By Anton Oosthuizen
It has been nearly two years since the start of the COVID-19 pandemic, and the world’s economy is ready for some good news. According to the World Bank a rebound is possible, but is likely to be uneven across countries.
With the US and China both expected to be major contributors to global growth this year, China’s economy – which, unlike the rest of the world, did not contract in 2020 – is predicted to grow a solid 8.5%. However, the outlook for low income countries is not as positive.
“While there are welcome signs of global recovery, the pandemic continues to inflict poverty and inequality on people in developing countries around the world,” said World Bank Group President David Malpass. “Globally coordinated efforts are essential to accelerate vaccine distribution and debt relief, particularly for low-income countries. As the health crisis eases, policymakers will need to address the pandemic’s lasting effects and take steps to spur green, resilient, and inclusive growth while safeguarding macroeconomic stability.”
“Linkages through trade and global value chains have been a vital engine of economic advancement for developing economies and lifted many people out of poverty. However, at current trends, global trade growth is set to slow down over the next decade,” World Bank Group Vice President for Equitable Growth and Financial Institutions Indermit Gill said. “As developing economies recover from the COVID-19 pandemic, cutting trade costs can create an environment conducive to re-engaging in global supply chains and reigniting trade growth.”
Trade and Supply Chain Challenges Will Persist Beyond 2021
The first casualty of the pandemic in early 2020 was felt in the disruption of the upstream supply chain in China. With factories and entire cities locked down, nothing was leaving the country. When lockdown was enforced in Europe, America, and the rest of the world, the impact on the availability of health goods and groceries was significant, not to mention the devastating effect it had on entertainment, travel and leisure industries.
For the shipping sector, in a bid to remain viable, shipping companies tried to recover balance sheets by scrapping off vessels in large numbers, Hellenic Shipping News reporting up to 630 ships sent for demolition during 2020.
The world’s dependency on goods manufactured in Southeast Asia, brings with it the need for streamlined supply chain management. Approximately 90% of the world’s goods are transported by sea, and over 70% of these goods are moved in containers.
A Sensitive Supply Chain Ecosystem
The global supply chain system is a highly interconnected ecosystem: if one piece in the chain is broken or stops, it affects all subsequent pieces. The peak in demand after lockdown was exacerbated by lack of available vessels and containers, causing a bottleneck and incapacity to deliver the demanded goods.
- Lack of available ships brings increased costs – Existing ships are being utilised to fullest capacity. This results in a 500% to 600% increase in freight costs, with Drewry, reporting an increase in the Shanghai-to-Rotterdam route by 640%. McKinsey’s video explaining why container shipping prices have surged, shows that – pre-pandemic – a container from Asia to Europe or North America would set you back roughly $2,000, will now cost $12,000 or more. To take full advantage of the positive market environment, shipping organisations are ordering more vessels to increase their capacity. CMA CGM group, with a market share of 12%, has ordered 22 additional vessels. The combined increase in capacity these new vessels bring could result in an additional 1.45 million TEU containers.
- Container shortages – The high demand for goods from China means full containers are leaving China’s harbours, but – due to lack of demand in China – are not returning, and empty return trips are not attractive. This container deficit means goods ready to be shipped are standing idle, waiting at factories or docks to be loaded. As a result, shipping companies like Hapag-Lloyd are investing in additional containers to try to ease the bottleneck.
- Port congestion – In spite of lockdowns being lifted, there are still significant knock-on effects such as port delays, lack of equipment and other issues due to Covid-19. At the port of Yantian in China, they are experiencing several weeks of delays due to Covid-19 lockdowns. According to Maersk, this could have an effect bigger than the Suez canal closure.
- Increasing transport costs – As retailers get ready for the fast-approaching holiday shopping season, there is a rising concern that the already overextended domestic supply chain will take even more strain. This, amidst overseas ports’ struggles due to the COVID-19 delta variant, increased shipping costs, and trucking’s ongoing and growing driver shortage.
- Changing consumer behaviour – While consumers’ buying habits saw a rapid increase in online shopping, the acceleration into digital channels seems to be leveling off in both Europe and the United States. Manufacturers and engineering companies wishing to take advantage of this digital surge should create strategies based on long-term value, investing aggressively in technology such as integrated, cloud-based enterprise solutions (ERP), and finding better ways to extract true value from data.
How to Survive – and Thrive – in 2022
In the days before Covid-19, agility was little more than a buzz-word; now it is pivotal to business success. Likewise, digitisation and collaboration are principles that have moved out of the ‘nice-to-have’ category and into the essential, if organisations hope to achieve longevity in the face of persistent challenges.
Become Agile, Stable, and Sustainable
Business agility has become central to survival. A recent study reveals how Covid-19 has forced agile transformation in several companies at an astonishing level.
What is business agility? It is an organisation’s ability to change or adapt quickly in response to a rapidly changing market. Agility not only includes the ability to be innovative and dynamic in thought and deed, it encompasses factors such as stable governance and processes, as well as underpinning technology and systems architecture that facilitate scalability.
Turn Technology to Your Advantage
In 2015, a survey showed that, while 82% of the executives agreed on a need to transform digitally, only 23% had implemented a strategy for it. However, recent data suggests that the pandemic has led to an astronomical implementation of digitisation in ways only previously imagined previously. McKinsey’s findings suggest we leaped five years ahead in consumer and business digital adoption, in a matter of eight weeks.
Image: McKinsey & Company
The Way Forward
Regarding supply chain recovery, with a slow and steady improvement expected in the course of the next year, the real turning point is expected by 2023. At this point most of the vessels will be delivered, adding much-needed capacity to the global fleet.
As for manufacturing and engineering who hope to make the most of the upward move to digitsation, embracing back-office automation systems, or Business Operating Systems (BOS), is essential in a bid toward greater collaboration and interdepartmental cooperation. As a central database for all business information, BOS serves to unify and streamline complex business operations, and quickly eliminates the silos so exacerbated by remote work.
Cloud-based technology means teams and decision-makers have live access to data, reports, production plans, inventory levels, staff time trackers, and financials. In-built data analytics also provide forecasts so that leaders can make data-backed decisions before they are needed. It is the only way to stay viable in chaotic times.
Image source: QuickEasy BOS Enterprise live dashboard
Going into 2022, the challenge is not only to sustain productivity through digitised operations, but to realign based on emerging opportunities brought about by digitalisation for warehouses and workforce alike.