News / TPM22: Supply chain reformation gathers pace

Credit Geodis

Over the past two years, change has seen supply chains evolving quickly, but the evolution has been forced on creaking infrastructure and old methodologies.

Covid has brutally exposed the soft underbelly of global supply chains and, while shippers and carriers managed their businesses through an uneasy alliance, Covid will act as a major catalyst for rapid change in the industry.

If there are any initial takeaways from the first full day of the Transpacific Maritime Conference, taking place in Long Beach for the first time in two years, it is that there will be no return to the pre-pandemic status quo.

It is a theme readily taken up by Geodis’s SVP for the Americas, Agustin Lopez, who told The Loadstar drones were on their way, 5G would allow the development of self-driving trucks, further developments in the Internet of Things (IoT) and unmanned ships and digitalisation of supply chain data would become available in the market within the coming decade.

“Rates will return to some sort of stability within the next two years,” said Mr Lopez, but the industry “is looking at a very different scenario; everything [cargo] will come quickly and there will be more reliability” in the system, he said.

Digitalisation will also mean increased visibility in supply chains, which offers an opportunity for shippers to move freight in a more sustainable way.

However, Mr Lopez believes that, under the new operating framework, small and medium shippers will need to use large forwarders to guarantee space on ships and small forwarders will only use e-booking systems, as “it will be the only choice they have”, he explained.

Geodis’s vision of the near future is shared by one, at least, of the carriers, Maersk’s CEO of ocean and logistics, Vincent Clerc, who, in conversation on stage at TPM with the JOC’s Peter Tirschwell, explained: “There have been many changes unfolding [over the past two years] with the whole eco-system confronted with changes.”

Mr Clerc pointed to significant and persistent infrastructure problems in the US and elsewhere which, he said, were caused by the “just-in-time way of thinking, which is outdated and needs a redo”.

According to Mr Clerc, Maersk has risen to the new challenges and, acknowledging that M&A activity is the “public face” of change, he pointed out that much of the change the carrier is undergoing in its much-heralded strategy to be ‘the integrator of the seas’ was internal.

“We made some important decisions in 2020, with the purpose of finishing with the paradigm where we only make money when our customers are in trouble,” said Mr Clerc. “It is for this reason that we decided to allocate more capacity to customers rather than rely on the spot market.”

He pointed out that the carrier could earn far more from the spot market at today’s prices, but also that “demand is elastic”. But with 75% of its capacity now committed to long-term contract agreements, the carrier should have a more stable income.

“You can’t predict the future by looking in the rear-view mirror,” he said, but added that current rate levels were unsustainable.

With carriers, in this case represented by Maersk, looking to find stability in earnings, and freight forwarders such as Geodis looking to the evolution of the freight market, it is inevitable that regulations will need to shift in order to maintain pace with change.

Sure enough, the US Federal Maritime Commission (FMC), in the form of chairman Daniel Maffei, told The Loadstar that the regulator was looking for more powers to regulate more effectively.

In a long overdue move, the FMC has sought ways in which detention and demurrage (D&D) charges can be better applied. According to FMC commissioner Carl Bentzel, this will take the form of ‘cleaning up’ the billing process so that carriers and terminals are not charging shippers or truckers for cargo they are unable to pick up.

Moreover, the FMC has looked to deepen co-operation with the Department of Justice that will offer the commission more resources to investigate and develop cases – “the FMC will have the resources to go after rule breakers”, added Mr Maffei.

In addition, the White House has also taken onboard the economic importance of supply chains and is looking into the question of antitrust immunity, which many in the industry believe artificially distorts the market.

Change is coming, and the transformation has been supercharged by the pandemic. What remains to be seen is whether the reformation in the logistics industry is superficial or a more profound revolution of the world of freight movements.