Joachim Schaut, Vice President Intercontinental Supply Chain Solutions for DB Schenker, speaks to MHD about how the Ever Given’s infamous blockage of the Suez Canal was just the final straw in an already stretched supply chain, and how the past year’s challenges will shape the future of global freight.
The year 2021 was already set to be a challenging one for global freight.
As Joachim Schaut, Vice President Intercontinental Supply Chain Solutions for DB Schenker, tells MHD, supply chains at the start of the year were already being pushed to the limits. COVID-19 had led to an unexpected increase in consumer demand, which had ripple effects on the logistics industry.
“It was already a very tense situation in the ocean and freight market,” he says. “As you know, airfreight capacity was already an issue, with so many passenger planes grounded. Almost every ship on the planet was deployed, and there was already a container shortage in place.”
It was in this tense situation that the world woke up on 23 March 2021 to almost comical images of one of the world’s largest container ships ever built grounded at both ends in the Suez Canal. In high winds and a dust storm, the ship, Ever Given, lost its ability to steer, causing it to move sideways, with the bow wedged on one bank of the canal and the stern almost touching the other.
Joachim says that for the global supply chain, however, this was far from comical for an already stretched logistics industry.
“The Suez blockage added an additional massive disruption, with so much global trade going through the canal,” he says. “Ships had to detour around Africa, others were stuck for a week in a traffic jam. All of this sucked up the logistics industry’s capacities, of both space and equipment.”
While high tides and an army of tug boats helped free the Ever Given on 29 March, Joachim says the crisis is far from over, and is only just starting to be felt in the supply chain. At the time of our interview (late April) he’s been told that the view at ports in Europe and the United States is of ships waiting to be unloaded.
“We are now in a phase where the first ripple effects are being felt,” he says. “It’s causing massive congestion everywhere, it’s drawing out the container capacity. Containers are now on ships waiting to be unloaded, or on yards waiting to be transported.”
And while the ships full of containers wait around, they can’t be sent back to Asia to be filled once more. Joachim points to some estimates that up to 20 per cent of container capacity across the planet is being eaten up as a result of the crisis, all at a time when capacity was already super tight.
“We are seeing record bookings among our customers. The ripple effects will only be fully visible in the next four to 12 weeks. I’m afraid the biggest problems are yet to come and it will get worse. We will probably remain in this situation for the rest of the year.”
Where to from here?
Fortunately, Joachim says, there is much that can be learned from the challenges the logistics industry has faced this year.
One aspect is the forced lesson learned on how to manage with lower levels of inventory. In this space, Joachim says it’s crucial for companies to have full visibility.
“If you have a lot of inventory in the supply chain, it does not matter if you know where all your products really are and what the status is, you have a buffer in the supply chain. But nearly all that buffer right now is gone,” says Joachim. “You need to manage now with a focus on visibility.”
Joachim explains that at DB Schenker, the team uses different technologies, an important one being Infor, that is helpful for consumer retail companies to track both the status and levels of their inventory.
“It drives visibility right down to the container level, and when it comes to inventory, it goes right down to a single level of product,” he says.
With this level of visibility, the technology is able to offer a predicted time of arrival. He says that currently reliability in trans-pacific trade is probably running at just 10-12 per cent. This means that an astounding 88-90 per cent of ships are arriving late, with the average delay currently sitting at 12 days.
“This is really massive,” he says. “But with a dynamic model like predictive ETAs, we can constantly change the information for our customers. This is vital in helping our customers align their distribution channels, so that we can connect them with the inbound as well.”
He says that customers using the Infor technology have visibility instantly on what is happening. When the Ever Given was grounded, they were able to see on a map, connected in real time, what containers they had on their way to Suez, which ones were stuck in the traffic jam and which ones were going around Africa.
“Logistics managers could just open up the application, refresh it, and see them on a map,” he says. “Companies that didn’t go digital had to call their freight forwarders, find out about their shipments, and if there were any changes the next day, they had to do the exercise all over again. From an efficiency point of view, the difference is massive. It didn’t help to unblock the Suez Canal any earlier, but at least if you had more information, you knew where your containers were, and you could calculate the delay.”
In addition to highlighting the need for better visibility, Joachim says, the past crisis has cemented a fundamental shift in power when it comes to logistics, with freight companies now holding the balance of power as demand has outpaced supply.
“If you look at the past 20 years, shipping was characterised by overcapacity. It was a procurement game, where companies would go out to tender, look at the different bids, and save money by choosing the cheapest option. Everyone had more capacity than demand back then,” says Joachim. “Now it’s still about controlling costs, but it’s end-to-end costs, it’s a matter of efficiency, not just finding the cheapest suppliers. You want to look at working capital reduction and time to market. When you have better visibility, you can look at alternatives.”
In addition to better understanding options, Joachim says companies need to learn to better court their shipping companies to get favourable terms. He says if a company wants their cargo moving regularly, they need to supply a steady stream of products to their ships. No longer can you supply 100 containers one week, 50 the next, maybe none some week, then 200 another. Instead, you need to even out shipping to 100 containers per week, to ensure you are a good, reliable client.
“You need to change your planning approach, to get better forecasts and better visibility before that cargo is loaded,” says Joachim. “For all this, you need technology.”
Better visibility and shifting powers aren’t the only major changes Joachim is seeing in the logistics industry. He says concerns about sustainability, although muffled during the pandemic, have certainly not gone away.
“Once all this firefighting is done, sustainability will be on all supply chain managers agendas,” he says. “And it’s not just about compensating for carbon emissions. People don’t believe any more that you can just plant a couple of trees to get out of emitting CO2.”
DB Schenker, Joachim says, has been leading the pack in this regard. He points to the company’s first carbon neutral flight that travels weekly from Frankfurt to Shanghai. He notes that while it’s just one flight a week, it’s a start towards a sustainable future.
“The situation these days is getting a lot more complex,” he says. “Companies need to be resilient, they need to be sustainable, and they need to monitor costs. We need to balance complexity without putting too much investment in our own teams, because a lot of companies can’t afford that. It’s through technology that we need to make these efficiency gains.”
Joachim urges companies to make these investments, because he says that despite all these challenges, the global supply chain is here to stay. While there may some murmuring of less global trade following this crisis, his voice is not among them. The only lesson he sees is the need to apply technology to ensure a resilient approach to a complex global supply chain.
“I don’t see global trade activities slowing down,” he says. “In terms of the supply chain and production, there are a lot of advantages in global trade. You just can’t manage things with excel files anymore.”
For more information on DB Schenker, click here.