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Disruptions of Global Logistics in 2021 (Key Takeaways)
The Global logistics industry is a fast-paced, lucrative, and ever-changing one. It can also be one of the most challenging. This is mostly because external factors can disrupt the entire industry in just a few moments. Natural calamities (like pandemics) and human-made disasters (such as terrorist attacks, cyber-attacks, piracy, or accident) are major causes of disruptions in the shipping & logistics industry. And such disruptions usually have a negative impact on the global economy. A great example is the major industry disruption last year (2020).It started with the shutdown of factories in China in early 2020, followed by lockdowns in several other countries across the world, then labor shortages, demand for tradable goods, disruptions to logistics networks, and an increase in shipping/ logistics costs and delivery times. This has led to a major challenge for the global economy. In this article, we will examine the disruptions that occurred in the industry in 2021, their impact, and the lessons and opportunities that exist moving forward.
How the pandemic disrupted the logistics industry
The global logistics industry is one of the most affected industries by the pandemic. In the early days and weeks of the covid-19 crisis, as the world went into lockdown, country border closures and flights were grounded in a matter of days. The only movement happening was centered around emergency & safety equipment. Demands for Personal Protective Equipment and other necessities were at their highest. On the other hand, weeks into the pandemic, there was a sudden rise in e-commerce purchases as more and more people relied on online purchases. This put extra pressure on the global supply chains. Most recently, the rollout of vaccines across the world added further challenges to the sector. In addition to dealing with the problems of this surge, logistics companies had to consider the health and safety of their employees.
To fulfill their orders and adapt to the new situation, many logistics companies had to:
- redesign their supply chains,
- introduce changes in their workforces,
- opted for logistics automation and
- new warehouse management programs.
Global logistics companies have had to adapt quickly to keep up with these many changes in the last 12-18 months. Those who couldn’t adapt did not survive.
Rising global costs of shipping
The shipping industry is a key component in the supply chain, helping with the movement of millions of containers around the globe every day. Global shipping costs are reaching record highs, putting a lot of financial pressure on logistics firms and consumers alike.
Two main factors have contributed to this cost increase:
- Increased demand for Chinese exports and the demand for container shipments.
- Shortages of containers (especially at Asian ports) have caused supply bottlenecks and thus, increased shipping costs.
Other reasons for the rising of the cost of shipping are:
- High costs of fuel
- Lack of port workers
- A sustained rally in the demand for commodities.
… all of which can be attributed to the pandemic experienced around the world.
Increase in E-commerce/ Drop-shipping
It’s not all doom and gloom. There are some positive impacts the pandemic had, one of which was the surge in the adoption of e-commerce and dropshipping. As lockdowns became the new normal, most businesses and consumers increasingly “went digital”, providing and purchasing more goods and services online, raising e-commerce’s share to about 17% in 2020. And it’s not a “pandemic-only” spike. This increase in e-commerce generated by the covid-19 pandemic is being maintained and for the most part, online shopping has become a permanent behavioral shift. This shift in user behavior and the disruption of the pandemic has provided an opportunity for the shipping/logistics companies to research, test, and invest in alternative ways to provide pick up, transport, sort, and deliver goods globally.
The future of shipping costs
The surging shipping costs were driven majorly by pandemic-related transport disruptions resulting in tight container availability. Unfortunately, even as the world gets back to normal, these costs won’t come down anytime soon.
Here are three reasons why:
Imbalances in the production and demand for goods
One of the effects of the pandemic includes an imbalance in the production and demand for goods. There was inconsistent demand with different countries going into full and partial lockdowns and opening up at different times. This led to shipping companies cutting the capacity on major routes, and also the shortages of empty containers.
As the recovery of the world economy progresses, the global demand has also recovered strongly, especially in the sectors which are most closely linked to international trade in goods. Competition for ocean freight capacity has intensified as many economies have opened up further and inventories are rebuilt across the several links of supply chains.
And with increased demand comes high costs.
Few alternatives Option to ocean freight
A lack of alternatives to ocean freight makes it hard to avoid surging transport costs at the moment.
An unbalanced recovery among countries throughout 2021
Some countries are already transporting more goods than they did before the start of the covid-19 crisis, while others are still struggling to meet up with what they did before the covid-19 pandemic started
Port congestion and closures
Congestion of port is a major part of the problem. Shipping performance in 2021 continued from where 2020 left off, in terms of lower rates of vessels keeping to schedule, and average delays for late vessels rising. Even though operations have resumed in major ports around the world, congestion and the continuing need for measures to stop the spread of Covid-19 mean delays continue.
What does this mean for the Shipping/Logistics Industry?
The disruptions in the logistics & shipping industry brought on the pandemic have had an enormous effect on the industry at large. It has caused companies to change and adapt in ways that they probably wouldn’t have in years. As the world gets back to normal, the increased demand the pandemic brought on does not seem to be stopping. This has affected the shipping costs globally. It is safe to assume that Global shipping costs might not return to pre-COVID levels anytime soon. There are certainly no quick fixes to this problem. It is indeed the new normal.
And so, players in the industry must decide on the most appropriate ways to deal with it. This could mean:
- Accepting price increases and sharing the cost across the value chain
- Leveraging technology to help manage costs or
- Restructuring supply chains to avoid long-distance shipments as much as possible.
The key is to understand that in order to survive in this new normal, shipping/logistics companies must commit to adapting quickly and explore ways to run more efficiently and effectively.