The physical flow of products is not necessarily in line with what is seen on the political agenda, Oscar de Bok says
Aarti Nagraj Listen In EnglishListen in ArabicPowered by automated translation
For many people wanting to buy a new car, the waiting period has become painfully long. Industry manufacturers have been hit by delays for parts and raw materials. Food prices in many markets have soared, while energy security remains compromised.
Where does the blame lie? Supply chain disruption.
As a sector that is highly susceptible to not just economic disruptions, but also geopolitical tensions, policy changes and climate disasters, the supply chain and logistics industry has gone from one upheaval to the next in the past few years.
Globalisation has brought the world closer than ever, bringing to the fore an industry once considered niche.
“Earlier we had to explain what the supply chain was, now we have to explain how the supply chain will be doing. It really became the centre of everything,” said Oscar de Bok, chief executive of DHL Supply Chain, part of global logistics giant, DHL Group.
In the past four years, starting with the Covid-19 pandemic in 2020, the sector has faced headwinds including Black Sea blockages due to Russia’s invasion of Ukraine, climate-induced drought in the Panama Canal, and the Red Sea disruption caused by the Israel-Gaza war.
“It is challenging, because you have to continuously work with various scenarios,” Mr de Bok told The National.
And then, “every six months” in recent years, the industry has been hit with a scenario that was not anticipated at all.
“But I must say, the impact on the supply chain is not always as big as it’s feared. For instance, the collapse of the [Baltimore] bridge. It didn’t have that dramatic impact [on the industry],” he said. “And also, one war has a bigger impact on global supply chains than the other.”
Attacks on vessels in the Red Sea by Yemen’s Houthi rebels, who claim their actions are in retaliation for Israel’s bombing of Gaza, have reduced traffic through the Suez Canal significantly.
The canal is the shortest maritime route between Asia and Europe, with about 15 per cent of global maritime trade volume, including natural gas, oil, cars, raw materials and many manufactured products and industry components, passing through it.
Due to the disruption in the Red Sea, several shipping companies have diverted their ships around the Cape of Good Hope, which increases delivery times by 10 days or more on average.
As of the end of March, the volume of traffic through the Suez Canal and Bab Al Mandeb Strait had dropped by about 50 per cent, while the alternative route around the Cape of Good Hope has had a 100 per cent increase in traffic, the World Bank said last month.
Meanwhile, a severe drought at the Panama Canal, which accounts for about 5 per cent of global maritime trade, has forced authorities to impose restrictions that have substantially reduced daily ship crossings since October.
We’ve all become way more resilient to respond to things, to work with the unknown and to be able to cope with thingsOscar de Bok, chief executive of DHL Supply Chain
The transit trade volume through the Panama Canal fell by almost 32 per cent annually in the first two months of the year, the International Monetary Fund said in a blog, quoting data from its PortWatch platform.
When dealing with such fluid situations, a key factor is interacting at pace with customers, Mr de Bok said.
DHL Supply Chain, which operates in more than 50 countries with a portfolio covering transport and warehouse operations, as well as services such as e-fulfilment, omnichannel solutions and returns management, can also offer alternative solutions to customers.
“There are other impacts you can help the customer with, to say, well, there might be alternative solutions, there might be a rail-sea connection or road-sea connection, but that has a risk or cost. So basically, with every customer we do that risk-benefit exercise,” he said.
Political shifts and more noise
Globally, merchandise trade is expected to grow by 2.6 per cent in 2024 and 3.3 per cent in 2025 after falling by 1.2 per cent in 2023, the World Trade Organisation said in its latest edition of the Global Trade Outlook and Statistics report in April.
But there is a downside risk due to regional conflicts, geopolitical tensions and economic policy uncertainty. Geopolitical tensions are beginning to affect trade patterns, with 30 per cent less growth in bilateral trade between the US and China than in their trade with the rest of the world since 2018, the report found.
Trade between “hypothetical blocs of geopolitically aligned countries” has been growing 4 per cent more slowly than trade within blocs since the beginning of the war in Ukraine, it added.
“Misguided populism in many countries is doing serious damage to global trade,” World Bank analysts M Ayhan Kose and Alen Mulabdic said in a February blog.
While the number of free-trade agreements signed in the 2020s has dropped, the appetite for trade restrictions “seems insatiable”, they said.
In 2023, nearly 3,000 trade restrictions were imposed around the world – about five times the number in 2015.
But while trade is heavily influenced by political policies and shifts, Mr de Bok said flows were not affected as severely as it might appear.
“If I would base my interpretation of global trade on what I read in the political discussions, you would assume that global trade is reducing. And if you then look at the facts, it actually isn’t,” he said.
With e-commerce booming, the end consumer has become the decision maker.
“And whatever we say to each other from a political level, people still order their products from China and therefore you see that whole flow still happening,” Mr de Bok added.
Many products also require components from around the world. Mr de Bok gave the example of semiconductors, which are made using elements from different continents.
“And then you put next to that global trade and the whole political elements, trade compliance and all of that. It’s an interesting contradiction,” he said. “So, the physical flow of products is not necessarily in line with what we read on the political agenda.”
DHL Supply Chain chief executive Oscar de Bok says the Middle East remains a major growth market for the company. Pawan Singh / The National
There are also concerns that the return of Donald Trump to power in the US presidential elections in November could further tighten the country’s China trade policies.
“It’s not really a discussion I have with customers, because it’s very hard to calculate what the impact of that would be. Everybody sort of hopes that whatever changes there will be, that it won’t be as dramatic as it might seem,” Mr de Bok said.
In terms of the trade war between the US and China, “the only thing we can do is make sure we have a trade flow that is compliant with whatever is brought up and that we make sure we help our customers to be compliant with whatever regulations there are from the US, China, from Europe – it becomes a business by itself to provide that service to our customers”, he added.
One key outcome of the constant disruption, particularly after Covid-19, has been that operators and customers have become resilient, Mr de Bok said.
“We’ve all become way more resilient to respond to things, to work with the unknown, and to be able to cope with things,” he added. “But also, in order to be resilient, you have to organise yourself differently, because if you have everything completely out just in time, you’re exposed really fast.”
There is now a need to diversify source points, which in turn creates more complex supply chains. “Every time, the next disaster came. And I used to say, ever since Covid … we don’t know what will be around the corner, but every six months there’s something new, unfortunately. But I think that is something we have to live with.”
Bring in the robots
A key trend in the supply chain industry has been digitalisation, with the use of artificial intelligence, automation and other tools supporting efficiency as well as agility.
DHL Supply Chain currently has digital solutions at 91 per cent of its locations, including the use of 6,000 collaborative robots and about 46,000 smart wearables, as well as data analytics.
Looking at it from the perspective of physical jobs, a scarcity in talent has led to the growth of collaborative robotics, Mr de Bok said.
“Then you have generative AI … so what we try to do is we see things that eventually you can buy off the shelf and certain things that you can be develop,” he added.
He gives the example of a pilot programme, as part of which, before a new logistics concept is designed, the company gets data from a potential customer, which is then cleaned and assessed. “That helps our engineers enormously because they can be far more productive to do their design.”
DHL is also using AI for reading, assessing and writing proposals, as well as for contract negotiations.
“What will the impact be eventually on how we do business? And how far can you go? How much impact will this have on jobs? We’re on the discovery mode,” he added.
Digital technologies will be “key to strengthening global supply chain resilience”, UN Trade and Development said following the world body’s Global Supply Chain Forum last month.
“Innovations like blockchain-enabled traceability mechanisms and advanced customs automation systems” will help in “optimising trade facilitation processes, enhancing transparency and mitigating operational risks”.
The green line
Industry experts at the forum also urged ports to become intermodal hubs integrating energy capabilities.
Tasked with ensuring there are sustainable supply chains, the industry is also facing the impact of crises. The alternative routes ships are taking because of the Red Sea disruption has increased travel distances for cargo and tankers by up to 53 per cent, causing a rise in carbon dioxide emissions due to the additional fuel burnt, the World Bank said.
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“The challenges in being completely environmentally friendly come with a price. And that’s always the challenge that we have because somebody’s also got to pay for it. So the way we manage that as DHL is that … we do make the investments and then we sell them to the markets,” Mr de Bok said.
Depending on the appetite in the market, it progresses to the next level.
The company is focusing on biofuels and synthetic fuels, as well as decarbonising its own operations as part of the DHL Group’s ambitions to achieve net-zero emissions by 2050.
While the company is in the process of electrifying its fleet, the supply of electric lorries remains limited. But the company aims to only add electric lorries to its fleet in about the next seven years, Mr de Bok estimated.
Middle East focus
The Middle East is an “absolute growth potential” market for DHL Supply Chain, Mr de Bok said.
In February, the company partnered with energy major Saudi Aramco to form a joint venture company, Asmo (Advanced Supply Management Operations), as a new procurement and logistics services hub in Saudi Arabia.
Asmo is aimed at meeting the growing demand for supply chain services in the kingdom and catering to the expanding market potential of the region as a global trade gateway for the energy, chemicals and industrial sectors.
It will focus on digital technology, including automation and collaborative robotics, AI, data analytics and blockchain, while offering supply chain services from procurement to logistics, warehousing, and also a B2B e-marketplace for customers.
Regionally, DHL Supply Chain is focused on expanding its presence in Saudi Arabia and the UAE, in sectors including energy, industry and health care, as well as automotive, Mr de Bok said. The company is also seeking opportunities in technology and consumer retail.
The wider DHL Group has been present in the region for more than 40 years and has 20,000 employees providing services including express delivery, ocean and air freight, customs clearance, warehousing and distribution/contract logistics.
DHL Supply Chain, which posted a 5.5 per cent annual rise in revenue to €4.33 million ($4.62 million) in the first quarter of the year and a 12.8 per cent increase in earnings before interest and taxes (ebit) to €256 million, expects to further strengthen its business this year.
That is mainly to be driven by its outsourcing business.
It is also hoped that an expected easing on inflation in the second half of the year, along with a reduction in interest rates, will support growth.
With increasing competition in the market, there is always the need to have the “best operational execution”, Mr de Bok said.
“That’s why we need to be fast in innovation. That’s why we need to be fast in robotics, productivity and all of that. That will never go away … because there’s always somebody entering into the market, there’s investment being made, but that’s part of doing business.”
Updated: June 20, 2024, 6:00 AM
