In the wake of the global pandemic caused by the novel coronavirus and its associated disease Covid-19, many of these industries have been disrupted or even permanently changed. While sectors primarily based around “wants” such as brick and mortar retailers of consumer goods shutter down, critical industries necessary for the sustainment of life as we know it must go on in some form or another. In particular, supply chains and their associated networks are crucial in today’s globalized world, and it bears to look at how they will adapt. Amid the current challenges there are likely to be opportunities as well, so in this article we take a look at the different stakeholders involved and consider realms where startups may fill a newly opened gap.
A “supply chain” is a central topic that is integrated throughout most major industries. There are supply chains for energy products, pharmaceuticals, food, electronics, etc. For this discussion we will take the broadest definition of supply chain that includes the transfer of any sort of physical items from their producers all the way to the final purchaser. As some of these goods are larger than others, more delicate, harder to produce, or have to travel across further distances, one can expect that their respective supply chains will react differently to market fluctuations. For this reason it is helpful to start with a subcategorization of different supply chains into sectors that will react similarly to the disruption caused by Covid-19. First, we look at how the transportation type of supply chains in various industries have been affected. These include transport by air, sea, railways, and roadways. Next we take a closer look at specific markets and verticals, and where opportunities for innovation may lie.
On Supply Chains in China
China is the upstream focal point for many of the world’s supply chains, and is also the first location where Covid-19 gained prominence. As such it is important to understand how they have handled changes in this market, and to begin our survey we will briefly take a look at how China has handled the crisis. As a recent publication by Deloitte notes, China is a primary producer for much of the world’s high value products, and in fact over 200 of the Fortune Global 500 firms have a presence in Wuhan, the specific province where the virus has been most prevalent. According to supply chain risk management software riskmethods, every third company has major Chinese customers and 81% of global companies rely on chinese suppliers. In addition, they note that many manufacturers are experiencing problems with their supply, with a 44% increase in companies declaring “force majeure” from December to February. In a recent interview with CNBC Bruce Pang, Head of Macro and Strategy Research at China Renaissance Securities, said that while the first wave of disruption occurred in China, follow-up issues emanated from Japan and South Korea. In addition Alex Capri, visiting senior fellow at the National University of Singapore, stated in response to the ongoing developments in Asia that “We are going to see massive restructuring of supply chains.”
Still, there is a silver lining with regards to the situation in China in the form of resiliency and bouncing back. The World Economic Forum noted that during the heyday of the crises in China “Some OEMs have even ventured to re-tool their production systems to make totally different products. For instance, when automotive business was down by more than 90% in China in February, automobile manufacturer Shanghai-GM-Wuling (SGMW) quickly retooled its production system to produce medical face masks, which positively contributed to mitigating the COVID-19 spread and at the same time generated rewarding revenues and positive reputation for the company.” At the same time, other companies were working with the government to come up with creative solutions to help with transportation bringing labor into factories, or finding ways to automate existing routines. As of late March, manufacturers in China have ramped production back up with 98.6% of major industrial firms starting back up again. In addition around 89.9% of employees in industrial companies with an annual revenue of more than 20 million yuan (about 2.84 million U.S. dollars) have resumed work according to Xin Guobin, Vice Minister of the Ministry of Industry and Information Technology (MIIT). The focus now is on continuing to cautiously open back up streams of economic development, while planning ahead for the future. Better preventative measures and predictive capabilities should be established as well to guard against the next black swan event.
While specific industry verticals face unique challenges in their supply chains, it’s also worth analyzing the varied ways in which transportation types are affected. Goods are moved across state and country boundaries through a mixture of land, water, and air vessels, and in 2020 not all of these lines of movement will behave in the manner we traditionally expect.
As commercial airlines approach bankruptcy around the world, one might wonder if this transportation type will face hurdles when it comes to shipping goods. Typically, due to the more expensive nature of shipping by air, the items carried on planes tend to hold higher values per weight. A report published by the WorldBank mentions that “air freight rates generally range from $1.50–$4.50 per kilogram, while the value of air cargo typically exceeds $4.00 per kilogram.” These items can include consumer electronics and fashion products that individuals are willing to pay more for. More importantly, however, they also include critical items like perishable food products, pharmaceuticals, emergency shipments of manufacturing parts, etc. In addition, for many landlocked countries that may face delays in ground transportation, air freight is often used as a necessary means to ensure that goods are imported and exported in a timely manner.
It’s important to note that while these goods can be transported on their own, much of the cargo that ships through air does so along with passenger flights. Of course, large swathes of passenger flights are being cancelled or delayed, and with fewer potential routes to go along as social-distancing orders and recommendations take effect. In addition, demand is at a historical low for air cargo, and many factories in China that produce much of the world’s air cargo have been closed down or faced delays. According to Alexandre de Juniac, IATA’s CEO, “The disruption of global supply chains led to a fall in demand. But the dramatic disruption in passenger traffic resulted in even deeper cuts to cargo capacity.” These factors have played together to increase the cost of air transport, discouraging this method of shipping, however not stopping it altogether.
The situation with sea transportation has seen similar issues. As factories closed in China the supplier side saw issues, and even as they reopen global demand has now dropped substantially. Blank sailings (or cancelled shipments by sea routes) have been announced across many routes in the Transpacific and Europe. Xeneta CEO Patrik Berglund has called the situation a “pay-to-play” market as the spot market for container shipments has risen from around $400 to $1200. If minimum container thresholds are not met, then fewer ships will leave port. Fortunately there are no systemic issues to take note of in either air or sea freight, so supply chains will continue to operate, just on a higher cost and less frequent basis.
The situation on roads has also been turbulent, although truckers generally do not have to abide by stay-at-home orders. Food and medical supplies such as masks, ventilators, soap, etc. need to be taken to areas in need, and many truckers are now given the leeway to drive as long as they are able to safely in order to transport these supplies. In addition, as consumers stay at home and order online, more trucks are taking to the road to ensure continued operating lines. Diesel sales have gone up and spot rates for truck shipments have risen 6.1%. Domestically these trucks are able to travel without too many hurdles (although certain amenities for truck drivers like gyms and cafes are now closed.) However, internationally massive queues have formed at country borders due to travel restrictions that prevent most people from coming into or out of countries. One such line outside of Poland was at filled with thousands of trucks stretching across a remarkable 50 kilometers.
Interestingly, the disorder caused in most transportation types has fostered opportunities in another: rail. Traditionally rail has been a cheaper albeit slower method for moving goods, but as these other modes of transport face challenges and costs rise, rail has emerged as a much more reasonable alternative. For instance, Trans-Eurasian rail lines moving from China (including Wuhan) to Europe are all under operation and do not face the same border issues that trucks do. Perhaps the pandemic will actually propel rail to be poised to take a larger market share of supply chains in the future.
Based on these findings, it’s clear that cost-saving measures in transportation will be paramount, and advances in digitizing and optimizing supply chains are more crucial now than ever. The overall supply chain market may temporarily drop in size, but innovations implemented now will lay the groundwork for years to come even as the market picks back up. In addition rail-specific technology ideas may be more interesting now than they were even a year ago, as this form of transportation resurges in Europe and Asia.
Within the sphere of mobility and transportation, last mile delivery is of particular importance, representing the end of a supply chain’s journey from initial production all the way to finally entering the hands of the consumers. Notably, as retailers shutter down there is an increased amount of online shopping. Recently the Wall Street Journal among several other outlets has reported on how strains caused by increasing demand have affected Amazon. Amazon Shipping (a service competing with UPS and FedEx to ship items from businesses directly to consumers) has been suspended. Instead, the capacity in labor and development spent there has been shifted to the core business. In addition there have been several cases of worker unrest and protests regarding severe working conditions amid an increasingly dangerous time. Carriers have to be more clever now than ever about how they manage the influx of orders. Smart solutions around either packaging or security of deliveries may become more important.
As Inbound Logistics notes, retailers have to grapple with the possibility of seeing a holiday peak stretched out over the course of a couple months. Some strategies for retailers include utilizing BOPIS or “buy online pick up in store” to bypass using carriers, consolidating shipments, improving packaging and space utilization, and shipping to pickup points such as lockers.
With global supply chains under increased pressure, it is natural to worry about the industries that matter most. The food supply in particular is one worth examining. Large international players have certainly been forced to grapple with new realities. As Coca-Cola CEO James Quincey stated on CNBC, “The supply chain is creaking around the world. There are flash points when it’s getting a little harder to get ingredients through, whether it’s delays at the borders, the big changes in channel mix.” In the wake of the pandemic, consumers have stockpiled nonperishable food and beverages, forcing Coca-Cola to hone in on its primary products (namely soft drinks) in order to ensure that the demand is met. “Some of the smallest SKUs will have to be left out,” Quincey said. CNN reports that while supermarket shelves are currently stocked and there is no immediate shortage on food production, the responses that governments have enacted including border shutdowns, travel restrictions, and the aforementioned transportation disruptions may lead to a food security crisis. In particular, poor communities and pacific island nations that are large importers of foods face the largest risks.
On the opposite end of the spectrum, Australia faces export pressure due to the rising costs of air and sea transportation. While traditionally 14.5% of Australian exports are food products, the inability to ship may force farmers to find local buyers, losing out on tens of billions of net dollars.
But while the impact caused by factory delays in China may seriously affect processed foods that rely on cheap and highly scalable ingredients, and rising costs of transportation harm cross-border imports and exports, the United States food supply chain has until now seemed fairly robust. MIT Professor and director of the MIT Center for Transportation and Logistics Yossi Sheffi stated that “People are worried about the food supply chain... However, the U.S. food supply chain is very robust. There is unbelievable panic buying, but if you go to the [major chain] stores in the morning, most of them are well-stocked.” This robustness is due to how food in the U.S. is mostly procured from within, with a small proportion of imports emanating from Latin American countries that are still sending shipments. Conversely, Sheffi notes that it is more prudent to look at the medical sector, where medical devices and even the intermediate materials that go into antibiotics and other drugs are produced in China.
Conversely, some dire reports have begun to emerge even from purely domestic perspectives. For one, food banks have seen a tremendous increase in demand as workers have been laid off and increasingly rely on them to meet essential needs. Their supply has also been cut, as food manufacturers that freely offer hundreds of millions of meals have cut back on their donations. Finally, these food banks and soup kitchens have traditionally relied on a steady stream of volunteers, but social distancing measures have kept many regular volunteers at home. The ones that do show up are now abiding by more stringent policies such as keeping six feet of distance from others, which is negatively impacting productivity. Tyson Foods ran a full-page New York Times ad stating clearly that “the food supply chain is breaking.” They wrote that due to employees testing positive with the coronavirus, many meat plants have been forced to close down. For them and potentially others, a morally muddy and difficult balance must be kept between supplying the nation with food and keeping their workers safe.
Of course, at the center of the crises is healthcare, and in particular the pharmaceutical industry is incredibly reliant on functioning global supply chains. Unlike many food products, highly specialized chemical facilities are needed to mass-manufacture these products. Over the past couple decades, more and more of the active pharmaceutical ingredients that the world relies on have been produced in China. So as the virus gained prominence and factories shut down, naturally there were concerns from western countries about still receiving necessary medical supplies. Spokespeople for the European Fine Chemicals Group (EFCG) and the FDA’s Center for Drug Evaluation and Research have separately described the need to safeguard medicine supplies by returning chemical production of the pharmaceutical ingredients back to local territories. The CEO of the Chinese company Porton Pharma Solutions Oliver Ju stated that his business was putting additional focus on added manufacturing sites directly in end-customer countries in Europe so as to mitigate the risk of being cut out of the equation in the future.
This is just one example out of many of how pharmaceutical supply chains will transform as a result of all that has transpired. Stay tuned for a future article diving into more detail and focusing specifically on this critical topic.
In order to deal with the increasing demands on supply chains, there is a clear need for modernization, improvement, and even disruption on the current model of conducting business. According to Deloitte, creating digital supply networks will be key to reacting to covid-19 and building resilience for the future. As a company, you should know you have an operational digital supply network when “functional silos are broken down within your organization and you are connected to your full supply network to enable end-to-end visibility, collaboration, responsiveness, agility, and optimization.”
To this end, it is clear that now more than ever startups which help to cut costs by digitizing or streamlining operations are paramount. In addition, any companies with specific vertical focuses may have unique and defensible technologies that are worth looking into. Here are some startups in our ecosystem worth keeping an eye on:
Supply Chain Startups
ClearMetal is a predictive supply chain visibility company that uses AI to enable supply chain transformation. ClearMetal's cloud-based software application delivers real-time, global, end-to-end visibility of inventory in transit. Today, the world's largest retailers, manufacturers, suppliers, and 3PLs use ClearMetal to gain visibility, plan and manage global transportation, optimize inventory holdings, and deliver differentiated customer service and supply chain efficiency. What differentiates ClearMetal is its global coverage and ability to solve the underlying 'data challenge' through proprietary AI and Machine Learning techniques.
Haven is the automated platform for quoting, booking, and tracking shipments with the world's leading providers. 90% of all physical goods in the world are shipped in a standard steel shipping container, and nearly all of those shipments are arranged via email and phone. The Haven Platform uses technology to bring marketplace dynamics to the ocean and air freight booking process, enabling a more responsive and nimble supply chain. Shippers bid on guaranteed shipping container capacity, while freight carriers receive the best price among bidders.
Lack of integrated tools to provide visibility, tribal communication via chats, calls, emails etc and legacy execution methods such as spreadsheets create risk to cost and schedule. Velostics is the "slack" for logistics bringing together logistics managers from oil supermajors, shippers, carriers, brokers and drivers to one intuitive collaborative platform that will increase utilization for all parties and cut costs in half. Our thesis is led by human centered design research with 220 companies and over 1000 users over 12 months. We were spun out of ChaiOne, where 11 years of work with F500 industrial firms gave us unique insights into the challenges facing the industry. Our knowledge of our clients, stakeholders and IT infrastructure reduces risk to deploy and scale Velostics.
Ocean Insights is a leading ocean supply chain visibility and market intelligence provider based in Germany and with representatives in the US, India, Spain and Hong Kong that supplies real-time tracking data and market analysis to large shippers from a broad range of industries, including automotive manufacturing, commodity trading, freight forwarding and chemical producing.
Platform Science is an innovative enterprise grade IoT fleet management platform for the transportation and logistics industry. Platform Science is the first open platform solution for enterprise fleets to better configure their fleet management solution and meet changing demands of the regulatory landscape, all while preparing for a future of IoT-connected trucks/freight and the digital supply chain.
Freight Trust is a blockchain-based startup focused on providing vertically integrated solutions from the protocol layer to mobile applications for the supply chain and logistics industry. We do this by employing a number of cutting-edge features such as electronic Bills of Lading and other digitized shipping documentation, blockchain audit trails, predictive A.I., geo-tracking, and a number of integrations with your existing software.
Optimise Logistics is a digital platform and mobile solution for the freight shipping industry. Connect shippers with carriers. Process orders, track progress & automate documentation.
AKUA IoT technology and services empower customers with the real time intelligence needed to protect their valuable cargo, streamline operations, and increase their bottom line. AKUA’s flexible IoT platform provides persistent environmental monitoring and tracking solutions for intermodal cargo containers, enabling exceptional in-transit visibility of goods and shipments across the globe.