The Lloyd’s List Podcast: How to rebuild resilience into container supply chains

Lloyd’s List 31 Jul 2023 Share
Listen to the latest edition of the Lloyd’s List Podcast — your free weekly briefing on the stories shaping shipping

THE shockwaves that hit global supply chains during the pandemic may have dissipated now, but the experience of stock shortages and delays put paid to the myth that containerised cargos flowed on a smooth conveyor belt that never broke down.

Add in an aggravating feature such as the week-long closure of the Suez Canal, and the fragility of the system became even more evident.

But with boxes now moving again, have lessons been learned? And will cargo interests act differently when, not if, something similar happens again?

“You're spoilt for choice, as always in the global shipping market with things that can go wrong, things that will most likely get in your way, and obstacles that you need to remove in order to limit the transit times,” Xeneta chief analyst Peter Sand told the Lloyd’s List podcast.

“But did he shipping industry have a whole list of lessons learned from the Covid years? I don't really think so.”

After two years in the trenches, people were still trying to dig themselves out, he said.

Zencargo chief executive Alex Horsham is more optimistic.

“I think a lot has been taken on board,” he said.

“One of the problems with supply chains is that there are so many variables that it's easy to look from the outside and say they haven't got all the variables under control.”

Shippers were looking to have more visibility, looking at different sourcing patterns and trying to better match supply and demand, he said.

“They don’t have everything under control but I don’t you can in supply chains,” Hersham said.

The real test, he said, would be would be how much investment was made in to supply chain resilience, particularly in a recessionary environment.

“Maybe in a year or two, we can say yes, they really have learned their lesson. But at this point, I will give people more credit in terms of what they're trying to do with their supply chain.”

But there are also wider issues beyond the sudden shocks that may affect supply chains out of the blue, according to Global Shippers’ Forum director James Hookham.

“I think it is important to realise that there are some really big changes going on in supply chain thinking anyway, not least because of this requirements of perhaps diversify supplies or sources of supplies, but also because of climate change thinking and the possibility of needing to shorten supply chains,” he said.

“Depending on the sophistication of the business, there is quite a lot of detailed thinking that's going on, not just about supply chain, but the whole resilience of the business.”

But that left business with a lot on their plates if they want to come out stronger from a supply chain perspective, Hersham said.

“For some business, it will be really hard to dovetail all those things at the same time,” he said.

“And they might take the view that right now they will focus on inventory management and emerging stronger, so that in 2024, they can then really build a five- or six-year plan to 2030 to build that resilience and ESG that they want to build.

“If that is the strategy I wouldn’t say it’s a bad one, just as long as when they do come out stronger they really do invest and think about future proofing their supply chain, both from a sourcing perspective but also from and ESG perspective.”

One common thread in discussions over supply chain resilience has been the viability of alternative sourcing, particularly given geopolitical tensions surrounding China.

But full-scale relocation of manufacturing facilities is not possible, at least in a short time frame, according to Sand.

“What we do see at the more expensive end is, for instance, companies like Apple having now set up an  assembly facility in India,” he said.

“They're not completely unplugging China. Nobody wants that and nobody can do that. So instead they are having that China-plus-one strategy, or at least just making sure that they are not overly reliant on one origin.”

But he warned that many boardrooms would face a reality check in coming months.

“They all cried wolf in the sense that they said they needed to make expensive choices,” he said. “But I think a lot will have doubts right now, because there are no cheap options here.”

Hookham agreed that the idea of wholesale changes to sourcing was a lot more difficult that it was popularly portrayed.

“Not only is there the tough decision to make about the costs and the and the disruption that are changing the risk that you're exposed to by making that change,” he said

“Many suppliers are under long-term contracts. There are important service and quality relationships established after 30 years that can’t be changed overnight.”

Sand also backs the considered approach to resilience.

“If you thought you were on top of it before, you obviously were not,” he said.

“Constantly benchmark your performance, whether that comes in the form of freight rates, or inventories, or just reconsidering if just-in-time is what you should be doing, or should you build in more redundancy with just-in-case supply chains.

That required visibility and flexibility, however.

“The biggest point that I'd add to this is that and where I think shippers are investing some time and money is improving the visibility of their inventory,” Hookham said.

“One of the reasons for the ordering splurge in 2021 was because a lot of shippers just lost track of what was on the way. The technology is there; it is just a question of linking it up.”

For Hersham, the top takeaway is that the long-term trend is to diversify supply chains but also have more flexibility.

“It is not solve this one problem now, and you will be fine forever,” he said. “Build an infrastructure to be agile and build a way of communicating upwards to the board and I think that will serve you well.”

Lloyd’s List 31 Jul 2023