Logistics and Trade Hub
After chaos and quiet: the logistics sector
In March 2020, Singapore was one of seven nations to issue a statement saying it will keep its supply chains open despite the pandemic. A year later, it can be said that the country stood by its promise. Container throughput for the island-state dropped by less than 1% in 2020 compared to the previous year, while cargo throughput fell by 5.8% year-on-year, mostly on account of the decline in oil cargo volumes.
Despite handling lower volumes, the second busiest port in the world was even busier in 2020, dealing with a global supply chain storm. An intermediate destination within Asia and between Asia and the rest of the world, Singapore experienced disruptions from all directions, as some countries were shutting down while others were turning their economic engines back on.
Storage suppliers came into focus in the first part of the year, as capacity build-ups for petroleum products in particular drove demand for storage. Global storage supplier Vopak operates five terminals in Singapore: Banyan, Penjuru, Sakra, Sebarok, as well as the Jurong Rock Caverns as part of a JV with the Port of Singapore Authority Corporation (PSA). Sjoerd Bazen, managing director at Vopak Singapore, told GBR that the company had to adjust to demand fluctuations; while occupancy levels for oil were higher, chemical throughputs were lower: “The pandemic has not been a walk in the park for chemical manufacturers. There have been factory closures, tensions, negotiations and, as a service provider, we are connected to each of these issues.”
“Singapore is one of the busiest ports in the world, with 130,000 ship calls a year, but as our island becomes larger, our water space gets smaller. There is tremendous opportunity to create a singular, multilateral platform to optimize both the port and terminal operations.”
Chye Poh Chua, Founder and CEO, ShipsFocus Group
Sjoerd described the situation as “showing the signs of a complete supply chain disruption.” When demand for some products became acutely low, shipowners and container companies reduced their shipping schedules, making it difficult for chemical suppliers to secure transport. Also, the inability to execute sea crew changes led to a human rights crisis. Gina Fyffe, CEO of Integra Petrochemicals, shared that some crew members were stranded at sea for over nine months: “The situation is pushing people into poverty, many of those at sea coming from developing countries with limited work alternatives” said Fyffe.
Between March and December 2020, Singapore had facilitated crew changes for over 80,000 seafarers that called at the port, but the country is one of the few to have managed crew debarkation, while other countries did not have the capability or willingness to make exceptions on their closed borders policies.
From irregular or delayed demand to the phasing of shipments, supply chain disruptions led to big price inflations in the logistics and freight forwarding space. The price of air freight became insurmountable, while container prices rose enormously as more companies sought to restock, driving capacity build-ups. The abrupt reopening of economies further disrupted the logistics industry. Unexpected high demand saw the price for ISO tanks for multimodal transportation go through the roof. As a whole, spot freight rates were 264% higher for the Asia-to-North Europe-route, and 145% higher for Asia to the US West Coast, according to a report by supply chain risk firm Resilience360.
Suttons, a provider of tank container services for the chemical industry, noticed some of its clients return. Affected by shortages in shipping capacity and tank availability, chemical producers sought solace in a reliable logistics service. Suttons wants to add 1,000 new tanks and 600 refurbished tanks annually. It has already invested US$42 million in its tank fleet since 2017.
“As a result of the rapid changes within the supply chains of our customers, Suttons responded by providing tailormade solutions for tank storage facilities as well as supplying specialized equipment for the transportation of liquified gases and PTFE lined tanks.”
Jochen Krapp, Regional Director South Asia and the Middle East, Suttons International
Rethinking supply chains
If one word can appropriately describe the most-tested quality for the logistics sector, that would be flexibility. The pandemic pushed these expert-problem-solvers to respond to the needs of a world shocked by how interconnected it has become. Terminal operator Stolthaven had to switch quickly between chemicals and petroleum products, adapting to demand. German logistics company Rhenus, operating from a Singaporean APAC HQ since 2000, had to re-prioritize its supply chain from commercial goods to medical goods like masks at the height of the crisis.
The logistics industry learned to operate through the pandemic, but it still needs to learn the ways of a post-pandemic global supply chain, which some have dubbed “de-globalized”. The pandemic highlighted both perceived and legitimate weaknesses in global value chains; most poignantly, Covid showed how quickly events on one side of the world ripple through the global map. Before the first Covid case hit Europe, shutdowns at Chinese factories had already led to shortages for German car manufacturers. “For a while in 2020, it began to look like people understood how critical supply chains and shipowners were for the global and local economies and for day-to-day life, whether it’s transporting life-saving PPE, food, raw materials or other items,” said Gina Fyffe, CEO of Integra Petrochemicals.
Fyffe thinks the pandemic is a wake-up call for many industries that developed long and convoluted global supply chains. She believes we should see greater diversification and a shift away from prioritizing the cheapest -and often longest- supply chain; instead, the chemical and associated industries should go for geographical proximity.
De-globalization and the shortening and diversification of global supply chains have been the subject of much talk in recent months, but there are many doubts as to whether and how these could concretize.
Bill Bryant, MD at Stolt-Nielsen APAC and MEA, believes that once the tumults and traumas of 2020 have passed, the world will embrace a more realistic view of change, keeping the things that worked and letting go of other things that don’t make full sense. Bryant stressed that regionalizing supply chains is not so straightforward. While for packaged goods it makes sense to regionalize some products, chemical plants are fixed around feedstock and market requirements, so adding bulk liquid storage in more countries is not necessarily effective. More probable is that chemical companies will be switching from shipping tankers to tank containers to allow for more effective and faster management of capital. Also, some producers who relied on a single form of transport will be keener to diversify their transport modalities.
Higher interest in product localization could also benefit contract manufacturers that offer the flexibility of producing locally without CAPEX investment. For smaller volumes, inventory repositioning can work in the short term, but higher volumes require the remapping of production, shared Johnson Lai, VP at Chemical Specialties Limited (CSL): “Many MNCs were in crisis mode in the first half of 2020, their first concern being to realize supply continuity. Their next steps will be to evaluate the possibility of regionalizing global footprints to shorten their supply chains to key markets.”
Image courtesy of Jebsen & Jessen