Shipping – Navigating the New Normal
Published on : Monday 12-02-2024
Dr Ravi Prakash Mathur examines the crucial role of logistics in multinational organisations amidst global challenges.
Over the past few years, our world has experienced a multitude of disruptions, creating significant strains on logistics routes for international trade. These challenges have emerged as formidable obstacles, directly impacting the essential supply lines that global businesses depend on for upholding their supply chains and operations.
Globalisation has led to the creation of a network and an ecosystem of manufacturing organisations that source their raw materials from around the world. The markets for their finished products are also global. This necessitates that organisations have stable and secure logistics chains in place to ensure seamless transportation of their goods across international borders.
The recent attacks by Yemen’s Houthi rebels on mercantile ships (which started from mid December 2023) transiting through the red sea, elicited a response from the biggest shipping companies which suspended operations via the Red Sea and Suez Canal. Instead, they took a longer route via the Cape of Good Hope, leading to an increase in transit time from Asia to the western markets in North America and Europe by as many as twenty days.
These attacks are only a more recent of a series of logistics disruptions that we have seen in the recent years, starting with the logistical breakdown triggered by the Covid-19 pandemic. Here is a recap. One of the earliest responses to the Covid-19 pandemic was the suspension of all passenger flights, on both domestic and international routes globally. Passenger aircraft, in addition to passenger baggage, also lend their upload capacity to commercial cargo, in the lower deck of passenger planes. As per various estimates as much as 45% of airfreight is transported in the belly of passenger planes. The balance is carried in specialised cargo freighters. The imposition of the lockdown in various countries at different stages of the pandemic caused further complexities in the pre-carriage and last mile deliveries in end-to-end deliveries. In such a scenario, ensuring that no choke points emerged in logistics chains was the foremost job of the global logistics teams as they put together solutions with the use of charter and dedicated freighters to keep the material flows going. The practice of Lean Daily Management, LDM, was used to shorten planning and review cycles and meet the challenge.
Barely had the world recovered from the setbacks caused by the pandemic the supply chains were again disrupted by the Ukraine crisis. Embargos and transit
through conflict zones required that the logistics teams, supporting the businesses, again stitch together solutions using multiple modes of transport and work with multiple logistics partners for different legs of transport. Solutions like cross docking ensured that continuity in logistics chains were maintained.
There is an interconnectedness of geopolitical conflicts and global trade routes as is evident in the potential repercussions of the Israel-Hamas conflict on the India Middle East Europe Economic Corridor project and even on other routes. The Global Trade Research Initiative (GTRI) suggests that disruptions at key Israeli ports, viz., Haifa, Ashdod, and Eilat, could significantly impact trade. These ports handle diverse shipments, including agricultural products, chemicals, electronics, machinery, and vehicles. Any disturbance in operations may necessitate the reconfiguration of supply chains, affecting not only regional but also global logistics capacities. The ripple effects of such conflicts underline the intricate nature of international relations and their impact on international logistics.
These events have again put the spotlight on international transit of merchandise and organisations have to look at their international logistics operations with a new strategic focus.The events underscore the need for resilience, flexibility, and innovative solutions in the face of an ever-changing global landscape.
For an organisation to mitigate these supply chain risks it is important to understand how the ecosystem of international freight is set up. The system for carriage of international commercial cargo is a layered system that consists of airlines, shipping lines and freight forwarding agents or integrators. The freight capacity is owned and controlled by the principal carriers which are the shipping companies and airlines. Since the freight capacity, in the form of containers, vessels, aircrafts and other specialised equipment are moveable assets, it is very easy to deploy and redeploy them on various routes. There is an intricate interplay between capacity and freight rates on any trade routes. Frequent disruptions therefore also mean that the freight rates are volatile.
The other important area that gets directly impacted by logistics is inventory. Larger transit lead time also means that the ‘number of inventory holding days’ with a company also goes up. For example, firms that use ocean freight as their predominant mode of transport carry a significant portion of their finished goods inventory in transit from one point to another. This impacts the working capital. Organisations have to relook at their inventory holding norms in this new normal. Very lean inventory policies could also mean more vulnerability to disruption.
Logistics professionals now bear a dual responsibility amid the increasing disruptions in global trade routes. Firstly, they must continuously assess new routes and shipping options to ensure the efficient transportation of products to international markets, while parallelly accessing security. This involves navigating challenges such as recent disruptions caused by events like the attacks by Yemen’s Houthi rebels and the Israel-Hamas conflict.
Secondly, logistics professionals play a crucial role in efficient price discovery in the ever-changing logistics markets. Frequent disruptions lead to volatile freight rates, making it essential for professionals to stay abreast of market dynamics and this is where logistics domain knowledge becomes a very crucial skill.
In this dynamic landscape, the adoption of digital solutions for shipment tracking and price discovery becomes imperative. These measures contribute to the resilience, flexibility, and innovation required navigating the complexities of an ever-changing global logistics environment. Organisations which have more robust logistics systems and processes will win in the new normal. Logistics is no longer seen as a supporting function. It has emerged as the source for competitive advantage.
Dr Ravi Prakash Mathur is Vice President Supply Chain Management and Global Head of Logistics, Dr Reddy’s Laboratories Ltd. He is Co-Chair, Shipping & Logistics Committee, FTCCI and an Elite Member, CII Institute of Logistics. A supply chain and logistics professional with 30 years of work experience; ‘National Thought Leadership’ Awardee; expertise in handling Global Logistics, Digital Supply Chain Planning Systems and Procurement; proven track record in leading Supply Chain Transformation; published author with academic paper available on HBR stores; Visiting Faculty at Business Schools; Member of Academic Boards; Blogger, Speaker, Trainer, Digital Innovator and Influencer.
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