Opinion: Covid-19 Hastens Leaner, More Tech-Dependant Future for Logistics
Mark Szakonyi is executive editor at the Journal of Commerce, a IHS Markit publication that covers international maritime and trade.
In the face of so many uncertainties created by the coronavirus disease Covid-19, count on the pandemic to accelerate long-building trends in the logistics industry, from spending more on technology than hiring to readjusting the so-called sweet spot for the sizes of massive container ships plying global trade lanes. While it’s still too soon to determine the extent of which these trends will be hastened, Covid-19 will push the industry closer to a future where digitalization is nearly omnipresent, automation is ingrained, and logistics has adapted to slower trade as the economic windfalls of globalization fade further.
With ocean and surface freight volumes falling at a double-digit pace — thanks to Covid-19 shelter-in-place orders sapping global consumer and manufacturing demand — the pressure is on container lines to logistics managers to eke out efficiencies while still staying competitive and adapting to a new economic landscape.
It’s unsurprising then that among logistics professionals who said they expect to make a change in the wake of Covid-19, 76% said they will invest in technology, according to a survey conducted by the website Shipping and Freight Resource on behalf of ocean freight visibility software provider Ocean Insights. Comparatively, just 33% of the approximately 130 logistics professionals who reported preparing for major changes said they would be hiring new employees.
Some of those technology investments will allow some workers not to return to the office once restrictions are lifted, as many of those offices will be closed or at least made smaller due to cut costs. But much of those investments will be focused on automating work processes, allowing employees to work on high-level tasks, and as a result, lessening the need to hire even when demand returns.
The accelerated pace of digitalization — and its near cousin, automation — will exacerbate divides in the industry, and speed up consolidation. That’s going to further shake up the livelihoods of freight forwarders, those who help companies arrange for the transport of their containerized goods from factory floor to final delivery. They make their money on high-volume, lower margins and have to keep shipments flowing at high levels to achieve efficiencies and economies of scale to cover their heavy fixed costs.
But as the middlemen between shippers, container carriers and airlines, when demand and capacity plunges as it has been in terms of ocean and air service, that model takes some wear. The average revenue of the 275 forwarder members within the Airforwarders Association has dropped more than 50% during the Covid-19 crisis, forcing 65% of the group’s members to lay off or make plans to cut staff, according to Brandon Fried, the group’s executive director.
“There’s no doubt in my mind that the situation over the last 30 days and in the foreseeable future will greatly impact the health of many forwarders for years to come.” said Chris Connell, senior vice president of perishables, North America, at Commodity Forwarders, a subsidiary of Kuehne + Nagel.
Small and midsize forwarders were challenged before Covid-19, but now the “big are going to get bigger and the small and medium-sized forwarders [those with annual revenues of up to $700 million] are going to go under unless they invested in technology and specialization,” said logistics industry analyst Cathy Roberson.
Hinting at how Covid-19 will change the nature of global trade, Rodolphe Saadé, chairman and CEO of CMA CGM, one of the five largest container lines, said in an April 17 video statement that the pandemic’s impact on “world economic flow” requires a complete reconsideration of how international container transport operates. “Supply chains will need to adapt to sharp fluctuations between supply and demand,” he said.
Part of that adaptation is adjusting physical assets to not only lower demand but more intense bursts of cargo, as well as a trading environment in which systemic risk and protectionist trade policies encourage more regional supply chains. That will likely push the industry to rightsize its need for larger vessels.
While the payback of ultra-large container vessels (UCLVs), those with capacities of more than 15,000 TEU, has been questioned in recent years, “the current crisis might cause a rethink in vessel size,” said Theo Notteboom, a Europe-based academic in maritime studies.
Economies of scale only work when a ship is full, which typically only happens on headhaul trades at peak periods. Expectations of low global volume growth and that ULCVs can only be deployed on the Asia-Europe trades makes them an odd fit for a post-coronavirus world marked by slower trade growth that will be more regional than global in scope.
“Supply chain dispersal will become more pronounced,” said Lars Jensen, CEO of Sea-Intelligence Maritime Consulting. He said carriers should begin now to plan for the trade patterns that will emerge in the coming decades as developing nations increase their import and export volumes. “We need to be clear on the standard vessel needed by 2050 and start ordering them for fleet replenishment,” Jensen said.
The views and opinions expressed in this opinion section are those of the authors and do not necessarily reflect the editorial positions of Caixin Media.
If you would like to write an opinion for Caixin Global, please send your ideas or finished opinions to our email: firstname.lastname@example.org
- MOST POPULAR