Call for financial support for the industry as it comes to terms with the need for permanent and significant restructuring of supply chains
The call for an immediate multi-million pound government support package for shipping from the UK Chamber of Shipping earlier this week spoke volumes of the crisis facing the industry.
Chief executive Bob Sanguinetti asked the UK shipping minister Kelly Tolhurst for urgent funds to ensure that the shipping industry can continue to bring in food, goods and medicines into the UK as the Covid-19 crisis takes hold.
Mr Sanguinetti described the current situation as a “monumental crisis”. While shipowners are adapting as much as they can to meet the Covid-19 challenges, changes will need to be made to infrastructure, employment and processes on ships and in ports which will only be possible with support from government, he added.
The UK is not alone in needing financial and political support for its shipping sector. Shipowners around the world are dealing daily with extraordinary upheaval, requiring them to be agile in their responses while still carrying the burden of operational overheads that need to be paid.
The requested UK emergency shipping fund would include cover for “dramatic” loss of business; support with seafarers’ salaries; grants to assist with the additional costs of virus provisions; grants to deal increased costs such as overtime, agency fees and any other cost associated with providing sufficient crew; delays on VAT payments; and use of credit notes for future travel in lieu of refunding deposits.
To say that the industry is in a state of flux is an understatement: the latest data for Tradeshift, a provider of supply chain payments, reports that global business-to-business transactions dropped by 62% last week. Tradeshift, whose platform handles trade transactions between over 1.5 million businesses in 190 countries, found cross border transactions between businesses fell by 58% week-on-week last week, while domestic transactions dropped 66% during the same period.
The scale of the slowdown is having a significant impact on liquidity, with an increasing number of large organisations saying they are looking at ways to build or maintain cash reserves, says Tradeshift.
Chief executive Christian Lanng said that every conversation he is having with businesses right now centres on cash flow. “Companies are looking at how they can keep cash on their books to see them through the current period. But they’re also acutely aware that suppliers are facing the same liquidity challenges. If cash dries up across the supply chain, we could see a lot of smaller businesses start to fold. It’s a balancing act. Get it wrong and the whole house of cards could come down.”
Unsurprisingly, consultant BSI’s Supply Chain Risk Insights 2020 Report released this week ranked coronavirus as the number one trend dominating the global supply chain this year, followed by ‘Shifting supply chains in Asia’, ‘Human trafficking and the exploitation of migrants’, ‘Political protests and global ideological shifts’, and ‘Impact of climate change on business continuity’, with ‘Global risk of terrorism and tensions in the Middle East’ bringing up the rear.
“The coronavirus disease 2019 (Covid-19) outbreak has highlighted the fragility of global supply chains, underscoring how the failure of one link in the chain has the potential to cause extensive disruptions throughout,” noted the report. “At a minimum, the downtime and slowed restart of Chinese manufacturing will have lasting ripple effects for global industry and shipping throughout 2020.
“In addition, the spread of Covid-19 outside of China will likely lead to complex and varied
responses by individual governments to contain the virus, further disrupting supply chains globally and requiring businesses to adopt adaptive business continuity measures.”
On its second major supply chain risk, ‘Shifting supply chains in Asia’, BSI notes that as the US and China engaged in their ongoing trade dispute, other countries throughout the region such as Vietnam, Myanmar, Cambodia, Malaysia, Thailand, and Bangladesh all worked to create a more attractive business environment.
“Now, as companies are concerned over their supply chains in Asia amid the coronavirus outbreak and pursue other opportunities, industries must consider the corporate social responsibility risks still rife in China and throughout the region, including the presence of child labour, forced labour, and poor working conditions.”
Covid-19 and, to a lesser degree, the other supply chain risks noted in the BSI report promise to radically change the shape of trade and therefore the shipping industry with immediate effect.
Speaking to CNBC, Alex Capri, visiting senior fellow at the National University of Singapore Business School, said he did not expect things to ever return to normal as we’ve previously known them.
“Some major changes are underway right now,” he said, which will lead to “massive” restructuring of supply chains.
Localisation of supply chains was already in play as a response to the ongoing trade wars, but there is an expectation that this phenomenon will now accelerate. Mr Capri also expects automation of processes to ramp up because, as he puts it, robots are less vulnerable to the pandemics that affect human labour and capital – exposing the inherent vulnerabilities in today’s trade and supply chains.