In debate: Logistics

14 / IN DEBATE

Perfect storm logistics

Pandemic pressures, prices and insatiable demands have pushed global logistics into the eye of a perfect storm, says expert David Emerson

Global supply chains are facing unprecedented challenges IS THE AVIATION SECTOR GOING TO BE THWARTED IN ATTEMPTS AT INFLIGHT SERVICE RECOVERY?

HOW DID THE CURRENT LOGISTICS

DE CHALLENGES START? The issues have been happening for the last 18 months. What started out as an issue triggered by the Covid-19 pandemic of Q1/2020, quickly escalated into a major global supply chain problem. Logistics faced a near perfect storm with Chinese factories shutting down and labour shortages caused by the pandemic, combined with buyers over buying product to try and protect their businesses from those very same shut downs and shortages.

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HOW DID REACTIONS TO THE PANDEMIC IMPACT THE ISSUE?

The problems escalated into issues relating to the global demand for Personal Protection Equipment (PPE) with governments over ordering huge amounts of PPE that ended up sat at ports for weeks, months, even years in some cases. The UK as an example has over 30,000 containers of PPE still sat in UK ports that is either unusable, faulty or otherwise not yet moved on. The US and other markets have the same issue.

The UK has also had to deal with the fact that carriers don’t want to call at UK ports because of issues around BREXIT, customs challenges, port infrastructure and the lack of drivers. As a result UK importers have had it even harder than EU or US importers.

WHAT DOES THIS MEAN FOR COSTS?

If containers aren’t being restituted back to their original destination, they aren’t re-entering the supply chain and this has has a massive impact on the ability to provide empty

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containers for further shipments. This supply issue has driven prices up and then, seeing an opportunity for profit, the ocean carriers and ship owners have kept the prices elevated because businesses kept on shipping even with prices going from $2,500 to $20,000 per container. This pricing issue is likely to continue into 2022, probably until government intervention as the impact hits inflation and wider product prices. Until such time as a government intervenes the carriers will keep the prices high. Why wouldn’t they? The biggest shipping lines in the world are making profits in the billions every week. Until they get told to change, they won't address that. And who can blame them? This issue is likely to continue through most of 2022 and maybe into 2023 too.

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HOW IS IT SPECIFICALLY IMPACTING AVIATION SUPPLY CHAINS?

A lot of aviation products are made in China and low-cost countries and so getting new product is a challenge - airlines are right in the middle of the perfect storm described. Supply chains are being hit in almost every area of the world but the main focus is China and the key global ocean ports in the US/UK/EU and Asia. Interestingly the Indian sub-continent is not as badly impacted as China and could be an interesting alternative sourcing location in the near term for certain products. David Emerson, senior vp SEKO Logistics, supports a range of inflight product suppliers and is at the heart of the global logistics market

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CAN AIRLINES NOT TRANSPORT THEIR OWN PRODUCTS BY AIR?

Most of the current issues relate to ocean freight and these bottlenecks in ocean freight are leading to an increase in air freight, more cargo charters and so on, but that does not help the industry's professed sustainability intentions. From what we see businesses will set aside their sustainability practices to keep their products moving, at any cost.

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SHOULD THESE ISSUES MAKE BUYERS RETHINK THEIR BUYING DECISIONS IN THE LONGER TERM?

The price of logistics is going to have a huge impact on buying plans. Buyers need to be thinking about near shoring and alternative sourcing locations. However the truth is we all now operate in a global economy and that isn't likely to change. These events have shown how fragile the supply chain can be, and how one issue can create a huge wave of problems. When there are multiple issues, it causes a tsunami, and that’s what we have now. •