Temporary, Permanent Changes in LogisticsBy Alfonso de los Ríos | Tue, 04/20/2021 - 09:09
Before the pandemic, logistics were saddled for years with repetitive rules and behaviors. The peak season for Chinese imports used to last from September to November. You could get up to 30 free days to vacate a container and return it to the shipping company.
As we live through our second year of the pandemic, things look different. We expected the logistics situation to stabilize as soon as governments distributed the vaccines. However, we continue to suffer from last year's closures and sanitary restrictions, and recent disruptions.
We have a reduced number of containers to ship globally. The situation has improved after the Chinese New Year but the accidental blocking of the Suez Canal was a setback. Ports in the United States, Spain, Italy, and Turkey have long lines of ships waiting to come in. The peak seasons for China and Europe started a quarter earlier this year.
It is impossible to predict accidents like a stranded ship or the real impact of the most severe pandemic we have had in a century. Since we will experience more disruptive events for logistics, we can modify processes to have the flexibility needed to respond to the unexpected.
According to an OECD report published in March this year, our priority should be to distribute the vaccine worldwide quickly. The economic potential for faster global recovery is far greater than the resources required to serve low-income countries.
If we experience a slow recovery scenario, there will be more infections in countries with poor distribution; therefore, we are more likely to develop new strains in which vaccines lose their effectiveness and delay the reopening of global markets. International trade with monitoring and protection measures is the way to avoid this outcome.
Among the temporary disruptions, the lack of containers to meet global shipping needs stands out. Most of the containers are in warehouses, on stranded ships, and in ports with saturated intermodal transport in the US and European countries. Restrictions to avoid contagions, such as idled factories, fewer truck drivers, and staff in ports, prevent rapid progress.
Shipping companies assign their containers to higher profit routes, from China via the transatlantic and to Europe. Countries like India, Turkey, and Chile need to manage their cargo on less equipment, so they can't respond to market demand.
The import rate from China to Latin American countries rose up to 3.2 times from September to October 2020 and has not dropped significantly since then. For many distributors, import costs are no longer a sustainable business model.
Costs don't just translate into money; delays can also cause damage. In addition to the cancellations of shipments (Blank Sailings), rollovers, when the shipping company postpones an already scheduled load in a shipment, occur up to twice as often. Shipping companies reported 37 percent rollovers globally last year.
For large companies, these delays call into question trends such as the just-in-time approach, which consists of reducing warehousing costs by having only the amount of merchandise and parts needed. Factories remain delayed because they do not have raw materials or spare parts for their machinery.
At some point, the balance between supply and demand will stabilize. There will no longer be frequent freight rollovers, rates will be lower, but they will not return to their original levels in which the shipping companies were losing. The wave of consequences from the Suez Canal blockage will die down, but some lessons and changes will remain for the long run.
One of the most notable changes in everyday routines has been the transition to remote work in an industry accustomed to visits and follow-ups in person. We recognize the value of these meetings and believe that they will continue to be the norm, but some use of video calls to reach agreements will continue.
The lack of physical space does not stop us. Without the in-person monitoring of managers, the culture of continuous improvement becomes more critical. Each one of our employees has Key Performance Indicators (KPIs) and a daily objective, with twice-a-day follow-ups. We also have a clear communication channel for messaging, phone calls, emails, or video calls.
The contingency highlighted the importance of having reaction plans defined and updated in advance, with leaders assigned for internal and external communication and confidential directories of our entire chain. This plan includes logistical alternatives to border closures.
Another priority is developing solid relationships with service providers, from carriers and agents to merchandisers. If you trust your supplier from the other side of the world, you can request pre-customs clearing inspections that considerably reduce the number of days in customs.
Having solid relationships with other freight forwarders worldwide became essential to solving problems, tracking merchandise, and ensuring cargo. To expand our reach, nowports recently joined WCA Inter Global network.
The pandemic pressured prominent logistics figures to accelerate their digital transformation and offer better online services, including tracking tools, booking systems, and support platforms. New generations are finding new ways to integrate technology into logistics.
As I mentioned in my first article, there are many technological tools that we already have or find on the internet for free or at low prices that can save us the repetitive work of some tasks. A great example is avoiding multiple meetings to get something done on the computer by creating a navigation video. Also, shared documents ensure everyone has the latest version.
Regardless of all the changes, the most important element is still the people involved. At nowports, we manage contingencies by providing up-to-date information to our clients and offering tools that make their logistics teams' operations more manageable and accessible.