Consumers rarely concern themselves with supply chains unless something goes horribly wrong. And now that many people see empty shelves on a regular basis, they’re realizing that the supply chain and logistics industry is just one of many invisible lifelines that keeps society moving.
I’ve been interested in this for a while now. I’ve also worked with food manufacturers and distributors over the past 10 years. And in light of the COVID-19 pandemic at the beginning of 2020, I’ve been especially interested in how industries are reacting to such a crisis.
Flexport Webinar: The Economy and Logistics Through the Lens of Data
To learn more about the industry’s response, I attended a webinar held by Flexport in mid-April. Flexport is an all-in-one platform for customers to oversee and manage their logistic needs. During the webinar, Head of Ocean Freight Nerijus Poskus and Chief Operating Officer Sanne Manders offered educated, real-time insight into what’s affecting supply chains.
Supply and Demand
Freight companies always anticipate a dip in supply around the Lunar New Year. In 2020, the coronavirus surged in China around the holiday, which delayed the bounce back in supply that usually happens after the New Year. Apple, for example, experienced a significant drop in iPhone shipments at the beginning of March.
But by the time operations started up again in China, the rest of the world was just starting their COVID-19 response. As a result, the demand dropped for certain goods made in China. And the logistics industry was suddenly scrambling to cope with multiple factors.
In light of these events, Nerijus explained the variety of ways that ocean freight providers have responded to the crisis.
What surprised me was that, while carriers are under incredible pressure to move cargo quickly and safely, they’ve had to reduce their capacity by over 20 percent. In other words, ocean freight companies have removed a large segment of their fleet from their current operations to save money.
And this takes shape in a few different ways. It means that carriers have:
- reduced the number of cargo ships moving products
- laid off staff to run the ships
- both reduced the number of ships and laid off staff
If they’ve laid people off, then companies may take longer to respond to an increased demand when the market improves. If they’ve simply docked a percentage of their fleet, they should be able to get them running once the demand for shippers increases.
At first, I was surprised when I heard this. Shelves are empty! Shouldn’t cargo companies be moving all kinds of products and making bank right now?
But Nerijus enlightened us (i.e. me): the demand for premium and direct services have increased, while indirect services are almost non-existent at the moment. For example, bookings for the direct route from Shanghai to Los Angeles have increased by 500 percent.
And because premium and direct services have increased and indirect routes are less profitable right now, shippers have less consistent options for moving cargo. And this lack of consistency leads to unpredictable delays in delivery estimates.
As retail passengers, we’re all aware that flights have dramatically decreased because of global health concerns. Sanne speculates that passenger flights will likely not resume their previous frequency or capacity for another year.
Fortunately, airlines can repurpose passenger planes to transport personal protective equipment (PPE) around the world (for now). But what many people may not realize is that secondary trade lanes rely on passenger flights.
Secondary trade routes carry materials for components that manufacturers need to make finished products. The lack of passenger flights has caused a huge disruption in the supply chain, especially as the demand for PPE has increased the price of air freight.
And without eyes on every supplier and source, some companies now question what’s happening in their own supply chains. (Yet another reason people advocate for implementing blockchain technology in supply chain management.)
Farmers and Food Manufacturers in the United States
In April 2020, Smithfield, the largest pork producer in the world, suspended operations at their South Dakota facility because COVID-19 had infected numerous employees. Regardless of how avoidable this situation was, it has incredible ripple effects and implications for the food supply chain.
For example, how many transportation workers have entered and left the facility? Simply touching a door handle or shaking hands with a manager could have devastating implications down the line.
Furthermore, farmers throughout the U.S. are harvesting hundreds of pounds of produce, only to let it mulch. For many, the majority of their business consists of restaurants, schools, stadiums, and other service providers that have suspended operations. And without an affordable infrastructure in place to go retail, farmers have no choice but to discard their harvests.
The modern food supply chain has so many steps between the farmer and the consumer that they simply can’t get the food to people directly. And that disconnect may led to frustration and panic among consumers.
The Supply Chain and Logistics Industry Response Will Be Key to Our Recovery
The supply chain and logistics industry will undoubtedly play a crucial role in how the global economy heals. Currently, however, there does not seem to be any amount of technology that can quickly solve these problems.
For now, we have to depend on the hardworking individuals in the logistics industry to keep our lives going. And the best thing we can do for them is to practice responsible social distancing and stay at home.
Want to chat more about supply chain logistics? Contact me!
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