Almost 90% of shippers are diversifying their supplier base or planning to diversify their suppliers, a trend accelerated by the Covid crisis and following the recent US-China trade disputes, a new report has found.
Diversifying sourcing is widely now seen as critical to alleviating supply chain volatility, with almost 90% of shippers diversifying their supplier base or planning to diversify their suppliers, a new report has found.
‘The State of The Freight 2021’ report, based on a survey of over 300 supply chain professionals conducted by supply-chain automation platform Centersource and logistics media consultancy Charlie Pesti, identified what it describes as “massive visibility gaps and urgent needs for digitalisation in logistics” after finding “how unprepared many industry stakeholders were when trade wars and then COVID-19 shook global supply chains”.
The report also highlights how technology, and vertical and horizontal collaboration are “helping companies adjust to a complex and turbulent new normal”.
While the results were “in line with the popular narrative of issues, such as finding capacity, sourcing troubles, and the general lack of visibility”, they provided additional insight into specific trends, the authors said. The State of The Freight 2021 report breaks its findings into three categories: sourcing, visibility, vertical and horizontal collaboration, noting: “Viewing recent challenges and transformation through these three lenses, the report shows how unprepared many industry stakeholders were when trade wars and then COVID-19 shook global supply chains.”
As conventional sourcing practices failed to produce results, the survey asked how and where shippers and logistics companies had identified weak links, what factors motivated them to seek out new technology and innovate, and how they strategised more robust practices.
“Finding, for example, that 88.2% of shippers either had or were planning to diversify suppliers, the report helps industry watchers understand how that process is playing out on the ground, including what technology and business practices are leading the way”, the report claimed.
Increase in collaboration
On the collaboration front, the survey found that 89.8% of respondents already were, or were likely to increase their collaboration with other supply chain stakeholders. The report finds firms “moving towards both vertical and horizontal across the supply chain, forming interconnected networks of logistics partners – including cargo owners, ocean carriers, freight forwarders, ports and terminals, customs authorities, amongst others.”
Amir Rashad, CEO & Founder of Centersource, commented: “The State of The Freight 2021 is the first such report to categorize and detail the seismic shifts that are taking place in response to global volatility,” said
The report highlighted that global supply chains “are in a state of flux today, with logistics uncertainties that impact consumption demand, supply, and available freight capacity.
This has created unforeseen volatility within supply chains, destabilizing businesses and lowering operational margins.”
The survey attempts “to gauge logistics stakeholders’ mindset and their strategies to alleviate supply chain stress during prolonged market volatility”, recording responses from a mix of importers, exporters, and freight forwarders, with the respondents selected from different managerial levels, “giving us a broad spectrum of perspectives to reflect the current nature of the market.
While the results were in line with the popular narrative of issues, such as finding capacity, sourcing troubles, and the general lack of visibility, they provided additional insight into specific trends.
Though COVID-19 created epic challenges for shippers sourcing their products, this is not the first time that sourcing has been a problem in recent years, the report highlighted, noting that “the previous US presidency spent the better part of its term mired in a trade war with China, which to an extent continues even today. The sudden nature of these measures rocked global supply chains, as added tariffs wrecked business margins almost overnight,” it noted.
Diversifying sourcing ‘critical’
The survey found that in response to the China-US trade dispute, most businesses – intending to keep sourcing expenses to a minimum – had “failed to diversify their sourcing and kept them anchored across factories in China”.
But sourcing diversification “has remained a frequent topic of debate since, with logistics stakeholders shifting a part of their sourcing outside China and renewed interest in nearshoring”.
Sourcing issues
Over 85% of the survey respondents mentioned that their sourcing was under duress over the last year due to the pandemic and global trade wars, with 44% of the companies stating these factors had a considerable impact. That said, businesses have largely learned from their sourcing mistakes, strategizing and prioritizing diversification today.
Roughly 23% of the companies have already diversified over the last year, with another 33% saying it is highly likely they will diversify in the near future.
The report noted that visibility “has quickly turned out to be an operational necessity across every supply chain node – be it the shipper, freight forwarders, or the end consumer”.
However, the report found that 42% of the respondents said that they had negligible or inadequate visibility into their first-tier customer or vendor’s operations. And 20% of the respondents pointed to visibility as their reason to seek technology solutions.
The authors noted: “To the freight forwarder, visibility can streamline operations and help them be proactively attentive to impending volatility. Ensuring capacity availability has been a tough ask over the last few months, as pent-up consumer demand for both durable and non-durable items caught the logistics industry off-guard. As the capacity crunch spiralled out of control, transatlantic and transpacific container rates more than tripled.”
Nearly 18% of the respondents mentioned that they have “negligible visibility into their first-tier customer or vendor’s operations”, and a further 24% have “inadequate visibility”.
The authors noted that “businesses with visibility woes are more likely to sustain a sizable bottom-line impact during times of volatility, like during COVID-19. This observation is in line with the survey results – 20% of the respondents pointed to visibility as their reason for seeking technology solutions.”
The report highlighted that the need for visibility was driving businesses to digitalise their operations, streamlining and largely automating paper- and email-based workflows, noting: “The number of logistical processes involved within freight movement underscores the need for workflow automation.”
Nearly 40% of the respondents mentioned digitalization and automation possibilities to be the principal reasons for adopting technologies.
However, over 30% of the companies stated that their technology adoption was primarily due to their need for data-based insights.
And improving supply chain efficiencies has “shown an incremental reduction in burn rates, especially relevant in a market that operates on razor-thin margins”, the report highlighted.
“Sourcing capacity or volume is a prime segment where companies need technology to work for them, drawing 30% of the total responses. The trend reflects the spectacular growth in recent years of freight-matching platforms and digital freight marketplaces, and the growing importance of rate benchmarking,” it added.
The report also noted that workflow and documentation automation, along with efficient customs process handling capabilities, attracted 44% of the respondents towards digitalising – “cementing the hypothesis that companies majorly looked at automation and market visibility as primary incentives to digitalize and adopt technology”.
Collaboration
For companies looking to gain an edge with data-based insights, industry collaboration could unlock untapped efficiencies, the report noted, adding: “The rule of thumb within data analytics is that the conclusions that it helps draw will be as refined as the volume of relevant data that the algorithms can work on. This creates a necessity for stakeholders, especially small- and midsized businesses, to engage and collaborate within the supply chain ecosystem.”
It highlighted that collaboration could be both vertical and horizontal across the supply chain, noting: “An example of vertical collaboration would be TradeLens, an interconnected network of supply chain partners – including cargo owners, ocean carriers, freight forwarders, ports and terminals, customs authorities, amongst others.”
It said end-to-end interoperable supply chains “can radically improve individual stakeholders’ efficiencies within the ecosystem by injecting transparency and visibility into freight movement at large”.
It highlighted that horizontal collaboration among companies that operate within the same segment can help in jointly improving efficiencies, adding: “If the stakeholders are large enough, horizontal collaboration can also help with industry consolidation, as is the case with three major shipping alliances – 2M, THE Alliance, and Ocean Alliance.”
It said consolidation in the market also “helps businesses weather volatility to a relative extent, while also helping with economies of scale”.
It noted that “pro collaboration sentiment within the industry has been quite high. While over 35% of the respondents said that it is highly likely they would collaborate with other supply chain stakeholders in the near future, 20% of them have already partnered up within the industry”.
It added: “Considering that a further 34% also mentioned their likeliness to collaborate, it can be safely inferred that the industry is overwhelmingly in favour of collaboration.”
The report concluded: “In essence, the survey results helped put granularity into supply chain challenges and the measures companies would likely consider during market volatility. It also highlighted the broader industry trend of collaboration and ensuing consolidation, which can help supply chains withstand black swan events and economic instabilities in the longer run.”
As reported yesterday, other recent reports have confirmed that the global supply chain disruptions caused by Covid-19 have led to a major increase in the number of organisations using technology to assist with supply chain management and mapping, including a near doubling in the use of tech-based supply mapping, along with much more engagement among senior management with supply chain issues.
According to the 12th annual BCI Supply Chain Resilience report from the Business Continuity Institute (BCI), more than half (55.6%) of organizations are now using technology to help analyse and report on supply chain disruptions, with the number using technology to help with supply chain mapping seeing a major increase to 40.5% – up from just 22.6% in 2019.
More than half of organisations (57.6%) report that COVID-19 has been the reason for investment in new technology and tools.
The number of supply chain disruptions organisations encountered in 2020 was higher than any other year in the report’s history, with one in four (27.8%) of organizations reporting more than 20 supply chain disruptions during 2020 – up from just 4.8% reporting the same number in 2019.
Organisations blamed COVID-19 for the dramatic increase in the volume of disruptions, although European respondents reported disruptions due to Brexit-related issues.
Disruptions beyond tier 1
COVID-related disruptions were also more likely to occur beyond tier 1, the report noted, highlighting: “The importance of knowing your suppliers’ suppliers was emphasised this year when respondents reported that 40.2% of COVID- related disruptions were due to disruptions in tier 2 and beyond. Although this year’s research shows that organisations’ due diligence beyond tier 1 is improving, COVID-19 has served as a tool to uncover where the gaps in processes lie.”
Solving the logistics puzzle
Solving the “logistics puzzle” has been a key challenge to organisations during 2020 – and that is set to continue into 2021 and beyond, the report noted, with all methods of transportation affected because of COVID-19.
“At the start of the pandemic, air freight providers repurposed passenger planes to make up for the lack of belly cargo availability, land transport had its own challenges with goods being held up at borders and sea freight is now struggling with global container shortages. With global vaccine transportation dubbed the biggest logistics project since World War II, the logistic headwinds are likely to continue into 2021 and beyond.”
Senior management more engaged with supply chain issues
Senior management are now more engaged with supply chain issues, the report highlighted noting that 82.7% of respondents report management commitment to supply chain risk is now “medium” or “high” – up nearly 10 percentage points on 2019.
The report also shows how supply chain issues led to balance sheets taking a hit in 2020 “which has meant board interest has become high. With Governments now clamping down on issues such as modern slavery within supply chains, business continuity (BC) professionals are confident that this elevated level of interest can – and should – remain.”
Critical suppliers
Organisations are also now more likely to interrogate the BC arrangements of critical suppliers, the report found, highlighting that more than three-quarters of organizations (75.2%) report checking that key suppliers have BC arrangements in place – up from two-thirds in 2019.
“Interestingly, most professionals admitted this was not due to COVID-19, rather ongoing reviews of how suppliers should be managed,” the report’s authors said. “A further positive finding this year is most organisations are now going beyond a ‘tick box’ exercise when carrying out their due diligence processes: more than half now request full details of BC programmes rather than merely asking if a plan is in place.”
More due diligence
The report said more due diligence should be carried out pre-contract, noting that just one in six organisations carry out due diligence on all key suppliers’ BC programmes at the procurement stage, and a quarter fail to do so until after contracts have been signed.
“Ensuring BC arrangements are checked pre-contract is vital to ensure suppliers can continue to meet contractual requirements during periods of disruption,” the report noted.
Source: Lloyd’s
