While we continue to read the headlines in business publications of the daily impacts the coronavirus is having on businesses and supply chains throughout the world, it is perhaps worth looking at the potential long term effects of the coronavirus on the logistics industry.
To understand what lies ahead for the logistics industry, perhaps it will be of benefit to see where we are today:
- The pandemic has impacted every segment of the business world from a freight forwarding perspective.
- Oil tankers are idling offshore with loads of crude that there is no demand for as oil and gas consumption has dropped by over 50 % worldwide.
- With the stoppage of international air travel, suppliers and customers depending on air freight are finding it harder and harder to move their goods via air.
- As demand and supply patterns gyrate wildly throughout the world, containerized shipping has been challenged to position ships and containers where there is still demand, resulting in a large increase in blank sailings or canceled ports of call.
- While the Wuhan China area is coming back to like after its battle with covid 19, many other parts of the world are in the midst of general lockdowns that may go on for months. With over 5 million companies throughout the world that depend on this area for component supplies, the instability created in recent months will have a ripple effect for months to come.
So, given all of the above, let’s consider some potential changes in the world’s supply network going forward.
In the last 30 years, the world economy has seen huge growth in globally based supply chains. Companies both large and small have become increasingly comfortable shopping for materials, goods and commodities anywhere in the world where the best deal can be found.
China’s rise has driven a huge migration of manufacturing capacity to the Middle Kingdom. With the pain that has been inflicted on companies that have far flung supply chains we expect to see many businesses relooking at their procurement strategies. We would expect to start seeing a more regional networks of suppliers versus the current global networks that have developed over the last 3 decades.
Another strategy that could emerge is for businesses to bring the manufacture of certain critical components in house rather than outsourcing them. While the cost to develop and build these key components in house may be more costly on a per unit basis, the reduction in risk and shipping costs might make this a more appealing alternative in the long run.
These changes will create both hurdles and new opportunities for logistics providers. Cross border trucking and more short haul transportation options may develop while at the same time we will see reductions in shipping channels between Asia, the EU and North America.
While no one has a crystal ball, it is a safe bet that the logistics companies that can adapt, innovate and anticipate new trends in the transportation industry will be the winners in the long run.