Necessity is the mother of invention! One thing which has raised clearly from the COVID-19 pandemic across the globe is the critical importance that supply chains and logistics play in our globalized world. In this sense, a picture (below) worth a thousand words:
Without wanting to make any political correlation of any kind here, but this is just to show how the logistics industry and the people who work in it are been viewed differently since this crisis started. While many people think about supply chains as trucks, warehouses, shipping containers, cargo planes, and container ships, these perceptions are changing and they are changing fast. The understanding that supply chains are the backbone and the blood of the economy and impact us all is in everyone’s mind now.
This is true not only for governments but also for investors. Nasdaq reported a 32% increase from investors in early-stage logistic startups, the highest investment growth in this industry just behind healthcare, and remote work solutions (something already expected). In the last three months, we have seen some very interesting changes impacting supply chains from China to the rest of the world, let’s talk about that and what’s next?
Here is the list of 10 interesting facts related to supply chains and the COVID-19 pandemic:
1. New delivery methods are being implemented.
More people are buying products and services online. This means a lot more last mile and delivery business, and, in this sense, two main initiatives have been seen across the globe:
– Contactless delivery has been implemented by many companies like Rappi, Uber Eats, Didi Food in many of the countries in Latin America;
– Increased interest for autonomous delivery robots with Rappi and Domicilios.com announcements that they would be delivering with autonomous vehicles.
2. Airlines are converting passenger to cargo capacity
As air freight cargo is in high demand and passengers are down 95%, we have seen many airlines converting passenger aircraft into cargo planes. Masks have been even transported by NFL New England private plane to support capacity constraints.
3. Ocean freight at a low level
90% of the physical products are transported by sea freight across the globe. The movement of container shipping is one of the major indicators of global economic stability – a key criterion to measure that it the unused global capacity (idle capacity) of this type of transport. And guess what? Idle capacity is at a record 11% (equivalent to 2.5 million TEU), according to maritime analyst Alphaliner. The level is a little bit higher than what was seen in the wake of the 2008 financial crisis (11.7%).
4. Online Grocery is exploding
Pre-COVID-19, the penetration of online grocery sales in the mature market was around 3%-4%. In the past weeks, we have seen an explosion of online groceries, and we can expect this growth to reach a level similar to that of retail penetration. We have seen downloads from apps like Instacart and Walmart Grocery surging by 218% and 160%, respectively.
In countries like Mexico, it is estimated that COVID-19 will accelerate e-commerce adoption by two years.
5. Retail transformation
Based on Statista, e-commerce sales in Brazil have increased by 40% in March following the increase of the pandemic in the main e-commerce market of Latin America.
With all brick & mortar stores closed, brands selling omnichannel have seen their online channel become a key priority as this is the only way to sell now. We have seen already a huge impact on retail sales across Latin America and the rest of the world, with some categories of products growing by 300% in countries like Argentina and Brazil.
6. Companies joining a wave of solidarity
Many companies have transformed their supply chains to support the crisis. Companies like Dyson, Michelin, GAP, Nike, Lego, Mattel, BMW, LVMH, L’Óreal, Bacardi, to name a few, have shifted their operation to produce medical supplies.
Tesla has provided its logistics network for free to support the delivery of ventilators to hospitals.
Zara has offered its supply chain network to the Spanish government to help with the crisis.
E-commerce companies like MercadoLibre announced they would waive fees for sellers of basic necessity products. Many large organizations are contributing!
So, the key question is…? What happens next?
7. Acceleration of innovation
Automation, mechanization, and innovation which will facilitate logistics activities with minimum human interaction will gain strong traction. Solutions such as drones and robots implementation and regulations will move faster to become a reality in logistics. This pandemic has fast-tracked the “testing” of robots and drones in public as officials seek out the fastest and safest to limit contamination and spread of the virus.
Rappi, the on-demand delivery Colombian unicorn just announced the launch of a pilot for autonomous delivery robots in cooperation with KiwiBot in Colombia.
Meituan Dianping, a delivery app in China, ramped up their “contactless delivery” options through autonomous vehicles and robots. Shenzhen-based startup Pudu implemented home delivery of drugs and meals via robot.
Food delivery service Ele.me used robots to deliver meals to quarantined individuals held in a hotel who were suspected of having the virus.
Japanese company Terra Drone transported medical and other supplies safely from Xinchang County’s disease control center to the Xinchang County People’s Hospital without exposing humans to infection.
8. Retail transformation, and the growing importance of the supply chain in the board room
The revolution in retail will be pushed further, and online sales will significantly increase in importance in the board room. Moody’s COVID-19 Heat Map reported three industries that will “gain” the most from this crisis: internet service companies, online retail, and gold mining. The online retail and experimental online retail will become the main channel in the next five years.
All the large retailers in Mexico, Brazil, Colombia, Argentina, and all the other markets will need to focus on this transformation and build supply chains and organizations that can support this growth.
The supply chain departments usually report to manufacturing or operations. But after this crisis, we can expect changes to happen in large organizations as this becomes a critical area for many companies to remain relevant and competitive (for some to survive).
9. E-commerce acceleration
MercadoLibre announced 1.7 million new online buyers in the last month alone in Latin America, everybody is joining the online world.
10. Amazon gaining traction
Amazon will come out of this crisis stronger than ever, the company announced it will hire 175,000 people since the crisis started. We can expect that the company’s best days are still to come. Just look at the momentum of the stock (at a record high) and this crisis will empower further the company in the e-commerce dominance.
What will not happen
One thing that many people are talking about is the regionalization of supply chains or what some people describe as nearshoring. After the tsunami in Japan, many people talked about that and it never happened. Why?
One critical aspect of a large scale supply chain relies on three things: talent, production capacity, and infrastructure. A country like China has invested heavily (like no other country) in the last 20 years in these three categories.
As an example, the average infrastructure spending in China is 8.3% of its GDP. In comparison, the U.S. spends is about 2.3% of its GDP.
China has built a highly competitive manufacturing powerhouse that will require any region or country to invest for years before it could truly compete at scale (I’m conscious that some companies have already moved productions outside of China but these are ‘exceptions’).
As I mentioned in the first article for LABS, coopetition is here to stay and is even more present in a time of crisis.
In the last two weeks, we’ve seen some amazing coopetition partnerships. Apple and Google unveil an unexpected partnership to build coronavirus tracking tech for iOS and Android, coming in May (I thought I would never see these logos next to each other).
Last week, Sanofi and GSK joined forces in unprecedented vaccine collaboration to fight COVID-19.
I think we will see other major industries and major players in the logistics space coopeting, as well as the industry, will consolidate further.
We might see some major partnerships across the Latin America major economies as companies will need to adjust to the new consumer’s expectations in the post-COVID-19 era. After all, this is one of the most relevant times for the logistics and supply chain industry. Stay tuned!