Trading Places

By Peter Tirschwell

COVID-19 is being left behind in more ways than one .

It was one of the key questions to come out of the COVID-19 pandemic : How would the behavior of shippers change , or would it change , following the worst-ever disruption to containerized supply chains ?

The answer , a year after the World Health Organization ( WHO ) declared an end to the “ Public Health Emergency of International Concern ” on May 11 , 2023 , is beginning to emerge . And it ’ s not what some were hoping it would be .

The answer is not , as many believed , that shippers stunned by the severity and cost of unprecedented disruption would not be fooled again .

Still , many a consulting report points to the tantalizing possibility , from the perspective of logistics providers hoping to cash in on an extended COVID-19 windfall , that the environment had permanently changed . Going forward , shippers would ensure they are prepared for the next shock to the system , even if that preparation comes with a higher cost . “ Resilience ” would be transformed from a term bandied about at industry conferences to one with tangible meaning .

As one 3PL leader wrote recently , “ Resilience in the supply chain can come in many forms — adding redundancy , planning contingency routings and capacity , redesigning networks to be closer to customers or production sites , shifting between modes of transport , maintaining higher stock levels , diversifying supply sources , or simply increasing real-time visibility .”

As reasonable as that sounds given the many reasons to believe that supply chain risk is elevated coming out of the pandemic — the Red Sea attacks , the Baltimore bridge collapse and the South China Sea tensions , to name a few — there are indications it is not influencing shippers ’ behavior nearly to the degree some may have anticipated or hoped . The so-called lesson learned may have been limited to the pandemic .

Bloated pandemic-era inventories are finally being worked down and with interest rates having been ratcheted up by central bankers to combat inflation , fashionable “ just-in-case ” buffer stocks become difficult to justify if the risks are abstract . Risk may be elevated in the aggregate , but justifying higher inventory costs without a specific threat is a tough sell . In the same vein , consumer products and other companies are reducing their number of suppliers , having expanded them during COIVD-19 to ensure a steady flow of supply , research from S & P Global Market Intelligence shows .

Identifiable threats are ready-made opportunities to mitigate risk , and here companies aren ’ t hesitating . It ’ s responsible risk mitigation to divert freight away from the US East Coast given that shippers can see port disruption a mile away as traditionally disruptive contract negotiations got under way between dockworkers and employers . Similarly , it ’ s prudent supply chain management to avoid unnecessary Canadian routings in the face of the possibility of a rail strike later in May . It ’ s reasonable over a longer-term horizon to diversify sourcing due to geopolitical risk .

A reversion to pre-COVID supply chain thinking naturally alters shippers ’ priorities . For those reverting to lean inventories , reliability takes on growing importance , irrespective of their willingness to pay for it . It was no accident that schedule reliability figured prominently in this year ’ s trans-Pacific annual service contract negotiations , as did shippers ’ desire to concentrate their volumes among fewer carriers to be more important to those carriers if space gets tight during the upcoming contract year .

With global container ship schedule reliability still hovering around 55 % in March , according to Sea-Intelligence Maritime Analysis , shippers are still struggling with a high degree of arrival variability , much more so than in pre-pandemic years . That directly undermines lean supply chains .

Thus , it ’ s easy to see why some shippers , such as the Global Shippers ’ Alliance , would respond positively , if cautiously , to the potentially game changing commitment by Hapag-Lloyd and Maersk to deliver greater than 90 % schedule reliability once their Gemini Cooperation alliance network is fully phased in . This didn ’ t come out of nowhere ; it is their answer to shippers jaded by the COVID-19 experience and whose patience regarding carriers ’ use of blank sailings to manage capacity is wearing thin .

With hardly any port congestion and ample capacity available to plug holes in elongated services being routed around the Cape of Good Hope in southern Africa , it is reasonable that the stated aspiration of Hapag-Lloyd to phase out blank sailings would be well received by shippers , especially if it came true .

COVID-19 is being left behind in more ways than one .

email : peter . tirschwell @ spglobal . com

70 Journal of Commerce | May 20 , 2024 www . joc . com