Supply Chain Disruption: What’s Next for the Bottlenecks?

Since the outbreak of the Covid-19 pandemic more than two years ago, border control measures and restrictions on public activities, including manufacturing and business operations, have been put in place around the world to try to curb the spread of the virus. These restrictions have obstructed the smooth flow of global supply chains, disrupting them and undermining the operation of the global economy. Those on the supply side, from manufacturers and wholesalers to logistics operators and retailers, have tried all means at their disposal to tackle the problems arising from the resultant supply-demand imbalance and bottlenecks in the global freight logistics systems. However, just as the global economy has started to gradually recover and international trade show some promise, the military conflict between Russia and Ukraine and the volatile Covid-19 situation in mainland China have brought new uncertainties, casting a shadow over the progress being made on returning global supply chains to normal.

The pandemic has also led to the rapid rise of the environmental, social and governance (ESG) concept, which has gone mainstream among businesses and the general public. As one of the biggest global carbon-emissions sectors, the logistics industry is paying particular attention to its ESG development. Along with carbon neutralisation plans for transportation systems in different countries and regions, corporate collaborations to support emissions reduction initiatives are set to become the most important rising trend in the post-pandemic era.

To gain an insight into the issues facing the logistics industry, the HKTDC Research global market team recently interviewed Henry Ko, Managing Director Asia of Flexport. The objective was to try to understand the corporate approach of employing multi-disciplinary data analysis to ride out the challenges in global freight logistics, while working towards ESG goals.

“Through big data analysis that takes into account the production cycles and shipping routes of our clients, we are able to respond instantly by allocating appropriate logistics resources and clearing any potential logistics bottlenecks to ensure the integrity and smooth operation of the supply chain. Take the recent Covid-19 lockdowns of various scales in different parts of the world as an example. If the manufacturing plants in a region cannot resume their operations, overseas buyers have to change their sourcing locations. When there is sufficient data indicating that a large number of orders have been shifted from a certain region, we re-allocate our resources and add more storage and loading points in the new supply bases. Similarly, if the data shows that manufacturers are continuously moving the production lines away, we can adjust our resources to set up new logistics routes in order to facilitate the sourcing and sales operations of our clients. Subsequently when operations and production fully resume upon the relaxation or removal of the lockdown measures, we re-assess the allocation of our resources to cope with the new normal of freight logistics.

“In view of rapid advances in technology and the growing complexity of information exchanges, we have also taken the opportunity to launch OceanMatch, a service which aims at solving the problems of low utilisation of container resources and high carbon emissions. It makes use of big data to maximise the use of each container by matching up the cargoes of different shippers. For example, if a client’s cargoes only take up 60% of a container’s capacity, we will buy back the remaining space for allocation to another client as consolidated shipment. This arrangement can greatly reduce shipping costs and cut waiting time for the shipment. The most important merit is that we can reduce the carbon emissions of the shipping industry through effectively raising the utilisation rate of containers.”

Serving GBA and Beyond

Ko believes that the entire logistics industry has made substantial progress in digitalisation and supply chain resilience over the past two to three years. Despite this, there is still a lot of room for improvement. Digital management cannot be accomplished overnight – instead, it requires an increasing input of resources and time in order to keep abreast with changes in technology and supply chain. That is why, in face of the supply chain bottlenecks, industry players generally resort to measures such as expanding storage capacity and improving loading efficiency as ways to solve their pressing problems.

Alongside the use of big data analysis, Ko contended that streamlining the division of logistics operations can also enhance the resilience of the supply chain, saying: “From the macro perspective, the trend of de-globalisation triggered by the pandemic has brought forth a new round of international division of operations. The related industrial transfers have led to a growth in the number of production bases, which in turn has raised the demand for logistics infrastructure. Take the development of light industries as an example. Over the past 10 years or so, many low value-added industries have moved from mainland China to Southeast Asia where labour costs are more competitive. As a result, the governments of Southeast Asian countries and international investors became more willing to devote resources to develop the logistics infrastructure in the region with transfers of technology. The US-China trade war, the Covid-19 pandemic, and the increasing geopolitical tensions of recent months, have combined to propel the development of light industries and logistics in Southeast Asia still further. Meanwhile, mainland China is gradually shifting to the production of high-tech and high-value-added goods.”

De-globalisation is expected to bring about a fresh round of international division of operations and speed up industrial transfers. Countries may compete to develop logistics infrastructure. Pointing out the possible positive effect of this, Ko said: “From a micro point of view, if the ports of one region can collaborate to support mutual development and achieve enhanced synergy effects, de-globalisation may turn out to be a great opportunity for the logistics industry.

“Hong Kong is a good example of how this might work. As an important international air transport hub, international shipping centre and regional logistics hub, Hong Kong enjoys thriving development in its aviation industry. Its airport freight throughput continues to set new records[1]. It can collaborate with other GBA cities such as Guangzhou and Shenzhen to enhance its logistics competitiveness and strengthen its advantages. To do this, Hong Kong must speed up its integration with the overall development of the GBA, reduce negative competition and provide clients with more diverse logistics options through the optimised diversion of cargo shipment. It is only by promoting the mutual exchange of customs data among Shenzhen, Guangdong, Hong Kong and Macao, supporting trilateral transport connections, optimising the use of local logistics strengths and improving cost-effectiveness that Hong Kong will be able to capitalise on its unique role as the ‘super connector’ between the GBA and the global market.”

Championing ESG

Ko reckons that although ESG has become an international trend, the related development of Hong Kong’s logistics industry remains relatively passive. Despite the recent tidal move towards ESG in the international business sector, Hong Kong companies and SMEs seldom put forth ESG initiatives and action plans. Ko finds such a response understandable, saying: “While the pandemic has triggered greater corporate concern on ESG, many SMEs with limited resources are still struggling for survival, and could hardly spare any effort to put ESG into practice. In contrast, multinational enterprises have more resources to meet the expectations of different stakeholders in the market. As it is easier for them to diversify their operations and risks, they can devote more resources to promote ESG development. In these circumstances, the Hong Kong Government should step up ESG publicity and support so that Hong Kong companies are more likely to take more initiatives in allocating resources to ESG development.”

Ko believes his company is well placed to help businesses overcome this issue. He claims that one of Flexport’s clients once successfully reduced his shipment’s carbon emissions by 60% by adopting a logistics solution. Summarising the assistance that Flexport can provide, Ko said: “Our products not only help to enhance the efficiency of the supply chain and reduce carbon emissions, but can also provide our clients with the data to understand the carbon emissions of different logistics solutions, so that they can build up a more transparent and traceable green supply chain.”

Ko added that, as well as making use of technology to introduce sustainable logistics options for its clients, Flexport also places emphasis on its own ESG development, saying: “A non-profit organisation named Flexport.org under our Group regularly co-operates with different international funds for various charity activities, including fund-raising, donation in kind and tree planting. It also offers feasible ESG logistics solutions to different funds and organisations. We hope that through the success of more cases, stakeholders in the global supply chain will be convinced that ESG can be put into practice. In this way, more businesses will be encouraged to allocate resources for ESG development and the enhancement of their supply chain management.”

As well as meeting its environmental objectives, Flexport also aims to ensure it keeps abreast of the concerns of both its clients and its employees. Detailing the company’s activities in this area, Ko said: “In terms of corporate management, we have a high regard for staff feedback, and so we conduct staff questionnaire surveys every quarter to get a feel for their level of satisfaction towards the company and the working environment and to invite suggestions from them. We also conduct Net Promoter Score surveys on a monthly basis to gauge clients’ satisfaction level. From time to time, we put forth ESG initiatives and action plans with innovative means to encourage the active implementation of ESG measures among our staff members.”

Looking forward, Flexport plans to undertake a series of expansions, with more than US$900 million having been raised in early 2022 for this purpose. So far, Flexport’s operations have been mainly focused on China-US and China-Europe trade lanes. Ko outlined the company’s plans for the future, saying: “We will open up more trade lanes to draw in more clients. We will also devote more resources to develop new technology, such as introducing more software-as-a-service (SaaS) logistics solutions, so as to enhance our existing technological strengths. At the same time, we will consider splitting some of the existing logistics solutions into separate products to cater for the needs of more clients. In addition, we will strengthen our operations in the fields of trade financing, advisory and insurance through digital services.”

[1] According to the Airport Authority Hong Kong, cargo throughput in 2021 rose by 12.5% year on year to 5 million tonnes, exceeding the 4.8 million tonnes recorded in 2019, the year before the outbreak of Covid-19. The number of cargo flights surged to an all-time record of 82,935, a year-on-year increase of close to 20%.