The World’s (Still) Gone Crazy—COVID19 and Supply Chain

Home   /   The World’s (Still) Gone Crazy—COVID19 and Supply Chain
Supply chain disruption

Three weeks ago, I stated the obvious in the first blog of this series—life had changed for everyone. Now, most of us are still at home with few of us getting back to work. As a country, Vietnam started back last week at a blazing 90%. The nation is committed to moving past the pandemic. Vietnam’s decisive action has paid in dividends that it can now reap the benefits—more on Vietnam in the coming weeks.   

This blog series guides practitioners who are working to survive. We will diagnose what’s happening to help those in the trenches weather the storm and move forward. I’ll stay with you as we move through this recovery–together.

Let’s look at some numbers first:

Air Cargo

Air Cargo stats COVID19
COVID-19 has caused wide-spread flight cancellations globally.
In February, air cargo declined by 4.4% YOY.

The commercial air industry transports between 45% – 50% of all global air cargo. This lift capacity is no longer reliable or widely available with most passenger flights suspended. However, dedicated cargo fleets are thriving with higher rates.

Marine to Europe

According to Sea-Intelligence Maritime Consulting, Blank sailings for
Asia-Europe have now peaked, cutting 34% of capacity.

As if this wasn’t enough already, last week, the world’s largest container ship was launched with a 24,000 TEU capacity, while demand has been devastated by the virus.

One Belt, One Road

One Belt, One Road China

As I read through these bleak numbers, one jumped out at me. China’s One Belt One Road, the country’s attempt to build an economic belt from Shanghai to the Middle East to Europe to compete with the maritime industry for moving goods west.

What’s an interesting development with the global maritime fleet in a standstill? During this crisis, the Silk Road volume has increased from China to Europe and back.

North American Intermodal

North American Intermodal COVID-19
According to the Association of American Railroads, intermodal volumes for containers
and trailers are crashing when looking at the five-year averages.

In North American intermodal, volumes continue to dive, in some cases by 33% in the First Quarter. 

A Look at Global Supply Chain Disruption

As I wrapped up last time, I touched on my goal of exploring how practitioners everywhere are navigating the Coronavirus pandemic. After four decades in the trenches during these events myself, I reached out to some colleagues and friends for a pulse on how they are managing during COVID-19.

We discussed the state of the world as they saw it, and what they did to adapt to the crisis. We’ll hear from a railroad, a traditional brick and mortar manufacturer, a grocery distributor, a multi-national, and an outside-the-box eCommerce startup in the UK. 

Let’s take a look at organizational trends across the supply chain and around the globe:

Traditional Manufacturing

  • In China, employees went home for the Chinese New Year and couldn’t return—they spent 3.5 months in quarantine to stop the spread of COVID-19.
  • Inventory was up due to the timing of the Chinese New Year—so we’ve adjusted schedules for inventory consumption.
  • All across Europe from France to the UK to Spain and Italy, manufacturing completely shut down while North America remains open with one caveat, Quebec.
  • Shipping is the biggest bottleneck with the cost of Air Freight killing margins—20x the cost of a marine container.

Grocery Warehouse

Grocery disruption COVID-19
  • Historical and seasonal demand aren’t valid predictors—seeing its highest sales week in over two decades.
  • While sales are up, the distribution center was facing staffing challenges and supplier limitations due to pace with the unprecedented demand.
  • They are lacking the technology and level of sophistication for supply planning—operating in spreadsheets. Also, supplier cash flow is a challenge.
  • Distributors are completely outside of their normal processes—experiencing a virtual free-for-all—reacting to stay afloat.
  • Driving revenue by competing on cost—grocery retailers are more flexible with growing limitations.
  • Partnered with a local brewery for plastic bottles to repurpose excess inventory.
  • The fresh supply chain—known for being slow-to-adapt—is forced to accelerate transformation.
  • With all the new people at this distributor and grocery stores, there is a growing concern for safety.

Railroad

Railroad supply chain disruption
  • The organization’s bottom dropped out completely—no volume.
  • They started planning for a potential pandemic in January—stocking up on masks, hand sanitizer and bleach to operate locomotives by CDC standards.
  • Their main driver is to provide more agility and responsiveness to uncertain requirements.
  • Container balances are a concern with no traffic going back to China.
  • The pandemic is creating a new “norm”.
  • Pulled an Internal Audit from the beginning to support the necessary changes in operation.
  • Obtained CEO and Corporate Legal support from the outset.

eCommerce

  • This arts and craft supplier wasn’t essential, however; the organization was fully online and accessible and incentivized by the local government to stay open and operating. 
  • With physical, chain retailers closed, the online retailer is selling out of surplus inventories even after pulling their paid promotions on Google.
  • Sales has a new role with selling in alignment with the new reality.
  • Demand is huge, with volumes up 400% – 600% with 70% new customers.
  • The eCommerce business adapted quickly—inventing new, nimble processes.
  • Their supply chain was robust and expanded quickly with tools to go the distance.
  • The organization is adapting with a focus on quality and quantity.

Multinational

Multi-national
  • This essential service has a global reach with a host of products—including being a large provider of personal protective equipment (PPE).
  • Branches in Germany are operational while others are down in the UK, Spain, and Italy.
  • They have an agile supply chain with fast responses and solutions—were able to keep the US DC running after finding a staff member tested positive for COVID-19.
  • Employees were furloughed for two weeks.

What have we learned from these supply chain organizations?

Supply Chain Disruption COVID-19

Conclusions Overall

Demand

  • Historical demand cannot navigate the pandemic.
  • Some companies are experiencing record sales while others have lost virtually all revenue.
  • Sales has a new role with selling in alignment with the new reality.

Supply

  • The supply chain needs to be robust and able to expand quickly.
  • Providing agility and responsiveness to uncertain requirements.
  • Adapt quickly—invent new processes to be nimble and responsive.
  • Air freights are killing margins at 20x the cost of a marine container.

Managing the Business

  • Use your resources to go the distance.
  • Pull Internal Audit in from the beginning for necessary changes ahead.
  • Make sure your CEO knows what’s going on

Exploring other regions in the next blog.

In the next blog, we’ll examine how different regions and their responsiveness could change the way we think about global supply and distribution in the future.

If you want to keep reading in the meantime, I’ve pulled together some headlines from the Journal of Commerce to keep you in the know:

Pandemic lengthens US truck driver delays, detention

Grim economic outlook to extend suffering for carriers

3PLs prep for price wars, bankruptcies amid pandemic

COVID-19 a likely catalyst for tech investment

VC firms betting on digitizing US-Mexico cross border trade

Leave a Reply

Your email address will not be published. Required fields are marked *