THE supply chain sector is anticipating another year of costly operations not only because of pandemic-induced disruptions but also due to investments in innovative measures to keep the industry resilient.
Supply Chain Management Association of the Philippines (SCMAP) President Pierre Carlo Curay, in an interview with the BusinessMirror, said that logistics are expected to remain expensive this year amid the shipping bottlenecks.
“We are still facing increasing costs across our supply chains, compounded throughout two uncertain years living with the Covid-19 pandemic,” he said. “This is a particular pain point in the Philippines: we are heavily affected by high global shipping costs, and our logistics costs to sales are higher compared to our Asean neighbors, at roughly 27 percent.”
Last year, SCMAP was one of the export industry stakeholders that pushed for the standardized shipping fees amid increasing freight costs due to container imbalance.
The stakeholders, in a position paper, said that shipping charges should be based on International Commercial Terminology (Incoterms)—a globally-accepted standard for international trade—as it will allow businesses to have better cost management.
As such, shipping lines can also be more competitive as Incoterms levels the playing field in terms of pricing, they added.
The concerned parties pointed out that freight costs for shipments sent to the Philippines are more expensive compared to its neighbors in the region. The average cost for local ports amounts to $592 per 20-feet (ft) full container load, much higher than the $202 average in other countries.
Investments
On top of this, Curay noted that industry players will also incur additional spending to safeguard the supply chains against the disruptions.
“Apart from operational costs, there will also be costs associated with players embracing new innovations and establishing new norms to forge a more resilient and responsive supply chain,” he said.
This is parallel with the outlook of UK-based think tank Oxford Economics: further investments in warehousing facilities are expected this year to address the supply chain constraints fueled mostly by port congestion amid the pandemic.
The shift to online purchases given the restricted movement in the pandemic has resulted in maximizing the capacities of warehouses in several countries, the think tank noted.
As a result, Oxford Economics said there have been warehouse shortages, signaling the need for expansion amid the growing e-commerce industry.
Other potential investments include initiatives that can help decrease or eliminate carbon footprints of the industry amid the shift to green approach.
“We also see an increasing awareness of the ecological impact of our supply chains, as the threat of global warming continues to hit home particularly in a country like ours, which sees several natural disasters annually. We acknowledge that our efforts to foster an environmentally sustainable supply chain should now be meaningful and for the long-term,” Curay said.
Digitalization
Apart from this, Curay said that digitalization can enable the supply chain and logistics industry to keep a stable operation.
“Digitalization used to be the domain of large companies but recent years have seen costs for doing so become more competitive, allowing smaller enterprises to take part,” the SCMAP official said, noting that the growth in this aspect for the past two years surpasses expectations “made for five years.”
“It’s not just about delivering to where our customers are, as in e-commerce, but also about making better decisions faster across our supply chains, through greater visibility, advanced planning and better use of data analytics,” he explained.
In relation to this, Curay said that blockchain technology is the “perfect solution” for the supply chain management.
“As it has different stakeholders that need to coordinate and collaborate to move goods, it provides a platform that allows for faster movement of goods with greater security and visibility,” the SCMAP official said.
The consumers also benefit from this because blockchain allows them to “see the provenance of the products they purchase, allowing them to make better decisions especially with regards to their sustainability,” he added.
Outlook
SCMAP said they are observing whether consumer confidence and activities this year will return to pre-pandemic levels already, as such will impact the sector.
“The long-term economic impact of Covid-19 will see weaker purchasing power and less spending on ‘non-essential’ items, which may compound existing challenges in our sector,” Curay explained.
Still, there may be room for some optimism because of continued vaccination rollout as well as manufacturers, retailers, distributors and logistics providers having adjusted already with the current situation, he added.
“As we increase vaccination rates and start getting a better grip on Covid-19, we expect economic activity to improve—and that is a good thing for the supply chain sector,” Curay said.
According to Allianz Risk Barometer 2022, companies in Asia Pacific and across the world identified supply chain disruption as one of the primary risks they must deal with this year.
The study said the pandemic has revealed the vulnerabilities of the modern supply chains, noting that a plethora of unprecedented events can lead to severe bottlenecks.
“Post-lockdown surges in demand have combined with disruption to production and logistics, as Covid-19 outbreaks in Asia closed factories and caused record levels of congestion at major container ship ports,” it explained.
The report added that companies had to shrink or even shut production due to shortage of critical components. Some also had to incur losses from foregone sales due to delivery concerns including constraints on container shipping.
Image credits: Bloomberg