- Outdated logistics systems are unable to keep up with increased demand for goods in the pandemic recovery.
- Both trade's physical infrastructure and software systems are lagging behind.
- Digital technology can increase freight efficiency in a myriad of ways.
Even as the world starts to dig out from the economic impact of COVID-19, the outdated technologies that power supply chains are holding back international trade and undermining recovery from one of the worst recessions in modern history.
Global logistics companies, running to a surprising degree on brittle mainframe systems, siloed spreadsheets and even paper documents, are unable to keep up with rebounding demand for goods following last year’s lockdowns. This is causing serious shipping delays and bottlenecks that are driving up costs, with containers from Asia to the United States surpassing $15,000 – more than quadruple the pre-pandemic rate. All told, container costs are driving roughly 3% inflation on goods shipped by ocean.
It’s a problem that has caught the attention of the White House and leading economists. Facing a surge in prices and shortages of industrial inputs from semiconductors to lumber, the Biden administration in June established a task force that will take a “whole-of-government” approach to bolstering supply chains. And the US Federal Reserve noted in a recent economic report that “supply chain disruptions” are offsetting the positive effects of reduced COVID-related restrictions.
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They’re right to be concerned, as supply difficulties are no longer a problem for logistics providers alone, with all industries struggling to get merchandise to market. Larger companies with the clout and deep pockets required to land space on container ships or airplanes have a clear edge, which threatens to make the world’s economic recovery uneven and unfair. And if the problem persists and governments once again start to view global trade as a hindrance rather than catalyst to recovery, we can expect them to restrict access to their borders.
With so much at stake, it’s critical to consider how the centuries-old logistics industry arrived at such a point.
It’s easy to blame physical infrastructure, and it’s true the world hasn’t invested enough to support a growing trade system. The blockage of the Suez in March highlighted the risks of depending heavily on a single canal with dangerously narrow stretches. And here in the United States, transit infrastructure is outdated; in fact, US ports can only service ships that are less than half as large as the new generation of cargo vessels.
Even if governments the world over decided to widen canals and invest in their ports, global transit would remain inefficient and vulnerable to shocks, as ocean and air shipping have yet to benefit from the software-driven advances that other industries have enjoyed in recent decades.
After all, the shipping industry runs on disjointed and antiquated systems rather than a single data model to power all of global logistics. That makes it harder for companies to navigate fragmented supply chains that are susceptible to disruptions ranging from storms to strikes. As a result, businesses can rarely say with certainty where their goods are during the ocean shipping process and whether they’re on the most efficient route.
Despite the severity of these problems, many of the solutions are easily within our grasp. For example, businesses can easily place sensors or GPS trackers on containers to follow their whereabouts during the shipping process. This increased tracking, coupled with order management systems that tell businesses which stock-keeping units (SKU) are where, allows information to flow quickly to people in every segment of the supply chain, empowering teams to get creative and route around inevitable problems.
This kind of improved visibility of the shipping process can enable businesses to find excess container space that otherwise would go unused. It’s a common problem in the industry, considering the average 40-foot container for Chinese exports to the United States was less than 70% full in the first quarter of 2021. Machine learning technology can easily digitize packing lists and do the maths on the dimensions of cargo being shipped, identifying empty space in containers that can then be matched with other businesses shipping cargo that could make use of that idle capacity.
And once those goods reach their port of destination, there are a host of technologies that can make the unloading and reloading process faster and easier. That’s critical, considering over 10% of all container ships in the world are sitting outside ports waiting to unload, with a shortage of truck drivers and massive traffic jams in ports contributing to the logjam.
Simple fixes like the widespread use of optical character-recognition technology can reduce congestion by allowing drivers to scan their paperwork rather than relying on in-person check-ins. Web and mobile apps can help dispatchers better manage the flow of trucks and reduce port traffic. Meanwhile, efforts to automate pickers, carts and cranes will increase port efficiency, with self-driving truck technologies eventually addressing the shortage of drivers.
What is the World Economic Forum doing on trade facilitation?
The Global Alliance for Trade Facilitation is a collaboration of international organisations, governments and businesses led by the Center for International Private Enterprise, the International Chamber of Commerce and the World Economic Forum, in cooperation with Gesellschaft für Internationale Zusammenarbeit.
It aims to help governments in developing and least developed countries implement the World Trade Organization’s Trade Facilitation Agreement by bringing together governments and businesses to identify opportunities to address delays and unnecessary red-tape at borders.
For example, in Colombia, the Alliance worked with the National Food and Drug Surveillance Institute and business to introduce a risk management system that can facilitate trade while protecting public health, cutting the average rate of physical inspections of food and beverages by 30% and delivering $8.8 million in savings for importers in the first 18 months of operation.
If global logistics is the circulatory system of the world economy, the blockages we’re experiencing are bordering on cardiac arrest. Yet the software and data platforms that reduce these inefficiencies and provide strong, sustainable boost to the global economy already exist. Adopting these technologies will turn logistics from a constant source of problem into a reliable utility that will power us through this economic recovery.