Dec 10, 2020

Mercedes-Benz Demands Carbon Neutrality from Supply Base

This article was originally published on Automotive Logistics.

2020 has been an extremely turbulent time for logistics and transport category managers, and this looks set to continue into 2021. The movement, storage and flow of goods has been directly impacted by the COVID-19 pandemic with border restrictions creating temporary stoppages, and travel restrictions crippling the air transport industry, which, in turn has put unprecedented pressure on shipping and road freight.

It is not only the market landscape that has changed; category managers have had to rapidly adapt and respond to fluctuations in demand and the business’ need to be more agile and responsive. With everyone in the same boat (pun intended), coordinating short term contracts, and securing cargo slots at good rates has not been easy and demands a greater degree of coordination with business stakeholders than was previously required.

Snapshot on the current state

Procurement Leaders has recently hosted two roundtable discussions with leaders in this category from a range of industries, to explore how category managers are navigating the disruption:

  • The reduction of passenger planes in the air, coupled with sporadic spikes in demand for air freight, has led to a significant spike in prices in this category since March 2020. Due to most airlines claiming force majeure on their yearly contracts, many procurement professionals are having to continuously arrange spot purchases or negotiate short-term pricing, often directly with carriers. Although prices appear to have normalised in November 2020, this has led to some major changes in the planning cycle that are unlikely to change until some normality returns. Much cargo has been transferred to sea or road freight where possible, but to accommodate the longer transit times, category managers are having to have planning conversations with stakeholders sooner.
  • With much air freight being transferred to the sea, continuity has become an issue for those booking sea freight, particularly for those with a smallshare of the wallet. The volatile demand spikes and poor coordination among ports and freight forwarders has resulted in disorder and inefficiencies such as a lack of containers in the APAC region or port spaces being clogged due to containers full of PPE in the UK. Procurement teams are having to deal with cargo being re-directed, needing to secure slot bookings sooner, and at worst, managing internal stakeholder expectations around delays. To top it off, there has been a spike in freight surcharges, with buyers having little power to challenge the few alliances that are monopolising the market.
  • The demand on road freight has also steadily been increasing, and if the market doesn’t respond quickly enough, this spike may mean potential impact to continuity and longer lead times for bookings, similar to what is being seen in sea freight. Heavier disruptions have been felt in America compared to the EMEA and APAC regions. Multimodal freight, including utilisation of rail has helped mitigate cost and ensure continuity in this region. However, Brexit is expected to cause some disruption in the new year. Most businesses with UK/EU logistics requirements are working with suppliers such as DHL and TNT to confirm what customs clearance and declarations processes need to be in place by January 2nd. Many have been undertaking deep dives with stakeholders to understand their requirements and even looking at the possibility of consolidating shipments to reduce the administrative burden and potentially customs charges. Some businesses are even looking to exit the UK from their supply chain altogether, with Belgium as an alternative route. This will require a lift and shift to accommodate the move, which will incur additional costs in the short term, but may offer greater simplicity and flexibility in the long term.

The consistent theme, therefore, for logistics going into 2021 is better planning. With the business needing to be more agile but not always able to afford stock or flexible timelines, and supply struggling to keep up with demand, the planning horizon is longer and requires greater flexibility. Closer conversation and coordination between stakeholders and suppliers is a must, and the imperative for better information and data flow will no doubt accelerate digital transformation in this space.

Future trends to look out for in 2021

Going into 2021 will continue to be an exciting time for logistics category managers as they adapt around disruptions such as the distribution of the Covid-19 vaccine, Brexit, the continued expansion of e-commerce, the pressure to adopt more sustainable transport solutions, and greater transparency through the use of data and technology.

So why is this disruption so exciting? Inefficiencies, high prices, monopolies and high demand – these are also the perfect recipe for disruption and innovation! I predict the transport and logistics industry will not look the same in a couple years’ time, and category managers need to keep abreast of the evolution to ensure their business gets the most benefit.

Some of the future trends discussed in the roundtable sessions are highlighted below:

  • The distribution of the covid-19 vaccine is expected to disrupt the freight chain in hard-to-predict and sporadic ways. Providing just one dose each to 7.8 billion people would fill 8,000 Boeing 747 cargo planes, according to the International Air Transportation Association. It won’t be clear until the vaccination plans are announced what passages are going to be affected, or when or for how long. The responses and intervention measures taken by different governments are also unpredictable and can range from the clearing of ports or diversion of flow to charting military planes. Keeping abreast of the rollout plans in each region and how it will impact their own logistics (if at all) will be key for category managers.
  • Most procurement teams are rolling out some form of sustainability plan, including targets to reduce carbon footprint and ensure ethical and sustainable supply. Transport and logistics will form an important part of that, so category managers will be focused on getting more accurate data from suppliers to get a performance baseline, and everyone will be putting pressure on the industry to adopt more sustainable practices in time. This will further drive the imperative for greater transparency, coordination and efficiency to reduce wastage, which again requires better data and information flow to achieve this.
  • Now that consumers have developed the habit and with many store fronts not making it through the pandemic, e-commerce is likely to continue to grow. This will continue to impact cargo volumes and flows but also accelerate digital disruption, predominantly with regards to improving data flow and transparency to improve efficiencies. There will be much to learn from the e-commerce giants and partnership opportunities are also likely to become available for those who are on the lookout for them.
  • By the end of the year we can expect to see drones disrupting the industry. Air freight transport business Dronamics has reported it is already preparing for the necessary certification under the new rules, aiming to obtain operational authorisation by the end of 2021 with the first commercial flights of the same-day drone cargo services expected to begin in early 2022. Category managers may want to investigate what impact this will have, if any, on their own freight options.

Image via Automotive Logistics

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