Sunday, 26 April 2020

COVID-19 Disruption: Container Shipping Can be Protected By More Automation

Mike Wychocki, Chairman & CEO of EagleRail Container Logistics (Sea News File Photo)
We should remember that any future disruptions may be larger than this one, and also that this will not be the last disruption. So what should the container shipping industry do?

COVID-19 has taken the world by surprise. The whole world today is struggling, holding on to hope that normalcy will be restored soon. But for now, humanity and the economic trajectories are staring into an unpredictable tomorrow. In these troubled waters, protecting our container shipping supply chain is one of the keys to protecting the global economy, an insight provided on the industry by Mike Wychocki, Chairman & CEO of EagleRail Container Logistics.

Current industry volume has decreased by over 20% across the globe and worse, it might go lower in the near and mid-term explains Mr. Wychocki.

This is a situation similar to the 2008-2009 global economic downturn, in particular, when global container volume fell by 20%. Besides this similarity, were is what’s unique about the situation during the current Downturn.

Factories Output and Consumer Demand is Out of Sync:

In the beginning of the outbreak, people were still buying things all over the world but then the Chinese factories had to be closed. Now, that these Chinese factories have returned to full capacity, there is much lower consumer demand for the global supply chain. So, it is naturally hurting the sales right now.

The Spring Selling Season was Lost:

In the northern hemisphere it was the Spring merchandise selling season. Everyone comes out of winter and there is a spike in demand of consumer goods. Summer and Spring are large selling seasons globally. This whole period is being interrupted.

Discretionary Products Are Staying Out of Demand:

Except life-sustaining demand products like groceries and some cleaning supplies and hardware, most seasonal product or any discretionary purchase order were not asked for in the markets. We have missed the entire peak of selling seasons and this is hurting the global economy and so, the shipping industry.

The Missing Manpower:

In the scenario where mobility has been reduced to near-zero, manpower shortages initially impacted the industry and worse hit were the Chinese export side. When COVID-19 began, there was a shortage of port workers, truck drivers and even customs officials. This adversely impacted the exports out of the Chinese factories. Mike adds: “When we talk about the rest of the world, it wasn’t really that bad primarily because when supply chain is reduced, less and less manpower is required. For example if on a typical route there were four ships coming into the European or American ports and now that are only 2, the manpower requirement also decreases. They would only need 50% of the earlier manpower requirement.  So, the manpower shortage impact was more felt by the export side of China than the import side of the rest of the world.”

Discussing the problem, the EagleRail CEO also suggested the additional automation alternatives that can be adopted to avert such manpower problems in the future. The alternative to this would be a more intermodal automation and that’s the part where EagleRail addresses. “Any additional automation at the ports, in rail yards, in trucking or in customs – we would be able to extend that outside the port. In last 30 days, we have been getting a lot of positive response from various ports and port consultants.” The most interesting part is to look at intermodal automation as a missing part in preventing any further supply chain disruption.

“EagleRail feels very confident about its technology being even more in demand in the near-term future. Even if container volumes go down temporarily for the next year, in next five years consumer demand will still be for sure greater than it is today. We should remember that any future disruptions may be larger than this one, also this will not be the last disruption”, alerts Wychocki. “This is the right time to invest in future supply chain disruptions,” he added.

This society is becoming more inter-connected. We can see that if one country sneezes, the whole world catches the cold. We are so connected right now that we need to build more and more defences against supply chain disruptions, he added.

Ripple Effects – Apprehensions, investigations & Re-negotiations:

Yes, this is what is happening because volume is down can be down for about 12- to 18-months there will be job losses in the shipping industry in the port industry and in the local industry.

What is happening is that the shipping lines are re-negotiating contracts with the manufacturing side and the retail side and the port side for everybody’s agreement that were based on projections of how much volume will come out of each factory, and what would be the frequency of the ship and work how much volume will be carried out.

There is usually a contract that is based on 12-months projection. And now that the projections are down by 20-25% and the future is uncertain, everybody has started tearing up previous contracts and are re-negotiating for the late 2020/ early 2021 seasons.

Shipping Line executives say that technically in April is when they are negotiating for next year’s contract, and all that was agreed upon earlier are being re-done now.

Also, another new factor in the short-term is that the shipping line are now actively looking at financial health of the manufacturers and retailers to know what price to quote, based on their financial health. Some carrier companies are healthy, cash-wise and can survive this, while some are highly leveraged and have incurred a great deal of debt. Everybody is now very much interested in doing financial research on the other partner in the supply chain and nobody is going to take it for granted so that everybody can pay their bills.

And there will be a lot more retailers going out of business and some of the biggest stores like Amazon will go bigger, many of the smaller factories will not be able to supply the larger chains and also go out of business. Therefore, there is going to be a pretty good shake up here in the consumer goods supply chain and this can lead to some solution in the shipping line port, operating-wise.

When All This Ends:

The priorities will be different; first and foremost, the industry will aim at getting volumes to the pre-COVID-19 levels in the shortest time possible. Shortest being probably 12 months and the longest being 18 months. It is going to be very painful. To achieve this the first concern will be how soon can people go back to work? Here, the economic stimulus programs are going to be very important. It will have to be looked after that these programs are strong enough to send people back to work at the earliest.

Second, some of the countries may pull back some specific goods from the supply chain on in order to survive the economic situation. They might hold certain products entering or existing borders and as a result the global supply chain might have a reduction in certain areas. Here, top consuming countries like the USA, India and China will have to come back into manufacturing shape, in order to have a healthy and more self-sustaining economy.

Have to be Future Ready:

Digital automation will be that solution which will make the industry stronger against such disruptions in the future. There will be a huge push towards increased supply chain automation to reduce dependency on people not coming to work in the face of such pandemic situations and EagleRail will ready to extend that port automation outside the gate and into intermodal as well.

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