Thursday, April 23, 2020

What Will be the Future of Logistics and the Supply Chain Industry When the Clouds Lift?

The World Post Virus Will Undoubtedly Look Different but How?
Shipping News Feature

UK – WORLDWIDE – So, what does the future hold for the logistics industry, and indeed the world? As we fight our way through the greatest health threat in living memory it is difficult to predict exactly the situation we shall be left with before the ultimate damage of the Covid-19 pandemic is known. What we can be sure of however is that there will be changes to the global supply chain to a greater or lesser degree.

Despite the lack of second sight we can have a reasonable stab at some of the trends likely to arise as importers and consumers learn the lessons the coronavirus is teaching us. Certainly there will need to be an economic recovery period, the billions of pounds, dollars and euros thrown to feed the battle against the monster will be something all governments will be anxious not to have to repeat.

Unfortunately, as the rumours, lies and conjecture swirl about the internet, we may never really be certain of the source of the current infection. Wet markets in China? A pathogen inadvertently or deliberately released from a biological warfare establishment? There will be a host of enquiries around the globe to study how governments, financial institutions and health services have dealt with the crisis with a view to future improvements but the likelihood is that, whatever the source of this first wave of international disease, it probably won’t be the last.

So how are supply chains to be affected? Certainly already many traders are studying the possibilities of alternative sources of supply. Whilst the precipitous state of running a company with only one major customer is clear to all, the seductive nature of a cheap source of stock is often ignored.

The crisis has seen buyers searching the planet for huge quantities of essentials to deal with Covid-19. PPE, respirators etc. and doubtless post infection, governments will store supplies of such in a bid to get ahead of any problems. This however is not the point, the disease has illustrated to many the weaknesses in their operation and wise directors will react to ensure they are not trapped by such things as dwindling stocks in the future.

Much of what the West purchases has come from China, now countries such as Vietnam and Thailand are coming forward as suppliers, and the likelihood is that many companies will widen their sources of supply, even if this means scratching something from the bottom line.

In the retail sector we may well see a remodelling of options. John Perry, managing director of supply chain and logistics consultancy SCALA, said this week he sees the potential for reduced product lines for consumers, and streamlined product ranges to increase the resilience of the supply chain, reduce complexity and make the whole thing more efficient for retailers a la Aldi and Lidl.

The current dismay at the slow delivery of PPE to UK hospitals has illustrated that supply chains are indeed only as strong as their weakest link. In 2018 after the Carter Report was published a company, Supply Chain Coordination Ltd (SCCL), a government owned operation intended to stop the practice of individual hospital trusts purchasing their own equipment and use the power of economy of scale ordering, was set up.

Seemingly a sensible cost saving measure, the trusts lost half a billion pounds in government funding to pay for the operation and the delivery contract was handed to Unipart in a five year deal, but it is alleged that the current increase in orders has swamped the operation meaning the Army has had to come in to help. Meanwhile Virtualstock, which operates a platform connecting buyers and sellers of healthcare products, tells us it is working directly with 139 trusts out of the 240 in the country to help them obtain the essential supplies, presumably outside of the SCCL system.

Such situations clearly illustrate the unpreparedness which many sectors are suffering from. Even before the pandemic the rise of ecommerce had already seen death of several major retailers, whilst internet savvy smaller outfits have often been faster on their feet and used the new technology to build their businesses.

Agriculture is one area that needs serious consideration from all involved. Again the UK is both reliant on food imports and on foreign labour to deal with the seasonal demands of harvesting a variety of its own crops. Whilst an appeal for British workers currently furloughed or unable to work at their normal jobs attracted tens of thousands of candidates to fill this year’s potential personnel shortfall of 80,000 temporary migrant workers, less than 5,000 are known to have signed up.

With no certainty about the situation after Brexit it could mean a seismic shift in the way countries behave, in a commercial sense, in the future. Economics is, on this scale, pretty simple stuff. If you spend all your money overseas, they get richer and you get poorer. Britain for example has to face up to the fact that, whilst the government wants to see a huge amount of new homes built, it may be that agriculture rises up the list of priorities.

Cynics will doubtless point out that, as soon as social distancing requirements became the norm, the homeless have largely disappeared from city streets, beds having magically been found for them. Also on the street, global traffic levels have plummeted, many of those working from home will doubtless continue to do so which will hopefully aid the fight against pollution.

The picture post pandemic is likely then to amplify such changes. What is certain is that, even if this all ends relatively well, there will be a sense of trepidation across the whole of society which will affect the way we conduct our lives in the future.

As far as the supply chain goes any precise predictions then are impossible, but every company which survives will look at exactly how the crisis has affected them, what they can do in the future to mitigate against, or even profit from, any future occurrence. One likely outcome will be an upswing in stock retention, the high cost of storage has seen the ‘last minute’ model evolve in recent years.

One of the key factors in this will be the behaviour of landlords, if many companies have failed when the crisis ends there may need to be a revaluation of commercial property rents. We are already seeing high street rents fall as major retailers fail, the warehouse sector may see a glut of empty properties with the resultant descent in rental charges.

Conversely, should most companies survive, some doubtless having had a rent holiday from concerned landlords, an increase in demand for storage space to insure against future stock shortages would see the opposite reaction. You pays your money and you takes your choice.

Let those of us concerned with the logistics industry simply hope that at last the sector will be recognised for what it really is, the beating heart and myriad arteries which supply essentials to every part of our world.