effectively.
Initial calculations and suppliers’ proposal data show an uptick of up to 6% on lease costs.61
FMCs are considered essential business in many cases; they provide support to companies deemed essential services such as grocery stores, law enforcement, and hospital supplies. As a result, FMCs are operational and supporting clients for the time being.
FMCs have started recommending to clients that current contracts that are set to expire in the next few months be extended to ensure the continued mobility of drivers.
The current uncertainty has resulted in suppliers shortening the tenure of their proposal pricing validity (to a maximum of two weeks) and recommending that ongoing RFPs be halted due to extreme volatility. This, combined with production shortages, can lead to increased car costs in the near term, after the crisis passes.
Clients with urgent requirements will need to review alternatives such as out-of-stock cars and rentals, which will drive their costs up.
Possible discounts on extensions may be provided locally and free early termination is a possibility for extended contracts. Although only a few FMCs may be facing financial difficulties as of now, many firms will need to take decisions regarding the extension of contracts during the lockdown, or they will face increased costs from excess mileage charges.
|Fleet||Extend current contracts
Evaluate alternatives and mitigate potential delay in vehicle delivery
|Expect tighter market conditions as vehicle availability may still be impacted
Continue extending current contracts/leases as delays of new vehicle orders are expected
|Business as usual with continued industry favorability for leasing vs. owned fleet
The COVID-19 pandemic has profoundly impacted the General and Professional Services (GPS) supply chain and presents a unique juxtaposition of short-term priorities and longer-term opportunities for GPS sourcing professionals. The fast pace of developments requires proactive problem-solving, opportunistic strategies, and close and continuous business partnering.
Critical short-term goals in GPS purchasing include maintaining supply continuity, managing operating cash flow needs, and capitalizing on emerging sourcing opportunities. For many clients, addressing supply continuity issues is the highest priority.
The pandemic has created short-term operating cash flow challenges and therefore a need for quick savings to make an impact on the P&L. Strategies that can be considered are: developing budget freezes with spend to date and criticality factors; conducting current project/budget ROI reviews; finding alternatives for ongoing purchase needs; and instituting ongoing spend approval processes. Areas under GPS to consider for short-term P&L impact strategies include meetings and events, recruiting, consulting, and learning and development.
GPS purchasing professionals should also capitalize on opportunities to adjust supply strategies in some categories. For example, they should take advantage of a greater appetite for performance-based compensation deals in professional services, and should try leveraging deals with airlines and hotels given the supply-demand shifts.
We examine key areas in GPS that the COVID-19 crisis will impact significantly:
The consulting market in North America is expected to witness a slump of 17-19% in revenue for 2020.62 The highest declines in demand will come from clients in the health care, energy, travel and hospitality, and manufacturing sectors — all facing a significant slowdown because of the business impact of the pandemic. However, we believe this drop in demand is likely to be short-term, as many major firms will shift their resources to industries with higher demand as businesses recover. For procurement teams that have immediate or midrange active projects, this presents an opportunity to leverage the demand crunch in tactical negotiations, primarily in strategy, finance and technology consulting engagements that continue to see a business need in the market.
Due to the decline in demand, many companies are slowing their hiring pace for 2020 by rescinding or delaying job offers, deferring promotions, cancelling summer internships, and implementing pay cuts for senior executives.63 For example, PwC has announced a pay cut of 25% for partners and put hiring on hold.64
Several risks will emerge that purchasing professionals must manage in the aftermath of the pandemic. Firms will reposition their internal resources from low-growth to high-growth opportunities, thereby mitigating business disruption. We will also see higher rates of attrition in many firms through 2020. Purchasing personnel should monitor consultancies closely to ensure they are allocating appropriate quality resources to engagements in light of such staffing dynamics. Furthermore, small- to mid-size consultancies may face severe business disruption and should be monitored for business continuity and sustainability. We expect some business closings and, in the longer term, greater M&A activity among the more stable firms.
Once the world begins to get back to business, there are several impacts on consultancies that we anticipate:
Unemployment in the United States was at an all-time low in the beginning of 2020, but is now expected to reach double digits as job losses accelerate, with over 10 million people filing for unemployment benefits in March 2020.65 Labor force participation also showed a decline as many workers are choosing to stay at home amid various state-mandated lockdowns. This, in turn, has led to a short-term increase in labor cost, as it has driven companies like Walmart and Amazon to pay bonuses and higher wages to attract laborers. These substantial macro changes to the labor market present purchasers of contingent labor with a mix of risks, required mitigations and opportunities.
Supply continuity of contingent labor is a major risk for businesses in the short term. Organizations that rely on contingent labor for production must move fast to meet the new operating challenges. The pandemic is forcing businesses to rethink how work gets done. In the immediate term, labor supply continuity risks are being managed by leveraging preferred partners for joint mitigation planning; by finding channels for staffing through referral networks; and by applying focused recruitment process outsourcing (RPO) solutions.
In the medium to longer term, we expect that companies will strengthen their preferred partnerships to reduce risk, and will develop and employ alternative solutions such as online staffing portals. We also expect an increased focus on automation for a wide range of business activities and functions. The use of technology and automation will be paired with greater application of lean operating principles in order to drive down corporate reliance on contingent labor.
While some companies are facing supply continuity challenges, others are reducing labor operating costs in the short term by cutting or furloughing significant percentages of their workforce. So, while certain industries (travel and hotels, for example) are cutting contractors, other industries such as finance, FMCG, online retail, and health care/pharma are hiring to deal with the surge in demand.
In the next three to six months, contingent labor sourcing professionals should work to recalibrate labor supply relationships and sourcing strategies to meet the new market dynamics. Temporary labor firms will have a long road to recovery, with urgent need for revenues and cash flow. This, paired with greater availability of labor, will give purchasers an opportunity to negotiate competitive deals and strengthen preferred supply agreements.
During this period, purchasing personnel should work closely with their human resources and business stakeholders to plan for and begin re-engineering aspects of labor usage and the supply system. This can include elements of preferred temporary labor partnering, alternative labor supply channels, adjusted operating principles and organization structures, insource/sourcing, use of derivatives of RPO, and other solutions. Procurement and business stakeholders can drive change by applying new solutions in 2020 to a new world recovering from the impacts of the pandemic.
The pandemic has substantially disrupted corporate recruiting activity, including the use of RPOs and other talent acquisition service providers. Nearly every aspect of business hiring, from interviewing to onboarding, has changed drastically and will continue to do so. In cases where there is still hiring, companies are looking for candidates locally and through unique and alternative channels.66
Corporate recruiting and associated purchasing will see a significant influence of the COVID-19 crisis in the medium and long term. The use of automation technology for talent acquisition processes will advance more rapidly, as will changes to fundamental ways of working with a greater reliance on remote working solutions, lean staffing and the development of risk-proof solutions such as scalable process outsourcing. Face-to-face interviews will be increasingly replaced with video interviews through online platforms. These shifts must be accounted for in future sourcing strategies and will require the development of new processes, supply sources and technology applications.
The fundamental shifts in remote working, organizational “right-sizing,” and use of supplier managed services will drive short- and longer-term requirements for sourcing professionals. Having a talent intelligence and process management technology platform that can provide end-to-end visibility and personalization will become highly critical to support effective adoption of the recruiting model. Purchasing teams will need to focus on remote work software, virtual reality tools and remote meeting software when working with business stakeholders.
Underlying the development of new recruiting strategies will be a significant move toward organizational “rightsizing” and process efficiency. Past studies have indicated that more than 40% of companies prefer that their employees not work from home due to productivity concerns.67 After the pandemic, we will find that remotely conducted, risk-controlled business activity is a new normal for many companies. Sourcing professionals can contribute to finding new suppliers and solutions as well as helping eliminate costs for office space, overheads, and insurance/indemnity coverages, among others. Furthermore, the shift to remote working will offer employers some flexibility in controlling total employment costs just as flexible work arrangements offer meaningful value to many workers. According to Global Workplace Analytics, 37% of remote employees would take a 10% pay cut to continue working from home.68
In the medium to longer term, organizations will have to adjust their fundamental talent use and acquisition strategies. Sourcing professionals must be positioned to assist with adjustments to purchasing strategies around the use of recruiting agencies, hiring portals, process management technologies and new supplier capabilities, including RPO applications. And, talent acquisition strategies should be developed and coordinated with other talent needs, such as temporary and contingent labor, in order to move toward a more unified total talent strategy.
Health care costs are expected to rise rapidly in 2020, and employers could face significant cost increases as a result of the pandemic. Despite precautions and lockdowns, the number of coronavirus cases has been rising in the United States and is putting tremendous pressure on its health care system. Preliminary estimates are that the employer cost per infection could vary anywhere from less than $1000 for a mild case to $100,000 for an acute case requiring a stay in the intensive care unit.69 As many U.S. companies are self-insured, these costs will likely result in an overrun of health care budgets, or out-year cost increases in premiums for fully insured companies. Even after social distancing guidelines are relaxed, it is highly recommended that companies encourage their employees to work from home for an extended period — especially for employees with chronic conditions — to reduce the possibility of infections and minimize employee health concerns as well as health care costs.
Alarming statistics, like the one highlighted by the Federal Reserve stating that 40% of Americans struggle to come up with $400 for unexpected expenses, will come to bear in the current situation.70 More employers will need to rethink and develop a financial wellness strategy with customizable programs to meet the unique needs of a post-pandemic world further colored by a multigenerational workforce.
In the longer term, the trend of employers contracting directly with doctors and hospitals to provide better-quality and lower-cost care will likely see an uptick. Cost pressures will also challenge health care providers to transition from traditional fee-for-service (FFS) care models to value-based care (VBC). VBC models are intended to reduce total health care costs in the long term as they place more emphasis on managing the patient’s condition and outcomes more effectively.
Other examples of fundamental shifts in health care coverage and provision are the increased use of telehealth and remote care services for precaution, prevention and treatment.71
Sourcing professionals involved in health care and benefits buying must be positioned close to business stakeholders to evaluate and address short-term impacts on sourcing plans and supplier costs. This includes helping source and evaluate benefit carrier offerings, as well as applying effective supplier relationship management to existing brokers and HR consultants to reduce risks and offer creative solutions for future needs.
The global legal services market reached a value of over $766 billion in 2019, having grown at a compound annual growth rate (CAGR) of 5.4% since 2015.72 Through 2023, this market was expected to grow at a CAGR of 6.5%, to nearly $987 billion.73 Going into 2020, many law firms, especially the elite AmLaw100 cadre, had been running at high capacity and pushing through annual rate hikes more aggressively after a period of stagnation following the 2008 recession.
Given the breadth of the challenges that corporations (and humanity) are now facing, we expect that demand for legal services will rise dramatically except in niche practice areas such as intellectual property and environmental law. Key areas of growth will include:
In general, the legal market will see a surge in activity in the next few quarters that will put a premium on top lawyers’ time and experience. Companies should partner strategically and collaboratively with their top advisors while leveraging in-house staff and mid-tier firms where possible to mitigate capacity risks and to manage growing caseloads efficiently.
Once economies start to emerge from the pandemic, we believe that substantial opportunities to adapt internal and external GPS supply strategies will arise due to fundamental shifts in business operations and risk management considerations. Procurement must be positioned to take advantage of greater organizational appetite to find supply alternatives, build flexibility into the supply chain, and apply lean operating principles by re-engineering sourcing strategies and adopting greater total cost savings approaches.
|Consulting / Professional Services||All||Leverage short-term needs for reduced pricing, greater risk-sharing deals
Manage project staffing to ensure appropriate resources
|Negotiate reduced pricing, greater risk-sharing deals
Manage project staffing to ensure appropriate resources
Kick off new preferred partnering discussions
|Resource attribution in some firms
Increased M&A activity
Leverage preferred relationships
|Contingent / Temporary Labor||All||Resolve supply continuity issues, find alternative labor channels, preferred partnering, short-term demand management||Develop alternative supply channels (plan, pilot, expand)
Automation and lean operating planning
Preferred supply strengthening
|Apply and expand alternative supply channels
Assist business to drive lean operating principles
|HR / Recruiting||All||Assist the business in managing in-flight projects and mission disruptions/needs
Assist with supplier partnering/ engagement to meet criticalities
|Close alignment with business stakeholders on short- and longer-term adaptations to process and supplier needs
Support consideration of new solutions and suppliers
|Close partnering and working with business stakeholders to adapt fundamental staffing and recruiting strategies and processes
Develop tools and suppliers to deliver new environment with appropriate SLAs, KPIs, process management
|HR Benefits||All||Identify employees with chronic conditions and send targeted communications to help protect them from COVID-19 infection||Initiate health care budgeting early and consider benefit plan programming / sourcing timelines
Plan new strategies and mitigations
|Comprehensive adaptation of benefit offerings incorporating new carrier plans, new employee base demographics or sizing, new staff working models
Holistic health and financial planning to improve overall health and well-being of employees
|Legal||All||Select spot buy opportunities exist; look to enter into risk-share options if under extreme pressure||Business as usual
Anticipate some price increases in M&A or bankruptcy service offerings
|Expect increase in M&A activities
Anticipate some price increases in M&A or bankruptcy service offerings
For logistics, 2019 was a year of uncertainty, but now 2020 has become a year of unprecedented challenges. According to an IMF report released in October 2019, global growth was expected to be 3% in 2019 — down from 3.6% in 2018, mostly because of damage caused by protectionism.74 In addition to a synchronized global slowdown, procurement managers were forced to deal with supply chain distortion due to capacity issues, economic tariffs and Brexit-related fears. Despite these uncertainties, cost increases were moderate compared to the prior year because of softening demand.
Now, 2020 is a whole new ball game. Economic shutdowns due to the pandemic, fuel price uncertainty, regulatory shifts, and the looming fear of a prolonged global recession are all key drivers that affect this year’s logistics outlook.
After several quarters of significant rate increases, 2019 provided cost relief not witnessed in the previous 12 to 18 months. However, the first quarter of 2020 added a new catalyst for uncertainty — the coronavirus outbreak. The virus has manipulated supply and demand while obscuring procurement forecasts, and will play a significant role in influencing the way logistics managers utilize transportation modes within their global supply chain network.
2019 saw an easing for shippers both in terms of finding capacity and keeping downward pressure on spot rates, after 2018 saw record peaks in demand. After two consecutive years of significant rate increases, in 2019 there was moderate price relief of 4–7%.75 As we began 2020, our initial forecast models indicated some tightening in the market with rate increases forecasted to kick off in Q2, but the pandemic has caused substantial market upheaval, leading to fluctuations in costs, capacity levels and demand.
Depending on mode, region and industry, there has been further stress on OTR drivers with short-term negative impact on small- and mid-size companies. Due to the pandemic, OTR drivers have dramatically moved away from core lanes and now are more inclined to pick up/deliver without the commitment of backhauls. Some drivers are selectively pursuing load options that deliver to less-infected regions within a smaller mileage band. To add further complexity to the market, Saudi Arabia and Russia’s oil price war has decreased the cost of oil, bringing down fuel surcharges with it.
Globally, the long-term impact of the pandemic for road freight points to a combination of driver redistribution, surge in demand, and excessive freight congestion. Temporary price increases will be felt until supply has been redistributed evenly to counter demand. Large carriers making cash off these demand spikes will be in a dominant position to acquire smaller, less financially secure carriers and grow inorganically via M&A. Look for the emergence of a more consolidated carrier base and increased venture capital intervention after the events of 2020 unfold.
Shippers with the ability to shift production to plants closer to their delivery locations, while expanding their carrier base, will be successful in shielding themselves from long-haul price increases and benefit from the lower fuel costs. In contrast to FTL, LTL suppliers will see a marginal impact because of lost time linked to the driver and warehouse labor.
Outside of North America, Europe has seen its own challenges. European border controls between EU countries have slowed shipment transit times, increasing delivery lead times. Carriers will look to charge round-trip mileage to avoid excessive costs incurred by returning empty from locations with low production levels.76
The U.S.-China trade war, IMO 2020 regulation, crude oil fluctuations and the pandemic have all impacted ocean freight businesses. While the cost of compliance with IMO 2020 will affect the entire shipping industry and influence overall transportation costs, the pandemic is also having a huge influence.
In hopes of managing the situation, many ocean carriers have added a COVID-19 surcharge to their existing rates. With reports of warehouse space tightening and inbound containers piling up at ports, order cancellations from shippers have begun to spike, and many carriers are voiding or moving on blank sailings.77, 78 European ports are set to operate at 20–30% capacity, which negates the need for any high-volume ships.79 The container freight business will be congested through the next quarter, as container repositioning and vessel schedule normalization will be a slow process. China’s outbound freight has declined significantly, but it is expected to be back in line through June.
Expect long-term distress through 2020, and assess supplier risk through Z-scores at all times. In the long term, acquisitions and bankruptcies are possible. Watch for merger activity that results in excess consolidation of client TEUs with single providers.
Intensifying trade disputes, weakness in key economic drivers and falling global export orders resulted in significant short-term softening of global demand. At the same time, capacity growth rates continued to exceed supply growth rates. As a result of these supply-demand issues, air freight rates in 2019 plummeted to their lowest in four years.80 Considering these trends, the outlook did not anticipate cost increases in 2020. However, because of the shutdowns triggered by the pandemic, air freight rates have seen dramatic spikes in the short term.
As passenger airlines account for roughly half of air cargo transport, the grounding of these planes continues to decrease capacity and push short-term pricing higher. China air export rates have seen rate increases at 13% (compounded per week) since the pandemic intensified.81 Direct air freight haulers are seeing a surge in demand, which has prompted them to implement additional short-term surcharges. However, even a small resurgence of passenger flights will equalize demand and potentially leave air freight carriers who chose to expand overleveraged.
Base prices have increased 4.9% on average in North America, as suppliers continued to introduce new rules and surcharges.82 Rate hikes will continue as parcel carriers have already announced 4.9–5.9% general rate increases for 2020.83 Although, as in previous years, the impact of change will depend on the shippers’ mix of weights, zones, services and density, short- and long-term predictions point to small parcel carriers benefiting in the global market as a result of the pandemic shutdowns. These carriers are demonstrating flexibility and developing quick expansion capabilities needed to react to the market turmoil. With brick-and-mortar retail stores pulling down shutters, small parcel networks are seeing a surge in demand as consumers rely on these shipments for their needs.
Expect fulfillment centers to temporarily prioritize household staples, medical supplies, and other in-demand products to increase inventory turnover.84 There is an expected reduction of product deliveries outside this scope because of these needs. Small-parcel companies will focus on solidifying long-term operations by competing to win longer-term contracts that increase their revenue potential ahead of the looming recession.
The pandemic has significant short-term and long-term implications for warehousing. Companies that had previously stockpiled inventory, anticipating China tariffs and a Brexit-related slowdown, are now searching for space to place their goods — at least temporarily.85 This has been made more challenging because e-commerce, which grew by 16.7% globally in 2019, is projected to keep increasing.86
The pandemic has prompted consumers to change their purchasing habits. As a result, supply chains are looking to find more regional warehousing space, closer to their customers, to cut down last-mile costs. Low mortgage rates are enticing, but the looming post-pandemic economic downturn has businesses considering whether investing in real estate is a viable short-term option. The strong trend toward increased e-commerce sales provides a positive long-term forecast for warehouse expansion, which now seems to be insulated from even the largest market swings.
A recent market study indicated that the warehousing and storage market size is expected to reach $265.17 billion by 2023 at a CAGR of ~5.91%.87 Improved consumer sentiment and the e-commerce boom had driven demand for warehousing space, which in turn led to the construction of new facilities and an increase in demand for warehouse labor. Although rental vacancy rates remained steady in 2019 at ~4.7–4.9% due to an increased demand for space, the rents continued to rise, reaching over $6 per square foot NNN (Triple Net Lease) by the end of Q3 in 2019.88
Within the Asia-Europe rail network, there has been a surprising increase in the use of rail freight. With air freight at a premium and ocean freight being backlogged, transrail has seen a resurgence. Companies producing electronics and fashion products are being priced out of air freight and are now moving to a more reliable transit option in rail.89
The North American rail and intermodal networks are offering contrarian perspectives even in the short term, as both motor vehicle parts and coal are down 15.9% since last year.90 The historic decline of over 60% of U.S. WTI and Brent benchmark fuels has led to over 20% decrease in total shale production, adding to the freight decline.91 As a result, Class 1(+) railroads are searching for replacement freight for the short term. Long-term predictions show trends back to normal usage levels when consumer buying increases.
Compared to the challenges faced in 2018, 2019 was a relief for logistics buyers. However, 2020 is a completely different prospect. Procurement organizations must look for new ways to effectively manage logistics costs from a long-term perspective, while ensuring minimal disruption to existing operations. Risk mitigation and strategic planning will keep firms agile and better able to take advantage of adverse market conditions. The shutdowns as a result of the pandemic may cause short-term supply chain disruptions but have the power to reshape logistics processes for the foreseeable future.
We believe that category managers should benchmark and re-source their logistics spend based on short- and long-term projections for their individual transportation networks. Regardless of the market outlook or current economic trends, procurement best practices such as recurring sourcing initiatives and building upon strategic partnerships can lead to value delivery as well as ensure continuity of operations.
|FTL||Dry Van||Extend current contracts if needed
Expand carrier base to add carriers in select markets
|Revisit the “new normal” with new carriers, routes, etc.||Expect market reallocation as stronger carriers pursue M&A activities
Rebalance supply base as necessary
|Reefer||Business as usual|
|Flatbed, Others||Business as usual||Business as usual|
|Tanker||Work on internal demand planning to expand shipment visibility horizon||Expand business partnering||Business as usual|
|LTL||All||None||Business as usual||Business as usual|
|International Ocean Freight||All||Expect short-term rates to increase by ~20% as capacity cuts affect all global trade lanes||Expect freight capacity to remain tight through Q3||Some acquisitions and bankruptcies are possible; watch for merger activity that results in excess consolidation of client TEUs on single providers|
|International Air Freight||All||As always with air freight, look to eliminate need to ship via air
Move to spot rates
Expand existing OD airports
|Good opportunity as freight can return quickly in market||Business as usual|
|Small Parcel||All||Expect some slowdown of business activities as providers place “all hands on deck” to service COVID-19 needs||Business as usual||Continued expansion due to e-commerce and natural change of personal/ business relations|
|Warehousing||All||Business as usual for most global providers
Expect some delays for local/ regional providers
|Business as usual||Business as usual|
|3PL / 4PL||All||Business as usual||Business as usual||Business as usual|
|Last-Mile Delivery||All||Cautious expansion||Cautious expansion||Home delivery will continue to expand with significant investment from well-funded, asset-based companies
Look for M&A activities
|Rail||All||If business opportunities exist, look to take advantage of overall freight declines||Business as usual|
Coming off a sluggish 2019, analysts were forecasting a modest but steady 2–4% growth in the information technology (IT) space.92 This seemed to bear out through the first quarter of 2020. One of the largest factors expected to drive global IT spending was digital transformation (expected to reach $1.2 trillion in 2019).93 Others included enterprise software, cloud, mobile, data/analytics and security. In addition, new and emerging technologies, primarily fueled by growth in Internet of Things (IoT), robotics (robotic process automation, or RPA), and artificial intelligence (AI), were growing at double the rate of traditional IT categories. All of this came to a screeching halt in March, as the pandemic sent shockwaves through global technology markets with shortand long-term impacts.
The full impact of the COVID-19 outbreak on global markets is still being assessed. Even the most optimistic projections assume that Q2 and Q3 of 2020 will be impacted severely, with Q4 hopefully marking a period of recovery for both large and small businesses, as well as consumers. A recent Gartner forecast analysis depicting a global recession scenario estimated that worldwide IT spend will have an annual growth of -5% in 2020.94
Almost overnight, across the globe, employees retreated into their homes to work, adding a new facet to corporate business continuity planning. Many organizations were caught in a reactive mode, but as the global economy recovers, we expect to see corporations making incremental purchases across all categories of IT to ensure that they are better prepared for similar events in the future.
We also expect to see a focus on new and existing technologies in the areas of hyper-automation, robotics and AI, public cloud, information security, and technology related to real-time tracking of the population in the event of future pandemics.
Here, we examine the impact of the pandemic on various IT categories:
Many customers are experiencing reduced demand as project work is being put on hold indefinitely. Customers should notify suppliers of canceled/on-hold projects through formal, written communication. All invoices from suppliers received during this crisis must be audited to ensure the work has been done. Customers who have pre-paid for services should request refunds from suppliers if work is suspended or canceled.
Many customers rely on managed services providers (MSPs) to deliver contracted services. Procurement should ensure that MSPs have business continuity plans (BCPs) in place and that they can sustain delivery throughout the current crisis. Procurement must be vigilant to hold MSPs accountable to the terms of the contracts and service-level performance, especially those who begin to cite force majeure (unforeseen calamity) clauses.
The crisis will have an immediate impact on software, as organizations will struggle to make investments and put plans on hold in the immediate and the short term. As we emerge from the crisis, however, both corporate and public sector organizations will seek new software to develop or enhance remote resiliency. Many employees have been instructed to work from home by their employers as well as by government direction. It is highly plausible there may be irreversible changes to the way we do business as we emerge from the crisis, bolstering software-as-a-service (SaaS) applications that enable remote connectivity and effectiveness.
In the short term, buyers may look to delay payments and new installations during this time of uncertainty, which will be met with resistance from struggling publishers. Procurement departments should be aware of software vendors looking to generate revenue outside of product sales, which traditionally results in increased audit activity.
In the longer term, unified communications, web conferencing, B2B and B2C, security, IoT and RPA are all areas that will see major growth during 2021 or 2022. IT procurement should use this time to work with stakeholders on thoughtfully connecting today’s application strategies to future needs.
The biggest short-term impact of the global crisis within the infrastructure space is that hardware supply chains generating products in the APAC region have been impacted, making it more challenging and more costly to acquire both standard and custom equipment. While this has led many organizations to freeze or delay refresh plans, it is creating problems for organizations that are hardware-reliant, or those that require specialized equipment such as handheld scanners/printers and ruggedized notebooks for essential operations. Meanwhile, infrastructure-as-a-service (IaaS) and cloud activities have continued and even increased as a result of so many employees working from home.
Organizations should prepare for long-term impacts by developing refresh strategies for 2021 and beyond that have preferred and fallback positions, depending on when the equipment becomes readily available again. In addition, companies should evaluate the cost vs. benefit of holding additional spare equipment for similar situations in the future. IT organizations should also use this opportunity to forecast realistic but aggressive growth strategies for IaaS and cloud, knowing that the global emphasis on remote resiliency will drive incremental volume in the future.
In the short term, the rapid shift to a remote workforce increases both home ISP and wireless usage, requiring increased security and management policies and procedures. Opportunities to reduce spending include:
As with computer hardware, expect to see limited purchases except where absolutely necessary until supply chains return to normal.
Post-crisis, depending on the extent to which companies are struggling to recover, organizations could institute restrictions on employee stipends and/or limit eligibility for corporate reimbursement. In addition, organizations will continue to make technology and footprint changes to enable increased remote work and the use of SaaS applications. Procurement teams should negotiate agreements with key telecom providers to include features, pricing and SLAs associated with remote productivity.
While the foreseeable future will be challenging, technology will be one of the most powerful tools we have to fight future threats to business productivity and security. IT procurement organizations must provide support to both IT and business technology stakeholders to facilitate recovery efforts. This can be accomplished by partnering with the business and seeking opportunities to future-proof product, service, category and supplier management strategies.
|IT Services||Cancel or pause contracts/ SOWs for projects on hold||Validate any invoices received to ensure payment is correct||Hold managed services providers to contracted levels of service|
|Software||Alter in-flight negotiation plans to encompass new usage requirements, delays, etc||Work with stakeholders to understand new and altered requirements||Develop (IT and BU tech) sourcing strategies related to remote resiliency enhancements|
|Infrastructure||Freeze refresh and only acquire critical equipment||Negotiate T&Cs with OEMs and VARs that support continuity of supply||Develop contingency plans to minimize future disruption to hardware supply chains|
|Telecom||Implement feature, policy and demand changes to limit increased cost due to remote working||Understand IT plans to future-proof voice/data/wireless spaces
Develop provider negotiation strategies
|Encompass remote resiliency into long-term strategic vision for the network|
The pandemic has had far-reaching impact on all aspects of business and consumer behavior. In the initial lockdown phase, consumer consumption of TV and digital media increased significantly, but many businesses have either stopped producing or do not have access to their usual routes to the market. Accordingly, they have curtailed their advertising spend. Others are operating at full capacity to keep essential products on the shelves, but have had to revise their advertising strategy to develop appropriate messages. This had to be done in circumstances where access to production services and facilities is limited and many marketing channels — including out-of-home, newspapers and magazines, experiential, in-store, and point-of-sale-materials (POSM) — are unavailable.
Marketing procurement teams globally are responding to the immediate challenges of ensuring that there is a functioning supply chain for essential brand and product messaging, while preparing for the medium- and longterm changes that will result from the crisis.
It is unclear how long the lockdown phase of the crisis will last, but the cancellation of major sporting events (Olympics, UEFA Euro 2020, sports leagues, etc.), most away-from-home entertainment, and other events means that companies will need to fundamentally revise their 2020 marketing plans. Event cancellations of more than 10 major tech conferences due to the coronavirus have surpassed an estimated $1.1 billion, according to PredictHQ, and event hosts are being forced to move to virtual formats.95 eMarketer lowered its 2020 global ad spend projection from $712 billion to $691.7 billion, as half of the advertisers have either pulled out or delayed campaigns.96 Fully 81% are expected to make significant budget cuts.97 Google, Facebook and Amazon will lose tens of billions in ad revenue from reduced spend in travel and entertainment and by small businesses, although a projected increase of social and influencer marketing will partially offset these losses.
Out-of-home and print ad spend will also drop in the near term for obvious reasons, so brands should look to negotiate new deals with publishers to capitalize in this time of uncertainty. Procurement teams will need to carefully monitor media agency KPIs and targets to assess the impact on advertising inflation forecasts as well as remuneration and bonuses.
Procurement teams will also need to respond rapidly to stakeholder requests to source or negotiate with creative, media, insights and research providers as brands create pivot plans to adapt their 2020 strategies to the new environment. Procurement can play a key role with creative deal-making and speedy due diligence when renegotiating with current partners and selecting new ones. It will be required to proactively map and assess the supplier landscape to provide market intelligence and access to optimal supply chain solutions that their stakeholders will require as the global economy emerges from the crisis.
In this time of high uncertainty and volatility, predicting what and when the “new normal” will be is difficult. However, in the short, medium and longer term, marketing departments will have to work with budgets that have been realigned to revised revenue forecasts as they react to changed consumer and business behaviors and new media and supplier landscapes. Best-in-class procurement teams will be essential partners in the delivery of successful marketing responses to whatever the “new normal” is.
|Media and Advertising||Other Media and Advertising||Source or negotiate with creative, media, insights and research providers||Map and assess supplier landscape and provide market intelligence to drive supply chain solutions||Implement long-term solutions strategy|
|Promotion||Trade Shows and Exhibits||Assess value of hosting physical events versus virtual ones using digital tools||Map and assess supplier landscape and provide market intelligence to drive supply chain solutions||Implement long-term solutions strategy|
The pandemic has had widespread impact on the demand and supply of facilities-related services. While many organizations have slowed or shut down production, essential goods producers have ramped up to full capacity. In this environment, facility management has graduated from support service to critical service. It is not only critical to keeping essential businesses running in the immediate term, but also ensures that facilities are up to CDC-compliant sanitization guidelines as we move forward. Compliant and available PPE as well as enhanced food service requirements will be focus areas in the medium to long term. These uncertain times call for both facility managers and their procurement teams to be extra diligent in order to guarantee the supply of essential services.
Soft-services providers (janitorial, cleaning, security, waste and food services) will see enhanced scopes of work in many places to cover for manufacturing and services entities that are important at this time. Even though a large cross-section of employees is staying home to avoid the risk of infection, the labor force has not been a limiting factor in providing facility services for most providers so far. This is because organizations have been successful in diverting their labor force from closed facilities (that still require basic services) to essential operations.
Procurement opportunities in the short term:
The demand for facility services will increase in the medium term, as businesses resume operations and seek to increase productivity. The labor supply for facility services will tighten as the frontline workforce in security, cleaning and food services operations will be subject to further training, stricter protocols and longer hours when these facilities reopen. This will lead to suppliers increasing rates and passing on the costs of additional overheads, re-training and change management to clients in the post-COVID-19 environment.
Workforce availability constraints are expected to moderate in the long term, once travel restrictions across state borders ease. Migrant/foreign workers will be unable to fill the void in the medium term because of restricted immigration and cross-country travel. Over the long term, the cost of facility services is expected to return to earlier levels, with unemployed labor coming back into the workforce.
In the medium to long term, procurement will be expected to keep its plans flexible to cope with rapidly unfolding realities in the post-pandemic scenario. Growing pressures on cost and supply availability in the medium term should be tackled by rationalizing scope to focus on essential services while delaying nonessential activities. This will be easier to accomplish in sectors where service lines such as food services or nonessential cleaning can be downsized due to increased remote working.
Manufacturing will have to work with suppliers to shore up health and safety guidelines and sanitation practices, and adopt additional measures to ensure safety and compliance. Any in-flight transitions could be impacted with cost overages and timeline delays in the medium term. Procurement should work with the service provider to revisit implementation plans and minimize the cost impact.
Larger vendors relying on self-performance may pose less compliance and service risks than vendors who rely on subcontractors. Smaller vendors will be at an increased risk of bankruptcy and noncompliance, which could get passed on to providers who rely on local subcontractors. This risk can be mitigated by performing supplier and subcontractor financial and regulatory audits, and by reviewing their disaster management plans, BCP, and training capabilities.
In the long term, these factors will likely accelerate the adoption of integrated facilities management (IFM) services. This is expected to lead to a new wave of M&A activity as smaller players facing financial and regulatory strains get absorbed by larger ones looking to increase their portfolio of self-performed services.
The pandemic reinforces the need for organizations to have preferred supplier programs and a diverse global supply base. Armed with technology platforms used to share resources across accounts and industries, strategically allocate talent and leverage providers across global markets, IFM providers have been able to quickly activate their crisis management teams and respond to the increasing needs of their clients. For organizations that utilize suppliers lacking in such capabilities, the current crisis would likely add weight to justifying the transition to an outsourced integrated services model.
For organizations undertaking a sourcing activity, longer-term contracts (three to five years) may be helpful in securing improved pricing and TCO (life cycle benefits of 10–20% depending on the scope and the current state of the customer organization). Organizations will be forced to rely even more on hard services for cost savings, with limited opportunity for savings on soft services, where the focus would primarily be on demand and scope optimization.
Given the anticipated economic downturn, organizations must look to maintain an asset-light model to maintain working capital reserves. The use of leased equipment may be preferable for short- to medium-term needs.
|Janitorial and Other Facilities Services||Leverage existing contractual arrangements to control costs||Establish alternative sources of supply where needed||Establish robust risk management strategies and explore alternative procurement models|
|Integrated Facility Management||Focus on essential services and disaster management plan reviews||Drive compliance and risk management, supplier financial audits to ensure service continuity||Evaluate probable IFM M&A activity
Strengthen/refine existing IFM relationships
The pandemic has caused significant supply and demand disruption in the Maintenance, Repair and Operations (MRO) category, and customer organizations need to be agile in adjusting their MRO management strategies. Factory closures around the world have had significant, disruptive impact on the MRO supply base, leading to increased lead times and parts shortages. Medical and all associated PPE items, safety supplies and sanitation supplies have been especially hard hit, with global shortages. Federal health care-related procurement of these critical items to fight the COVID-19 outbreak has taken precedence.
Approximately 20% to 40% of all MRO spare parts deliveries in the United States may be at risk because of supply disruptions as a result of factory closures and dependence on imported parts.98 Lead time increases by 8 to 10 days are not uncommon.99
Major shortages are being seen in health and safety supplies such as PPE, hygiene products and janitorial supplies, and this is expected to continue in the near future. The pricing of these items can be up to 10 times higher than before the COVID-19 outbreak.100 Suppliers, scrambling to respond to the pandemic, are trying to protect their primary customers and allocating supplies on priority to customers in critical industries such as health care and the federal government.
Organizations will benefit from setting up a coordinated response to this situation through cross-functional teams that have a holistic view of the company’s requirements, as well as a strong understanding of the supplier market challenges and opportunities.
Key steps that procurement can take to assess risk include:
Companies should actively develop mitigation plans that include a variety of strategies such as:
In the medium term — three to six months — there will be excess supply in the market for some MRO product types, which will create positive economic opportunities in these areas. Cost-savings focus areas can include better unit pricing, expanded discounts, TCO improvement guarantees, sign-on bonuses, and volume rebates. Procurement teams could accordingly realign their annual plans to create optimal supply contracts.
This may be a particularly opportune time for conducting sourcing events for specialty MRO parts (control valves, pumps, electronics and instrumentation, etc.), where substitution opportunities could be explored. Cost savings in the range of 10% to 20% can be expected from procurement initiatives for commodity and specialty MRO parts (all non-OEM MRO parts).101
The pandemic has posed serious risks to MRO supply continuity and availability of certain supplies and parts, which need to be mitigated through innovative solutions. It has also presented new opportunities that smart organizations can exploit for sourcing initiatives in the short term, as well as for creating a longer-term framework to emerge leaner and more effective on the other side of the pandemic.
|PPE & Safety Supplies||Alternative sources of supply, rapid sourcing events, substitution, price mitigation||Alternative sources of supply, rapid sourcing events, substitution, price mitigation||Strategic supplier collaboration with focus on de-risking future supply|
|Control Valves, Pumps, Electronics, Instrumentation, other specialty parts||Assess impact and ensure continuity of supply through engagement with existing and alternative suppliers||Sourcing events with a focus on cost savings and substitution opportunities||Business as usual|
Since 2019, R&D procurement activities have been challenged by the U.S.-China trade war, the Brexit timeline, increased M&A activity, changes to patient and consumer privacy laws, and regulatory policy revisions. Amid this, the supplier network across R&D spend categories has been the key to helping companies navigate these challenges while also exploring ways to deploy advanced technologies to achieve greater efficiency. However, the worldwide disruption caused by COVID-19 will greatly influence how the R&D space and its supplier network evolve throughout the rest of the year.
For example, at the beginning of the year, R&D spend in the pharma industry was expected to grow at a CAGR of 3% between 2020 and 2024.102 This estimate was credited to an increased need for suppliers to innovate and focus on patient-targeted drug development. Now, with the pandemic, R&D spend will be driven by the urgent need to find treatments for the coronavirus.103 For example, as of March 19, 2020, as many as 80 clinical trials were underway.104 The ongoing R&D pipeline, with all pre-clinical and clinical trials and general testing for areas other than COVID-19, will experience delays; development candidates will reach the market later than estimated.
This delay will translate into dynamic changes in the R&D supplier network. Procurement organizations can play a leading role by proactively engaging with R&D service providers and contract research organizations (CROs) and adopting commercial and risk mitigation approaches to minimize disruption.
In the first months of 2020, nearly 150,000 clinical trials were planned for advancing drug research and development.105 The outbreak of COVID-19 has significantly disrupted the global R&D pipeline, stretching out current clinical trials which will translate into significant delays in bringing new drugs to market.
To illustrate this point, pharma and biotech companies are doing a total of 120 phase 3 clinical trials — each with a market value of around $300 million.106 All these trials face the risk of substantial delays resulting in greater spend and delayed revenue realization.
Here are some of the ways in which COVID-19 is disrupting these timelines, creating the risk of clinical protocol deviations and increased R&D spend on clinical trials:107
We recommend R&D procurement organizations establish companywide global task forces that work with stakeholders and R&D service providers to develop risk mitigation plans on global, regional and country levels. These task forces should devise a portfolio of strategies and risk mitigation options such as:
COVID-19 has also interrupted clinical trial drug samples reaching sites and patients on time. This influences the trial duration and spend. Typically, clinical trial drug doses are sole-sourced. This has led pharma companies to experience shortages of active ingredients, supplies and materials. In fact, the United States heavily relies on international supplies — 72% of active pharmaceutical ingredients come from other countries, with China’s share at 13%.108 This disruption in supply chain is forcing companies to seek out last-minute local manufacturing options. All of this is driving up R&D spend and cost to market. R&D procurement organizations should act fast in these situations to leverage local manufacturers and develop innovative risk-reward manufacturing incentives.
In addition to these, the R&D supplier base across lab consumables and chemicals categories is facing supply shortages. For example, supplies of personal protective equipment are experiencing significant shortages due to excessive demand, production delays, government involvement in distribution, and delivery backlogs.
Similarly, lab consumables needed for COVID-19 testing, such as PCR materials, pipette tips, plates and nucleotide mixers, as well as lab chemicals required to make sanitizer gels, are facing significant risk and price variations due to excessive demand. Proactively managing inventory and engaging suppliers to develop creative plans to address shortages are critical initial steps.
Procurement must strategize to mitigate risks across all R&D categories through the cascading effects of COVID-19. Designing and establishing global task forces that cover multiple groups in the organization is crucial. These task forces should proactively engage with R&D service providers and CROs to co-develop pragmatic risk mitigation plans to maintain critical R&D projects. This initiative will help enhance governance and guidance across the organization as well as the supplier network to prioritize solutions, speed up decision-making, and develop scenarios to evaluate risks.
Delays in critical R&D projects can be avoided by redesigning protocols and augmenting the use of technology, wearable devices and virtual interactions.
COVID-19 increases the exposure of R&D projects to supply disruption, workforce reduction, and significant price variation in supplies and services, impacting budgets. Procurement must strategically partner with R&D stakeholders and service providers to enhance communication and innovation and successfully navigate the disruption caused by the pandemic.
|R&D Services*||Develop a “task force” to prioritize critical projects
Engage vendors to minimize risks resulting from COVID-19 restrictions (e.g. delays in planned experiments due to lab closure)
Strengthen supplier relationships to ensure financial viability
|Expect delays in studies and trials to yield contract negotiations to cover lost time
Explore alternative approaches and technology methods to counter limitations imposed on clinical sites / hospitals
Revisit commercial implications due to disruptions from M&A / bankruptcy activity
Mitigate regulatory delays and market access
|Establish preferred partnerships with suppliers that adapted to the COVID-19 situation and leveraged technology to ensure business continuity (e.g. home monitoring services for clinical trials)
Revisit vendor mix (Priority / Qualified, etc.) to account for post-COVID-19 environment (e.g. financially resilient vendors)
Restructure and revise risk mitigation plan to prepare for COVID-19-like situations
Business as usual
|Laboratory Services**||Develop a “task force” to prioritize critical projects
Proactively manage inventory to avoid shortages and critical project disruptions
|Engage suppliers to develop creative plans to address shortages in the mid-term||Restructure and revise risk mitigation plan to prepare for COVID-19-like situations
Revisit vendor mix (Priority / Qualified, etc.) to account for post-COVID-19 environment
Business as usual
*R&D Services — includes General R&D Services, Discovery and Pre-clinical, Clinical Development and other services
** Laboratory (Lab) Services — includes Lab Chemicals, Lab Consumables, Lab Supplies, and Lab Equipment and Services
The COVID-19 pandemic has profoundly impacted the commercial property market across the world. Many businesses are closed and at risk of failure, creating a surplus of office space.
The need for social distancing has led employers to ask office-goers to work from home, sharply reducing demand for office space. Alongside this, the demand for home delivery and postal logistics channels has increased the need for more distribution centers.
The property market may never return to its pre-pandemic status. The crisis will contribute to the shaping of a “new normal,” with changed workplace norms, a faster shift from brick-and-mortar stores toward online retail and new brokerage fee models.
While businesses struggle to deal with the pandemic as it hits them in the second quarter of 2020, it is important to anticipate what may happen in the second half of the year. Businesses must be ready to respond to the post-pandemic property market and the threats and opportunities it presents.
Professional services in real estate, such as strategic advisory, lease administration services and brokerages, will continue to be in demand — in some cases for the first time, as businesses seek to adapt to a changed market.
The following trends are likely to be the key demand drivers in real estate:
Without choice, the labor force is partaking in the largest-ever work-from-home exercise, forcing landlords as well as tenants to think strategically about the future of the office space lease business. In the short term, given widespread social distancing to contain COVID-19, the demand for office space will decrease, and lessors could possibly be left in arrears depending on lessee solvency.
According to the commercial real estate services company JLL, landlords in the most-affected markets who are currently negotiating leases with tenants may demonstrate a willingness to expedite discussions and potentially offer elevated concession packages to close transactions.109 For companies with an agile finance or real estate arm, renegotiating rents and/or signing a new lease with discounted terms should be underscored.
After the social distancing period subsides and the workforce returns to offices, leases will lag any policy changes executives may implement. Thus, no exceptional shift is forecast for the office sector for 2020.110
One change we do foresee many companies adopting is new work-from-home policies. According to a 2015 Stanford University study, remote working on a specified schedule was found to have increased productivity rates by 13% and lowered attrition rates by 50%.111
Over time, the office footprint will likely become consolidated due to fewer employees coming to the office. COVID-19 is culturally changing the way we work, and the repercussions from the outbreak will probably influence the office sector’s intrinsic value in the coming years.
A significant number of commercial properties will become vacant as a result of companies shuttering or downsizing their real estate portfolios. The real estate sectors COVID-19 has hit the hardest are retail, leisure, and hotels. Simon Property Group, the largest mall real estate investment trust in the United States, furloughed 30% of its workforce in March.112 In Europe, hotels are practically empty compared to the same period last year. Hotel occupancy in top tourist cities such as London, Prague and Amsterdam is down 80%, 97%, and 90% respectively.113 In the short term, landlords will see reductions in lease payments as tenants seek to manage their cost base by renegotiating leases or seeking deferrals. In the worst-case scenario, defaults will plague landlords’ balance sheets.
The resulting surplus of commercial properties and the lack of competition from viable tenants will lead to capital values of properties sliding. In mid-March, Green Street Advisors estimated a 24% decline in real estate asset values.114 Therefore, we expect to see a decrease in commercial rents. For strong companies, COVID-19 may present an opportunity to improve on current lease terms and potentially lock in reduced rates for the long term as landlords seek to maintain occupancy and defend their investments.
Due to the pandemic, interest rates for real property have plummeted and are at an all-time low. The demand from foreign buyers for properties has slowed, impairing the market. Interest rate reductions are an attempt to offset the decelerated period of acquisition. The commercial real estate market had, however, started slowing down long before the COVID-19 pandemic. According to Bisnow, there was a 31% drop in the sale of investment-grade real estate in New York City from 2018 to 2019.115 The pandemic will continue to soften the market well into and possibly beyond 2020.
There is also a contrarian view about the impact of COVID-19 on interest rates. The view is that lower rates could create an environment where more buyers enter the market seeking property investments over other investment options. This increase in buyer demand could, in theory, raise property values.
Brokers today will need to make greater technology investments to market properties in nontraditional ways. Virtual tours and remote engagement are now commonplace. Therefore, brokers are less willing to sacrifice their fees in support of the selling process.
Many tenants, particularly in retail, hospitality, leisure and nursery businesses — sectors devastated by the need for social distancing — may find that their ability to continue relies to a great extent on reduction in rents and relief from property taxes.
Commercial landlords will see government-forced closure of businesses as the tenant’s business risk, one not covered by the lease terms.
As COVID-19 continues to spread, commercial tenants and landlords will encounter challenges in meeting contractual obligations as a result of governments’ continued efforts to enforce social distancing. The coronavirus will continue to obstruct the ability of businesses to operate and generate revenue. As national, state and local governments ask businesses to close or reduce contact with the public, these businesses will no longer be able to meet their rental obligations on commercial space. Industries most impacted by the pandemic are lobbying their representatives for rent relief. Commercial landlords are confronted with the decision to meet lessees’ requests to excuse tenant contract lease breaches and enter formal lease amendments, or pursue immediate defaults and judicial remedies.116
It is imperative that lessees proactively engage landlords. They are advised to utilize the services of real estate professionals to negotiate potential solutions. Here are some examples of solutions available to landlords and tenants in the wake of COVID-19:
Keystone Law notes that: “Market intelligence seems to be that most retail and restaurant companies are asking for at least one of the above from their landlords and some are aggressively refusing to pay rent.”118 It is hoped that in most cases, the parties to a lease will look to cooperate in these unprecedented times.
However, landlords will be taking a hard look at the viability of the tenant’s business and may indeed refuse requested solutions or even take legal action. Adopting a “can’t pay, won’t pay” stance is therefore a commercial decision for each tenant and one that should involve the services of a property professional.
Making the right decisions in a disrupted real estate market relies on a clear perception of tailored strategy and an up-to-the-minute understanding of global, regional, and local dynamics. Advice from established experts has never been as crucial, with existing strategies requiring urgent review.
Opportunities will likely open up and decisions to take advantage of them will have to be made quickly. Tenants may find they need the support of brokers to renegotiate or defer rents. Others with broad portfolios are likely to consider using lease administration services for the first time to handle multiple leases.
|Strategic Advisory||Take advice on lease terms and seek relief on rents, service charges and rates/property tax
Move to monthly payment plan
|Review advice and adjust according to market movements
Take advice on restructuring; take opportunities to downsize (or upsize in a tenants’ market) based on business growth projections
Seek revised lease terms
|Take long-term advice on the “new normal” and market recovery|
|Lease Administration Services||Review lease portfolio, identify break points and exit where necessary||Execute lease terminations||Continue to manage remaining lease portfolio|
|Brokerage||Begin negotiations to fix brokerage rates for the short term with preferred broker(s); agree on break clauses at 6 and 12 months||Monitor “new normal”||Extend agreements by negotiation or leverage market for new rates|
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29 Pippa Stevens and Sam Meredith, “June Oil Futures Contract Drops More than 40% as Crude Continues Unprecedented Selloff,” CNBC, 20 April 2020. Retrieved 29 April 2020 from https://www.cnbc.com/2020/04/20/june-oil-futures-rebound-3percentbut-may-contract-is-still-trading-at-negative-price.html
30 Tsvetana Paraskova, “Saudi Arabia Starts Production Cuts Ahead of Opec+ Deal,” Oil Price.com, 27 April 2020. Retrieved 29 April 2020 from https://oilprice.com/Latest-Energy-News/ World-News/Saudi-Arabia-Starts-Production-Cuts-Ahead-OfOPEC-Deal.html
32 Deutsche Welle, “Germany Exceeds 50% Renewable Energy Use Milestone,” EcoWatch, 3 April 2020. Retrieved 3 April 2020 from https://www.ecowatch.com/germany-renewableenergy-2645629058.html?rebelltitem=1#rebelltitem1
33 Dave Jones, “The Coronavirus Response Reduced Electricity Demand in Every Country Across Europe Last Week,” Ember, 23 March 2020. Retrieved 25 March 2020 from https://emberclimate.org/project/coronavirus_electricity_demand
35 Ronan Martin, “Why Germany’s Power Price Fell More than Elsewhere in Europe,” Bloomberg, 24 March 2020. Retrieved 31 March 2020 from https://www.bloomberg.com/news/ articles/2020-03-24/germany-s-reliance-on-industry-meanssharper-drop-in-power-price
36 Peter Behr, “A Warning Sign? NY Lockdown Jolts Electricity Demand,” E&E News, 6 April 2020. Retrieved 6 April 2020 from https://www.eenews.net/stories/1062798303
37 Dave Jones, “The Coronavirus Response Reduced Electricity Demand in Every Country Across Europe Last Week,” Ember, 23 March 2020. Retrieved 25 March 2020 from https://ember-climate.org/project/coronavirus_electricity_demand/
39 Ted Thornhill/Reuters, “The Coronavirus Pandemic Is Putting Up to 50 Million Travel and Tourism Jobs at Risk, With BA Warning It Will Lay Off Staff and Ground Aircraft,” DailyMail. com, 13 March 2020. Retrieved 1 April 2020 from https://www.dailymail.co.uk/travel/travel_news/article-8108413/The-coronavirus-pandemic-putting-50-MILLION-travel-tourism-jobs-risk.html
40 Mark Sharoff, “GBTA BTITM Outlook Annual Global Report & Forecast: Prospects for Global Business Travel 2019–2023,” GBTA (Global Business Travel Association), 8 August 2019. Retrieved 1 April 2020 form https://hub.gbta.org/groups/reviews/ item/20/11/2784
41 Michael B. Baker, “OAG: Global Airline Capacity Up Slightly This Week,” BTN (Business Travel News), 27 April 2020. Retrieved 27 April 2020 from https://www.businesstravelnews.com/Transportation/Air/OAG-Global-Airline-Capacity-Up-Slightly-This-Week
42 Michael B. Baker, “Airline Industry Sets Weekly Record for Capacity Cuts as U.S. Carriers Consider Temporary Consolidation,” BTN (Business Travel News), 30 March 2020. Retrieved 31 March 2020 from https://www.businesstravelnews.com/Transportation/Air/Airline-Industry-Sets-Weekly-Record-for-Capacity-Cuts-as-US-Carriers-Consider-Temporary-Consolidation
43 Steve Creedy, “Airlines Seek Relief from Massive $35 Billion Ticket Refund Liability,” Airline Ratings, 1 April 2020. Retrieved 1 April 2020 from https://www.airlineratings.com/news/airlines-seek-relief-massive-us35-billion-ticket-refund-liability/
45 Michael B. Baker, “Demand Drop Hits Car Rental Industry,” BTN (Business Travel News), 26 March 2020. Retrieved 31 March 2020 from https://www.businesstravelnews.com/Transportation/Ground/Demand-Drop-Hits-Car-Rental-Industry
46 “COVID-19’S Impact on the Hotel Industry,” AHLA (American Hotel & Lodging Association). Retrieved 31 March 2020 from https://www.ahla.com/covid-19s-impact-hotel-industry
51 Elaine Simon, “Research Breaks Down COVID-19’s Impact on Hotels, Travel Plans,” Hotel Management, 24 April 2020. Retrieved 25 April 2020 from https://www.hotelmanagement.net/own/studies-break-down-covid-19-s-impact-hotels-travel-plans
53 “COVID-19’S Impact on the Hotel Industry,” AHLA (American Hotel & Lodging Association). Retrieved 31 March 2020 from https://www.ahla.com/covid-19s-impact-hotel-industry
55 “Marriott’s Updated Statement on Novel Coronavirus (COVID-19)” [Press release], Marriott International News Center, 30 March 2020. Retrieved 31 March 2020 from https://news.marriott.com/news/2020/03/30/marriotts-updated-statement-on-novel-coronavirus-covid-19
56 Andy Lundin, “Commercial Fleet Sales Drop in March,” Auto Rental News, 1 April 2020. Retrieved 5 April 2020 from https://www.autorentalnews.com/354742/commercial-fleet-sales-drop-in-march
57 “U.S. DOT and EPA Lower Gas Mileage Targets,” Automotive Fleet, 2 April 2020. Retrieved 3 April 2020 from https://www.automotive-fleet.com/354852/u-s-dot-and-epa-lower-gas-mileage-targets
58 Matt de Prez, “Coronavirus: U.K. Car Production Predicted to Drop by 200,000 Units in 2020,” Fleet News, 30 March 2020. Retrieved 1 April 2020 from https://www.fleetnews.co.uk/news/manufacturer-news/2020/03/30/coronavirus-uk-car-production-predicted-to-drop-by-200-000-units-in-2020
59 Anup Dhiraj, “Driving Towards Recovery: COVID-29, Its Impact on the U.S. Car Rental Industry and Coping Strategies,” RateGain, 1 April 2020. Retrieved 1 April 2020 from https://rategain.com/pdf/RateGain_Study_COVID-19_And_The_Car_Rental.pdf
60 Andy Lundin, “Commercial Fleet Sales Drop in March,” Auto Rental News, 1 April 2020. Retrieved 5 April 2020 from https://www.autorentalnews.com/354742/commercial-fleet-sales-drop-in-march
61 GEP Analysis
62 “COVID-19 Impact on the Consulting Industry,” Source Global Research, 27 March 2020. Retrieved 19 April 2020 from https://reports.sourceglobalresearch.com/portal/covid19/latest
63 John Byrne, “How COVID-19 Is Crashing on the Class of 2020: Job Offers Already Disappearing,” Forbes, 29 March 2020. Retrieved 18 April 2020 from https://www.forbes.com/sites/poetsandquants/2020/03/29/how-covid-19-is-crashing-on-theclass-of-2020-job-offers-already-disappearing
64 R. Suryamurthy, “Pay Pinch for PwC Partners,” The Telegraph, 28 March 2020. Retrieved 21 April 2020 from https://www.telegraphindia.com/business/pay-pinch-for-pwc-partners/cid/1759846
65 Heather Long, “Over 10 Million Americans Applied for Unemployment Benefits in March as Economy Collapsed,” The Washington Post, 2 April 2020. Retrieved 18 April 2020 from https://www.washingtonpost.com/business/2020/04/02/joblessmarch-coronavirus
66 Stephanie Vozza, “How COVID-19 Is Changing the Recruiting and Hiring Process,” Fast Company, 26 March 2020. Retrieved 17 April 2020 from https://www.fastcompany.com/90481508/how-covid-19-is-changing-the-recruiting-and-hiring-process
68 Sean Peek, “Communication Technology and Inclusion Will Shape the Future of Remote Work,” Business News Daily, 18 March 2020. Retrieved 5 April 2020 from https://www.businessnewsdaily.com/8156-future-of-remote-work.html
69 Paige Minemyer, “COVID-19 Outbreak Could Drive Up Employers’ Healthcare Costs by 7%: Analysis,” FierceHealthcare, 27 March 2020. Retrieved 16 April 2020 from https://www.fiercehealthcare.com/payer/covid-19-outbreak-could-drive-up-employers-healthcare-costs-by-7-analysis
70 “Report on the Economic Well-Being of U.S. Households in 2017,” Federal Reserve Board, May 2018. Retrieved 22 April 2020 from https://www.fiercehealthcare.com/payer/covid-19-outbreak-could-drive-up-employers-healthcare-costs-by-7-analysis
71 Bill Siwicki, “Telemedicine During COVID-19: Benefits, Limitations, Burdens, Adaptation,” Healthcare IT News, 19 March 2020. Retrieved 17 April 2020 from https://www.healthcareitnews.com/news/telemedicine-during-covid-19-benefits-limitations-burdens-adaptation
72 “Legal Services Global Market Opportunities and Strategies to 2023,” Research and Markets, 19 November 2019. Retrieved 19 April 2020 from https://www.researchandmarkets.com/ reports/4856601/legal-services-global-market-opportunitiesand#pos-43
74 “World Economic Outlook, October 2019, Global Manufacturing Downturn, Rising Trade Barriers,” International Monetary Fund, October 2019. Retrieved 24 March 2020 from https://www.imf.org/en/Publications/WEO/Issues/2019/10/01/world-economic-outlook-october-2019
75 GEP Analysis (Internal road freight forecasting model)
76 Jonathan Saul, “Western Supply Chains Buckle as Coronavirus Lockdowns Spread,” Reuters, 23 March 2020. Retrieved 1 April 2020 from https://www.reuters.com/article/us-health-coronavirus-freight/western-supply-chains-buckle-as-coronavirus-lockdowns-spread-idUSKBN21A2PB
77 “Global Freight Demand Sinks; U.S. Focuses on Essential Goods,” EPSNews, 1 April 2020. Retrieved 1 April 2020 from https://epsnews.com/2020/04/01/global-freight-demand-sinks-u-s-focuses-on-essential-goods/
78 “Novel Coronavirus (COVID-19) — Ocean Freight Update,” Crane Worldwide Logistics, 18 March 2020. Retrieved 1 April 2020 from https://craneww.com/knowledge-center/latest-newsand-info/coronavirus-update/
79 Jonathan Saul, “Western Supply Chains Buckle as Coronavirus Lockdowns Spread,” Reuters, 23 March 2020. Retrieved 1 April 2020 from https://www.reuters.com/article/us-health-coronavirusfreight/western-supply-chains-buckle-as-coronavirus-lockdownsspread-idUSKBN21A2PB
80 Greg Knowler, “Global Air Cargo Rates Fall to Four-Year Low,” JOC.com, 2 October 2019. Retrieved 24 March 2020 from https://www.joc.com/air-cargo/air-cargo-rates-fall-four-yearlow_20191002.html
81 “Global Freight Demand Sinks; U.S. Focuses on Essential Goods,” EPSNews, 1 April 2020. Retrieved 1 April 2020 from https://epsnews.com/2020/04/01/global-freight-demand-sinks-us-focuses-on-essential-goods
82 Matt Bohn, “FedEx Announces 2020 GRI,” Parcel, 18 September 2019. Retrieved 24 March 2020 from https://parcelindustry.com/article-5337-FedEx-Announces-2020GRI.html
84 Jeff Berman, “Parcel Experts Raise Key Points About Impact of Coronavirus on Express Delivery-Based Markets,” Logistics Management, 26 March 2020. Retrieved 1 April 2020 from https://www.logisticsmgmt.com/article/parcel_experts_raise_key_ points_about_impact_of_coronavirus_on_express_deli
85 Morgan Forde, “Warehousing Sector Well-Positioned to Weather Coronavirus Disruption, Report Finds,” Supply Chain Dive, 17 March 2020. Retrieved 1 April 2020 from https://www. supplychaindive.com/news/warehousing-sector-well-positionedto-weather-coronavirus-disruption-repor/574285
87 “Warehousing and Storage Market Year-Over-Year Growth with CAGR of 5.91% until 2023, Current Industry Shares in Warehouse and Storage Sector,” MarketWatch, 18 November 2019. Retrieved 24 March 2020 from https://www.marketwatch.com/press-release/warehousing-and-storage-market-year-overyear-growth-with-cagr-of-591-untill-2023-current-industry-sharesin-warehouse-and-storage-sector-2019-11-18
88 Mary Salmonsen, “Reis: Vacancy Rate Unchanged at 4.7% in Q3 2019,” Multifamily Executive, 11 October 2019. Retrieved 24 March 2020 from https://www.multifamilyexecutive.com/propertymanagement/rent-trends/reis-vacancy-rate-unchanged-at-4-7-inq3-2019_o
89 Wade Shepard, “China-Europe Rail Is Set to Boom as COVID-19 Chokes Air, Sea and Road Transport,” Forbes, 31 March 2020. Retrieved 3 April 2020 from https://www.forbes.com/sites/wadeshepard/2020/03/31/china-europerail-is-set-to-boom-as-covid-19-chokes-air-sea-and-roadtransport/#39ce34037dbb
90 Andrew Corselli, “AAR: ‘Coronavirus Is Taking a Toll’ Amid ‘Tidbits of Encouraging News’,” Railway Age, 1 April 2020. Retrieved 2 April 2020 from https://www.railwayage.com/freight/class-i/aar-coronavirus-is-taking-a-toll-amid-tidbits-ofencouraging-news
91 “Markets—Commodities—Crude Oil,” Trading Economics, 1 April 2020. Retrieved 1 April 2020 from https://tradingeconomics.com/commodity/crude-oil
92 “Gartner Says Global IT Spending to Grow 3.7% in 2020” [Press release], Gartner, Inc., 23 October 2019. Retrieved 18 November 2019 from https://www.gartner.com/en/newsroom/ press-releases/2019-10-23-gartner-says-global-it-spending-togrow-3point7-percent-in-2020
93 “Businesses Will Spend Nearly $1.2 Trillion on Digital Transformation This Year as They Seek an Edge in the Digital Economy, According to a New IDC Spending Guide” [Press release], IDC, 24 April 2019. Retrieved 20 October 2019 from https://www.idc.com/getdoc.jsp?containerId=prUS45027419
94 John-David Lovelock et al., “Forecast Analysis: Global Recession Scenario,” Gartner, Inc., 1 April 2020. Retrieved 15 April 2020 from https://www.gartner.com/en/documents/3982876
95 Rani Molla and Shirin Ghaffary, “With E3 and SXSW Canceled, the Direct Losses from Major Tech Events Soars Beyond $1 Billion,” VOX, 12 March 2020. Retrieved 31 March 2020 from https://www.vox.com/recode/2020/3/3/21162802/techconferences-cancellation-coronavirus
96 Jasmine Enberg, “How COVID-19 Has — and Has Not — Affected Global Ad Spending,” eMarketer, 12 March 2020. Retrieved 31 March 2020 from https://www.emarketer.com/content/how-coronavirus-affects-global-ad-spending
97 “A Regularly Updated List of Tracking Marketers’ Response to Coronavirus,” Ad Age, 30 March 2020. Retrieved 1 April 2020 from https://adage.com/article/cmo-strategy/regularly-updatedlist-tracking-marketers-response-coronavirus/2244251
98 GEP Analysis
99 GEP Analysis
100 Riley Griffin, “Mark Cuban Says 3M Fails to Stop Profiteers of Masks,” Bloomberg, 28 March 2020. Retrieved 2 April 2020 from https://www.bloomberg.com/news/articles/2020-03-28/markcuban-aiding-mask-effort-says-3m-fails-to-stop-profiteers
101 GEP Analysis
102 Ryan Waters, “World Preview 2019, Outlook to 2024,” EvaluatePharma, June 2019. Retrieved 1 April 2020 from https://info.evaluate.com/rs/607-YGS-364/images/EvaluatePharma_ World_Preview_2019.pdf
103 Mandy Roth, “FDA Takes ‘Aggressive’ Measures to Stimulate COVID-19 Pharmaceutical Solutions,” HealthLeaders, 19 March 2020. Retrieved 1 April 2020 from https://www.healthleadersmedia.com/innovation/fda-takes-aggressivemeasures-stimulate-covid-19-pharmaceutical-solutions
105 Charley Grant, “Pharma’s Future Blockbusters Laid Up with Coronavirus,” The Wall Street Journal, 27 March 2020. Retrieved 1 April 2020 from https://www.wsj.com/articles/pharmas-futureblockbusters-laid-up-with-coronavirus-11585326825
108 Ana Swanson, “Coronavirus Spurs U.S. Efforts to End China’s Chokehold on Drugs,” The New York Times, 11 March 2020. Retrieved 1 April 2020 from https://www.nytimes.com/2020/03/11/business/economy/coronavirus-china-trump-drugs.html
109 Carol Hodgson et al., “COVID-19: Global Real Estate Implications,” JLL, 12 March 2020. Retrieved 1 April 2020 from https://www.jll.de/content/dam/jll-com/documents/pdf/research/COVID-19-Global-Real-Estate-Implications-March-2020.pdf
110 “Coronavirus Outbreak: Implications for Real Estate,” Marcus & Millichap, 16 March 2020. Retrieved 31 March 2020 from https://www.marcusmillichap.com/research/researchreports/reports/2020/03/canadian-coronavirus-outbreak-special-report
111 Nicholas Bloom, James Liang, John Roberts, Zhichun Jenny Ying, “Does Working from Home Work? Evidence from a Chinese Experiment,” The Quarterly Journal of Economics, February 2015. Retrieved 31 March 2020 from https://doi.org/10.1093/qje/qju032
112 Lauren Thomas, “Largest U.S. Mall Owner, Simon Property, Furloughs 30% of Workforce, Adding to Avalanche of Coronavirus-Related Retail Layoffs,” CNBC, 31 March 2020. Retrieved 31 March 2020 from https://www.cnbc.com/2020/03/31/simon-property-furloughs-30percent-of-workersdue-to-coronavirus.html
113 Terence Baker, “A Look at COVID-19’s Erosion of European Markets,” HNN, 1 April 2020. Retrieved 1 April 2020 from https://www.hotelnewsnow.com/Articles/301077/A-look-at-COVID-19serosion-of-European-markets
114 Jonathan Berr, “COVID-19 Is (Probably) Pushing Down the Value of Commercial Property,” Bisnow, 1 April 2020. Retrieved 3 April 2020 from https://www.bisnow.com/philadelphia/news/commercial-real-estate/covid-19-is-pushing-down-the-value-ofcommercial-property-103679
116 Anthony Sanfilippo, “How COVID-19 Could Impact the Real Estate Market,” National Association of Realtors, March 2020.Retrieved 31 March 2020 from https://homeownershipmatters.realtor/issues/how-covid-19-could-impact-the-real-estate-market/
117 Stuart Darlington and Gray Laurence, “Coronavirus: How Does It Affect Commercial Leases?” Keystone Law, 26 March 2020.Retrieved 31 March 2020 from https://www.keystonelaw.com/keynotes/commercial-leases-and-covid-19
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