Over the years, the evolution of supply chains has time and again stressed the importance of being agile and flexible. Black swan events are reality checks for supply chains and their degree of resilience and future-readiness. With the onset of a crisis, businesses are forced to shut shop while others keep wading through the uncertainties. The burning question remains, whether the current economic crisis will be the driving force behind transforming global supply chain visibility models for good?
The COVID crisis had an adverse effect on global trade and the maritime industry faced the biggest setback in years. Sadly, it took a global health and economic crisis for the world to take note of the significance of logistics to keep the world economy relevant. With ocean shipments slowing down ports were crammed with storage requests of stuffed containers. The sharp decline in import and export, reduced demand for containers, increased turnaround times at ports, unprecedented fall in crude oil prices, cargo rollover, and blank sailing became common occurrences.
Adjusting to the new normal
Amidst the pandemic’s deterring effects, the industry adjusted to the new normal and started innovating solutions to support the ecosystem. Businesses turned towards technology during these times of crisis for respite and to pave a path towards the desired recovery. Thus, the need for evolving freight technology and digitalization gained momentum, with more players agreeing to the importance of robust IT infrastructure to ensure supply chain resiliency. Additionally, a collaborative approach towards supply chains became a necessity. A manpower intensive industry, highly dependent on-field operations remarkably adapted to remote working norms while the frontline workers continued working hard to make essentials available to the masses. Technological innovation didn’t stop and increased investments in evolving tech platforms became a noticeable trend.
In a bid to support shippers and freight forwarders, Ocean Insights extended its dynamic database of blank sailings at no additional charges. This extensive database helped combat the challenges of matching the vessel supply to demand for shipments and was made available to all through email updates. Zim launched e-bills of lading to expedite freight during the crisis and Evergreen launched GreenX, a digital platform to offer instant quotes and eBookings. The DCSA consortium announced a partnership with Chain.io in an attempt to develop track and trace APIs that connect carriers, shippers, and forwarders. It also published guidelines on compliance with the IMO cybersecurity requirements. Meanwhile, Standard Chartered Bank became the first commercial entity to join TradeLens, the interconnected ecosystem of supply chain partners backed by blockchain technology and the members of CargoSmart-led Global Shipping Business Network signed a shareholders agreement.
Container lines received state financial aid and freight rates have remained relatively stable since the pandemic due to various other reasons such as blank sailings and reduced fuel prices. Maersk reported a 20-25% drop in lifting in the first quarter. BIMCO stated there has been a 16.9% decline in year-on-year volumes in April. According to reports from Drewry, June witnessed an increase in spot freight rates on the major trade lanes. Container shipping alliances played a major role in these unprecedented times through a disciplined approach and avoided cutting rates to fill ships and instead focussed on strategic blank sailings.
The Path to Recovery
While it’s not possible to make long-term forecasts given the uncertainty governing global trade at present. However, what is certain is the fact that the path to recovery is not going to be uniform with every industry adapting to the new regime differently at different paces. Healthcare and FMCG are the main industries facing evident challenges in logistics and in constant need for innovation to drive supply chains to meet demand. Therefore, the recovery in these sectors is expected sooner. Power generation, the automotive industry, aerospace manufacturing are a few sectors that may remain entirely immune. The automotive industry might even see a surge in demand for autonomous vehicles. In terms of logistics, road transportation has been at the forefront during the crisis whereas ocean or air freight have been more severely affected by the pandemic and may take longer to recover.
According to Lloyd’s list, there is an estimated positive growth in the dry bulk sector as capesize rates keep rising. However, container volumes are most unlikely to return to a normal level anytime before 2021. The crisis has accelerated the decline in the growth of demand for container shipping which reflected in how liners have effectively removed capacity to manage otherwise over-tonnage scenarios. The recovery trends for crude and product tankers are on the positive side owing to reduced fleet growth and low order book through 2021. As per Lloyd’s List Intelligence, the net fleet growth forecast for product tankers is estimated to be 1.9% while that of crude tankers is 2% in 2021. Meanwhile, the market for dry bulk trade is expected to decline to 2.1% CAGR till 2024. In another report by Drewry, it has been stated that charter rates for breakbulk and heavy lift vessels are unlikely to recover back to pre-COVID-19 levels until the end of 2021. It further states that as a base scenario if the global pandemic is contained in the coming months, dry cargo demand is expected to rebound in 2021.
On a global level, estimated year-on-year growth of 17.6% is expected for the logistics market at USD 3215 billion post-COVID-19. The major focus of this growth will remain on the continued supply of essentials and building supply chain stabilization initiatives. However, the factors that may hinder the recovery will be an acute shortage of labor, limited availability of COVID-19 testing kits, and ensuring that the available workforce adheres to safety protocols amidst a global pandemic.
Gita Gopinath, Chief Economists, International Monetary Fund said in a recent statement, “The recession this year will likely be more severe, and recovery in 2021 will be slower than we anticipated”. She further stated that the maritime industry will be severely impacted. Although most of the countries are in recovery mode with international border restrictions being eased, the chances of normalcy being restored in early 2021 are quite unlikely.
However, increased digitization and technology investment can be seen as an impetus towards building more robust and agile supply chains. Trends in adopting visibility solutions, robotics, artificial intelligence, machine learning, blockchain, and other advanced technologies in freight and shipping will dominate the path to recovery. While the bullwhip effect is going to govern the post-pandemic era of normalcy, businesses will have to resort to a collaborative approach towards the supply chain where visibility-data integration and standardization will play an important role. With the given industry standards there seems to be a lot of catching up to be done in adopting the technologies that we discuss at large. For now, addressing the very critical need for knowing where the cargo is at any given stage across the supply chain requires better visibility solutions for all stakeholders.
With advanced Track and Trace functionalities of Ocean Insights transparency can be induced into the system. With consolidated real-time shipment data available on a single platform that generates predictive analytical insights, a more resilient supply chain can be expected and delivered.