The world right now is in the grip of the pandemic spread — and the health situation is almost guaranteed to get worse in the coming weeks. The response to the spread has been an unprecedented lockdown of entire countries with either movement restrictions or outright curfews.
At the time of writing, this affects more than 2.5 billion people globally. The economic impact will be acutely felt for supply chain providers in the coming weeks and months, and we are likely to see some shipping lines not survive the impending cash-crunch.
The situation is unprecedented, especially the speed with which sizeable parts of the world economy are being shut down. There is no prior identical event with which we can accurately gauge how quickly, or slowly, consumers and businesses will regain confidence and bring the economy back up and running. Presently, my view is that the downturn for container shipping will be of the same order of magnitude as the financial crisis, and we will only see the rebound in earnest in 2021. Other analysts presently appear more optimistic both in terms of the magnitude and the speed of the recovery.
However, eventually there will be a rebound. Presently, most efforts are focused on managing a very acute economic crisis, and for good reason, but already the question is beginning to appear: How will this change the world? I will not presume to be an expert on all global matters, and hence will confine the following to a look into a part of how container shipping and broader supply chains will be changed as a consequence of the pandemic. And herein also lies a view in terms of how to improve competitive positioning within the industry.
In this early phase of the crisis, we are seeing people suddenly having to manage their jobs sitting at home. This covers logistics managers on the cargo owner side as well as all office staff such as customer service, documentation, sales, and finance on the shipping side. What this is showing, so far, is that it is possible to keep the supply chain running and that online tools are indeed helping in this endeavor.
Some shipping and logistics companies are even “pushing” an accelerated usage of their online tools in an effort to prioritize their scarce resources. But the situation also mercilessly reveals which parts of the supply chain process are not yet digitalized — the need to move physical bills of lading around, the need to provide customs documents physically signed by people who no longer are available in their usual offices, the need to handle physical freight payments at shipping lines’ counters, etc.
These physical challenges vary from country to country. However, given the necessity of the situation, workarounds are quickly being devised. This lays the foundation for a rapid acceleration of online and automated digital tools once we are past the pandemic, as we now get to see very clearly where the true problems are, as well as how they can be pragmatically resolved. The pandemic will not be the cause of a digital transformation — that transformation has slowly been getting underway the past few years — but it will accelerate the transformation.
The current challenges will also clearly expose the quality of the service provided by shipping lines and logistics companies. Not in terms of whether they are on time — they clearly will not be — but in terms of whether they can truly help manage exceptions in a supply chain in dire need of exception management. And this is the second part of the accelerated digital transformation. The ability to competently assist in challenging conditions is where the shipping lines and logistics providers can differentiate their services in an environment where digital tools will take over the standard processes.
Another element that will be accelerated is the automation of the physical parts of the industry. We are now seeing temporary port closures when employees fall ill. We are seeing a sharp drop in truck driving capacity in India as the country goes into lockdown. Vessels have on occasion been severely delayed on port entry as pilots would not go onboard. The supply chain is, at heart, physical. It moves large amounts of physical goods around, and at almost every step of the way it is propelled by human labor. Truck drivers. Crane operators. Workers loading and unloading containers. Stevedores. Seafarers. As the pandemic spreads in the coming weeks, we will see a decline in the availability of all these people. Some fall ill themselves, others need to stay home to care for their family, and yet others may be under curfew. This will cause delays and congestion in some places.
Just as with digitalization, automation of the physical part of the industry has also been under way for several years and as such the pandemic is not a game changer, but will serve to accelerate the development. We will see a more rapid uptake in remote-controlled technology that enables the use of skilled people without a physical presence at a specific location. We will likely also see an acceleration in the use of fully autonomous equipment in settings where this can be practically incorporated.
There is no doubt the industry is facing a very challenging period. However, this is also a time where we get to truly test the resilience of the container shipping supply chains, as well as a time when companies within the industry can test the opportunities for digitalization and, at the same time, hopefully demonstrate the value associated with skilled employees beyond what any software tool can provide.
Contact Lars Jensen at Lars.Jensen@SeaIntelligence-consulting.com.