Across the world, the traditional focus on supply chain optimisation and cost minimisation has led to a reduction in buffer against disruptions. With safe distancing measures put in place in many countries as a result of Covid-19, supply chains are strained, and it has highlighted gaps to augment and also aspects of the supply chain infrastructure that can be strengthened in the medium to long term.
Is the logistics sector ready for events such as Covid-19?
No one was prepared. Given the speed and the scale of the disruption, and in many places, the equilibrium is still being sought.
As many countries in the region implemented lock downs or stay at home measures very quickly, pockets of demand surge can be seen in places like neighbourhood supermarkets, grocery stores etc. Gaps have been seen in last mile deliveries, in additional warehouse capacity needed and, also in human resourcing.
Agility is a key component of a successful response.
In places where the supply chain normalised relatively quickly, strong collaboration between government and logistics players was critical. In large countries like India, one of the biggest challenges was the availability of truck drivers and labour in general, and how their health and safety could be ensured. Regular video conferences with the government allowed logistics players to formulate and implement ways to utilize their human resource. In smaller countries like Singapore, the government’s facilitation of human resource deployment to areas of need further helped with the agile response.
As disruptions may again occur, it is important that the government-private sector collaboration channels be maintained so they can be quickly re-activated when needed.
Governments also play a very important role to define what is essential, not just within a country but also across countries.
What are some of the key areas that can be strengthened in logistics and supply chain infrastructure?
Adoption of technology features very high on the list.
A recent survey asked over 300 industry players what the first step towards recovery would be. Two thirds of respondents answered investing in technology 1. Data from another survey showed that 90% of IT solution providers were operating in the transport and logistics sectors, more than any other sectors 2.
The Covid-19 has created a sense of urgency to bring the whole supply chain to the next level, particularly in terms of technology adoption. To be effective, technology needs to be adopted at not only the company level, but also at the supply chain level and at the regional level.
- At the company level, one important lesson from Covid-19 is to have both offline and online angles. As more consumers move to e-commerce, it is increasingly important for logistics companies to be involved in online as well as offline channels, and adopt a diversified approach in order to be relevant. Backend inventory management can also help companies better move between offline and online channels.
- At the supply chain level, many good initiatives have been suggested by industry experts. One example is YCH’s “superport” concept in Vietnam, which merges clearance facilities with dry ports, allowing cargo to reach end customer. A common digital platform can be applied to supply chain management to better connect ports with warehouses (a traditional barrier). Digitisation of port documentation (which remains offline in many Asian ports) is another important initiative. Prior to Covid-19, J M Baxi’s subsidiary Portall was already collaborating with the Indian government to implement a digital collaboration platform for port documentation and interactions. With the onset of Covid-19 and its impact on human interaction, adoption of the platform had been shortened from a matter of years to months.
- At the regional level, greater use of regional digital platforms could also further strengthen supply chains. One example is CALISTA, a supply chain digital platform that was developed by Global eTrade Services (GeTS) Singapore and PSA International. It facilitates customs compliance and the platform is also adding other elements such as logistics provider and trade financing choices, which could provide more choices in normal times, and also enhance agility in times of disruptions to quickly source alternative service providers. CALISTA is also including an artificial intelligence-driven platform that regulatory and freight updates from various sources, analyses them and broadcasts the alerts and advisory. Shippers can identify available freight services on a real time basis, without having to go through multiple sites or call or email multiple sources to consolidate the information.
Building resilience in sourcing (particularly in essentials like food, key components) is another very important area. Whilst each country may now look to expand warehouse capacity in order to improve resilience and allow for adequate stockpiles, preparing for a more prolonged and wider scale disruption requires a systematic approach.
Prior to the pandemic, the focus has been on supply chain optimisation. According to Baker McKenzie, a law firm, intellectual property issues and complex production processes have caused some firms to be over-reliant on a single firm or geography to source goods, in a bid to reduce costs. Higher value manufacturing industries without diversified sources are particularly at risk as the absence of a key part may cause the entire production line to cease operations. One example is Hyundai, the world’s fifth largest auto manufacturer, which sourced almost half its wiring harness from a Hubei-based supplier, which was affected by the lockdown 3. Hyundai has increasingly relied on China to supply autoparts in recent years, taking advantage of the proximity for just-in-time deliveries to maximise efficiency. This shortage forced Hyundai to suspend production for days with an estimated loss of $700 million.
Having multiple qualified sub-tier vendors and alternative sources in diversified locations would allow some capacity to be utilized in cases of disruption 4.
Prior to Covid-19, there have already been various initiatives like the Regional Comprehensive Economic Partnership (RCEP) and Chongqing-Singapore International Land Sea Trade Corridor (CCI-ILSTC). Enhanced connectivity in the region amongst neighbours makes a lot of sense as no single country has everything. Yet, within the region, one can imagine still being able to balance efficiency with resilience and agility. Within the region, it could also be possible to manage stockpiling at various nodes so no single company needs to over-stockpile. This could be important for “strategic buys” for big manufacturers to ensure they have access to key components but still in an efficient manner.
Upskilling of hinterland logistics and supply chain workforce will be increasingly important particularly as the industry rapidly adopts more technology and also implements structural changes in supply chain. Governments can work with the private sector to come up with the right modes to upskill local workforce so they can in turn more effectively leverage the newer technologies and work methods.
Are companies able to adopt measures that can help strengthen regional supply chain
The massive market in Asia means even a small percentage of adoption could translate to a large value in absolute terms. It may also not be very difficult to adopt some of these measures as technology, for example, is already readily available.
There are also many precedents and hence anecdotal examples.
One silver lining story is that of Alibaba. Some may remember it was a previous crisis (SARS in 2003) that propelled Alibaba to develop and implement e-commerce, with much success.
Companies looking to adopt technology and other measures can also find more collaborators, particularly in financing. For example, some of the modern logistics properties portfolios have now found support from large institutional funds and some even became listed on the Singapore stock exchange as trusts (similar to real estate investment trusts, REITs), which generate a good return while allowing the flexibility to inject further assets into the trust(s), hence supporting further growth.
In the aftermath of big disruptions, there will be winners and losers. For companies looking to plug gaps and strengthen, there are however a lot of many precedents and help out there to help them move to the next level.
This article was prepared by Seth Tan
It collated key points, information and views shared during an invite-only webinar co-organized by International Finance Corporation (IFC, part of the World Bank Group) and Infrastructure Asia on 30 April 2020 involving Mr. Dhruv Kotak, Managing Director of J M Baxi; Dr. Robert Yap, Executive Chairman of YCH Group, and Mr. Zulkifli Baharudin, Executive Chairman of Indo-Trans Logistics.
We hope this sharing will prompt the demand side, supply side and investor side of regional logistics and supply chain to reach out to IFC and/or InfraAsia, as there are various tools and collaborators.