A how-to for a possible restart
The past months have demonstrated our dependency on the logistics sector for many areas of our lives. The COVID-19 crisis has put a strain on this industry: few flights, extreme demand peaks for certain products, and strict security regulations are just some of the developments where we need quick answers. Sebastian Kummer, Academic Director of the Logistics & Supply Chain Management Certificate Program at the WU Executive Academy, analyzes the lessons drawn from the crisis and explains how rebooting the pandemic-stricken logistics sector might look like..
“In past crises, demands plummeted, which led companies to pare down production. Ramping it up again after a crisis proved to be a challenge. We have seen companies succeed that placed their bets on a flexible supply chain,” Sebastian Kummer, Head of the Institute for Transport and Logistics Management at the Vienna University of Economics and Business, says. But the COVID-19 crisis is different: “In some areas, there is a significant rise in demand, for instance for semiconductors. Some enterprises have predicted this and placed larger orders; others haven’t had the foresight. Especially across the automotive sector, companies now experience bottlenecks. In general, it was thought that demands would drop as happened during other crises. But in some areas, such as e-mobility, the opposite occurred.”
“Across the health sector, safety stock levels were inadequate. The crisis has taught us that just-in-time manufacturing and reduced stocks can have adverse effects. During a crisis, you need enough stocks.” With regard to short-term disruptions, for example concerning protective equipment and masks, logistics providers were able to react quickly, rebalancing supply chains within a matter of days. “Also with regard to vaccinations, logistics will never be the bottleneck. That much is sure. Neither will it be a problem to transport any type of vaccine safely and quickly,” Kummer asserts.
“The pandemic hasn’t hit the logistics providers as hard because as suppliers to several industries, they have been able to offset the decline that has occurred in some areas,” Kummer analyzes. Labor conditions, however, have become significantly more challenging. For package deliveries, we are used to same-day delivery, which proved impossible during the crisis.
“In the end, the CEP (courier, express, and parcel services) providers have managed the situation well,” says Kummer. Another important insight gained during the past months: “We have seen that logistics employees are essential workers: they keep supermarket shelves stocked and deliver the necessary electronic devices to all those working from home.”
“Aerial and maritime transport struggle the most, and as they are both affected, companies have no way to fall back on the other.” The reason for that: half of our global air cargo is transported as so-called belly freight, i.e., it is transported in the bellies of passenger planes. As these flights have decreased by up to 90%, bellyhold capacities have shrunken as well. “Conversely, demand has risen especially in the area of air cargo, for example for personal protective equipment or electronics. Now we can observe prices skyrocket in air cargo,” Kummer says. In maritime freight, however, containers have become scarce and fewer vessels are at sea, as a consequence of which prices have tripled and the earnings of the shipping companies have exploded.
It’s essentially an oligopoly: a handful of shipping companies are dominating the market. All of a sudden, their profits are huge, and so they have no interest in lowering prices.
“What can we learn from this crisis? We need to ask ourselves what will happen in logistics if an even more dangerous virus emerges,” Kummer explains. If that happens, people won’t be able to do their shopping in stores anymore and we are going to need a contingency plan to provide for a population locked in their homes. “We need to get ready for the next pandemic now, and well-oiled logistics will play a central part here.”
“We will be well advised to promote start-ups for the reboot of logistics, especially those focusing on sustainability and digitalization. The blockchain technology, for instance, has the potential to improve the exchange and tracking of pallets,” Kummer opines. If we manage to make the supply chain more transparent, we will make it more efficient, achieving better capacity utilization and more sustainability. “Decarbonizing our economy and transport has been a crucial issue even before the crisis. In transport, we now have to begin to consistently use green energy carriers.”
“My vision for cargo transport: we need to try to increase efficiency in the transport sector in the next 10-15 years in a very targeted manner, e.g. by improving vehicles’ aerodynamics. Another promising idea is to extend truck length in order to increase the weight per axle while the overall weight stays the same.” When it comes to propulsion systems, Kummer envisions a step-by-step plan for more sustainability: “Small trucks and short distances should be battery-powered; this should definitely be promoted.” For heavy transport, he considers LNG (liquefied natural gas) the best solution in the medium term as it burns better and is more eco-friendly regarding particle emission. “We should not focus exclusively on CO2. What we need to use is biogas produced from waste. Trucks operated with green hydrogen, on the other hand, are still a long way off and won’t be on our roads before 2030,” the expert concludes.
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