journal
COVID-19 has thrown a planetary-scale spanner in the works of our seemingly-efficient global supply chains. In this Research Short, we’ll explore some of the cascading causes, effects and vulnerabilities present in our strained global logistical networks — and what that might mean for the future of moving goods.
This is the first edition of ‘Viral Mobilities’ — a series of Research Shorts exploring the emerging impacts (and opportunities) of a COVID-affected world of mobility. ‘Research Shorts’ is our format for experimenting with ways of translating deep research into shorter, sharper and more engaging mediums.
Pre-Existing Fragilities
For years, supply chain managers have emphasised a policy of efficiency over resilience, pursuing highly-profitable (but equally-risky) strategies like the offshoring of manufacturing to low-cost regions and lean, just-in-time production. This sacrifice of long-term resilience in favour of short-term profitability has set the scene for fragile supply chains variously exposed to the multiple shocks of an unlikely — but not unprecedented — global emergency.
Dive deeper:
— Interestingly, this lean philosophy of production and inventory originates from 20th century Toyota — and COVID-19 isn’t the first time the so-called ‘Toyota Way’ has caused serious issues.
— In this long-read, the Atlantic describes how our modern supply chain is snapping due to the systemic fragilities caused by an economy built on outsourcing, lack of diversification and just-in-time inventory.
— If you prefer video, he’s a Coronavirus Briefing from Yossi Sheffi, Director of the MIT Center for Transportation and Logistics, in which he elaborates on the systematic risks of our global supply chains and how coronavirus is exposing them.
— Harvard Business Review is calling the pandemic a wake-up call for supply-chain management, with companies finding themselves completely unprepared for a crisis despite ‘numerous supply-chain upheavals inflicted by disasters in the last decade’.
Supply Seizures
In the early months of 2020, COVID-19 emerged from China and placed the country in a state of quarantined emergency. Suddenly, in an implosive, dramatic fashion, the world’s factory-floor stopped producing. As the once-epic outflow of Chinese goods started to dry up, the rest of the world had to grapple with the consequences of over-relying on so few countries’ manufacturing capabilities — most evident in the shortage of critical health supplies like masks, protective equipment and ventilators.
Dive deeper:
— According to the WEF, Chinese industrial production fell 13.5% in the first months of the year (compared to last year), causing ripple effects all throughout the world economy.
— The world’s largest 1,000 companies have concentrated 12,000 of their most important facilities — factories, warehouses, and other operations — across quarantined areas in China, South Korea and Northern Italy.
— According to South China Morning Post, despite Chinese ports reopening in early-April, air cargo is still severely limited and prices are reaching unprecedented highs — and consequently, trucks have stepped in to pick up some of the slack.
Demand Disruptions
As the virus spread across the world and officially distinguished itself as a global emergency, countries moved into progressive states of lockdown and national isolation. Almost overnight, the shape and scale of global demand for goods were drastically altered. People stopped purchasing some goods and panic-bought others, causing supermarkets and grocery-delivery services to thrive, even as closures in hospitality, transport, retail and entertainment paralysed the industrial flow of bulk goods. Some countries are already beginning to reopen, but whether that translates into a recovery of consumer demand rests on a delicate negotiation between public-health outcomes and economic revival.
Dive deeper:
— Despite a relatively healthy food supply, many food supply chains around the world are in chaotic disorder as they struggle to adapt to polarised demand between panic-hoarding households and shuttered restaurants, schools, airports and event spaces.
— The Bangladeshi garment industry is in crisis-mode after worldwide retailers cancel more than £3 billion worth of orders. This may prove emblematic of the kinds of cost-shifting that could take place as demand in the developed world falters and production centres in the Global South are forced to bear the cost.
— McKinsey expects that some 40–50% of discretionary spending in the coming months might not occur, before picking up in late-2020 and 2021.
— When it comes to overland freight, whether truckers’ services are in demand or they’re completely out of work depends almost entirely on the industry they serve. Some trucking firms are reporting tough times, while others are claiming that it’s ‘like Christmas’.
Second-Order Mutations
Supply chains are often likened to the conducting of an orchestra; an assembly of interconnected players, all dependent on a shared rhythm, each only as strong as their weakest link. At the beginning of this long emergency, China’s quarantine represented a continental-scale weak link. Now, with their factories reopening, global demand for the very goods those factories produce remains uncertain, representing a broader array of overlapping and enduring weak links. These shocks continue to initiate and exacerbate certain second-order mutations throughout the system — some expected, others less-so — from an unprecedented surge in e-commerce to the utter chaos in the global oil industry.
Dive deeper:
— We’re likely to see a widespread, lingering shift from physical retail to e-commerce, with the biggest gains concentrating in e-commerce behemoths like Amazon and Instacart — which are increasingly made possible by precarious, dangerous gig-work.
— With the reduced global flow of goods and totally extinguished movements of people, oil markets went into cardiac arrest this month, and their implications for supply chains are still in the realm of speculation.
— Similar to retail, the experience economy is seeing a necessary shift from physical to digital under our new locked down reality — what would that mean for the movement of goods if sport, entertainment and events remained in the virtual space, deep into the future?
— As one supply chain management executive explains on the Exponential View podcast, labour conditions — and entire labour markets — in developing countries often rely on the ‘goodwill’ of upstream buyers in developed countries. We may see a degradation of workers’ rights as companies relocate, renegotiate contracts or renege altogether on existing contracts.
Post-Viral Projections
Many parts of life still remain more uncertain than ever — and what are supply chains, if not a logistical representation of the flows and connections of everyday life? How long we stay in this state of suspended animation is unclear, but regardless, we can already start learning from experience to explore how advanced technologies, new geopolitical relations and an increased focus on resilience and robustness may all help reshape the supply chains of tomorrow.
Dive deeper:
—Nick Vyas, executive director of the Center for Global Supply Chain Management at USC, predicts that we’ll likely start to see a ‘decoupling from some long-term supply chain dependencies from the China-centric supply chain network,’ and rely more heavily on manufacturing centres in South America.
—Likewise, this NYT piece predicts a shift in supply chain strategy from efficiency to resilience, with experts suggesting there will be “a rethink of how much any country wants to be reliant on any other country.”
—VC inventors Santosh Sankar and Matt McHugh explore the systems concept of antifragility, some historic examples of antifragility in supply chains and how they believe predictive analytics, robotics and last-mile drone delivery could make our supply chains more robust and antifragile.
—However, we need to be wary of the potential side-effects that this reshoring and digitalisation of supply chains may have on worker’s rights. There will be high likelihood that some firms will opt to transfer the costs of more resilient supply chains — which will not be insignificant — onto workers through labour mechanisms like automation, surveillance and precarious gig-work. Watch Saiph Savage discuss how automation can be deployed to increase solidarity and empowerment for workers.
Conclusion: Key Questions for a Better Future of Logistics
What can we take away from this dramatic affair as we gradually emerge — rattled but more determined than ever — and continue to chart a course towards a better and more empowering future of mobility? Although their answers will remain up for discussion for some time, we believe there are some crucial questions we should begin to grapple with to fulfil that beautiful ambition:
1. How can we adapt to service new markets emerging from our shifting landscapes of consumer demand?
2. How can we be leaders in upholding workers’ rights amidst an industry tending towards automation and precarity?
3. How can we balance near-term efficiency with long-term resilience to develop a more robust, crisis-equipped alternative to the fragile ‘Toyota Way’ — ‘A DTA Way’ for the age that we live in?