Changes that could be critical to your supply chains

Roger OakdenGlobal Logistics, Logistics Management, Procurement, Supply Networks & Supply Chains0 Comments

Environmental damage

Change is not just technologies.

Three recent events emphasise that changes to supply chains over the next 10 – 15 years are unlikely to be driven by new technologies. Instead change will come from economic, political and environmental events and movements.

The first event (economic) was an update about the three main shipping container alliances. These influence close to 80 percent of the global container trade and about 90 percent of container capacity on the major trade routes. While the alliances promote ‘improved customer service’, their commercial objective is to control capacity on each route and therefore improve utilisation of the fleet. This will enable increases in freight rates and a return to profitability. The three alliances are:

Ocean Alliance, which includes:

  • CMA CGM + APL
  • China Cosco Shipping
  • Evergreen and
  • Orient Overseas Container Lines

THE Alliance, which includes:

  • Hapag Lloyd + UASC
  • Yang Ming Marine and
  • Ocean Network Express (ONE); the merged group of Mitsui OSK Lines + Kawasaki Kisen Kaisha + NYK Line

2M Alliance, which includes:

  • Maersk + Hamburg Sud
  • MSC
  • HMM (Hyundi) is not officially in the alliance, but has a commercial relationship

Given the commercial objective to control capacity, a possible future scenario for container shipping is:

  • A managed number of large vessels to operate the East – West routes
    • Asia – Europe
    • Asia – America (actual ports in the US dependent on upgrades to port infrastructure and materials handling capabilities)
  • Older vessels of 8,000 teu to service the smaller volume trades, such as north-south routes

However, as few ports on the north-south routes are equipped to handle 8,000 teu ships, the emphasise will be on ‘hubbing’ – that is to call at only one port in a region or sub-region. Then trans-ship containers to other ports on smaller (<4,000 teu) vessels, or by rail. The control of capacity and ‘hubbing’ will increase transport costs for shippers and influence supply chain design.

The second event (political) was a policy announcement by the Chinese government to regulate future international investments by Chinese companies. But, the ruling did not apply to investments within the One Belt One Road (OBOR) initiative. This initiative is a strategic foreign policy to economically link Europe to China through countries across Central and South Asia, with links through to Africa and Oceania. The improved transport links will aid country development and create new overseas markets to benefit Chinese trade and the export of Chinese industrial expertise. Although the scope of OBOR will evolve over time, the policy is driven from the highest level and so it will happen in some form.

Supply Chain professionals must also note the ASEAN Economic Community (AEC), consisting of ten member countries in SE Asia and viewed by China as an integral part of the OBOR. The AEC objective is to be a region with free movement of goods, services, investment and skilled labour by 2030. One of the outcomes from these two political initiatives will be improvements in rail freight and selected port infrastructure in Asia and further afield. These will influence supply chain design.

The third event (environment) was the hurricanes in the Caribbean and USA. Increasing sea temperatures are generating higher wind speeds; so, although the number of hurricanes, typhoons and cyclones around the world may not increase, their intensity will. This is a weather risk (one of the risks associated with global warming), which currently seems to be reported as ‘1 in 100 year’ events, but are more likely to become the expected situation.

For regions affected by extreme weather events, interfacing with weather bureaus to identify the before and after event risks of manufacturing and distribution interruptions will become a feature of supply chain planning.

These three situations are illustrations of changes that will affect supply chains and there are are others. An economic example is the increasing power of retail, both on-line and shops, which is reducing the power of consumer brand companies. A political example is the move by some countries towards protectionism, either directly through the imposition of tariffs on imports or indirectly, through quality, volume and packaging regulations.

The rate at which these changes are implemented will be assisted by technologies.

Technologies to influence supply chains

I recently viewed a TV programme in which an architect designed the refurbishment of a house, then designed the furniture using CAD software. He uploaded the furniture designs to a CAM application at a manufacturer, which transformed the design into production directives; these were translated into specific commands for a flat-bed laser cutting tool. The marine grade plywood was precision cut and the parts sent to the house for ‘assembly to order’ (ATO).

This ability to design, upload and make via Computer Numerical Control (CNC) manufacturing technologies, including 3D printing (also called Additive Manufacturing) and laser/water cutting tools; will enable an increase in the supply of goods. This is due to technologies available at lower cost and more widely available, especially in smaller towns and regional areas.

The increasing amount of quality goods supplied to the world will constrain price increases. This means that increased costs of logistics services – transport, storage and distribution becomes a higher percentage of the total cost of ownership (TCO) for an item. Therefore, Logistics will be more important in Supply Chain decisions.

The increased visibility of Logistics will give an incentive for the implementation of Distributed Ledger technology (referred to as ‘Blockchain’).  This is a distributed database for commercial transactions, certificates, permissions, invoice and payment interactions, containing digital signatures that cannot be changed, forged or hacked.  It is a transparent view that everyone can agree is the truth, which should increase trust through supply chains.

The technology is currently undergoing commercial trials, but the proponents do not expect commercial implementation for at least five years. This is to allow the incorporation of security, inter-operability and data management capability in a complex, global system that could contain many versions of the technology.

While keeping abreast of technology developments is important for supply chain professionals, an awareness of economic, political and environmental changes could be even more important. This is what makes the job of a Logistician interesting – it is so much more than moving and storing boxes!


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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More...

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