There is no doubt 2020 has been a major disrupter, both for international trade and how organisations within the supply chain deal with both variable demand and planning for the future. We know that decarbonisation, digital applications and changing consumer behaviours will increasingly impact on all supply chains and the only actual constant is change. But is this good for the industry and how do we future proof resilience?
This cannot be considered in isolation without understanding the wider geopolitical landscape (US/China relationships) and on the UK front, the consequences of Brexit.
In the context of that, our topic for discussion was “Life After Covid – Repositioning for the Future”. How are Boards defining new priorities for the future against the backdrop of ESG and digitalisation and will consumers be prepared to pay for this new low carbon digital world?
Setting the scene
A high-profile NED opened the discussion by saying he wouldn’t mention the hot topic of ‘Brexit’ but if boards look beyond that as to what might shape the agenda for 2021 and beyond, there are a few things that come to mind:
Climate change – will be dramatically different post Covid.
Mental health & wellbeing – is having a higher profile on board agendas.
The impact of home working – depending on the number of days at each location, will affect local economies and associated transport demands.
D&I – has got a new momentum and still requires transformation. The next generation will have a far greater influence of trends, consumer behaviour and working practices.
Investment and the speed of economic recovery – how long will it take to get back to 2019 levels and is Government going to lead the way on investment?
“The social agenda has never been more important than now; in a lot of cases, we know what needs to be done but we are missing the how.”
LOW CARBON WORLD
An Infrastructure investor cited the desire for carbon net zero and how we deliver on that for our customers will be a significant driver for capital investment and associated economic growth. We cannot rely on buying carbon credits to offset the carbon footprint, we need more efficient operating procedures and improvements in cross border intermodal transport as well as the supply chains. The cost of not having frictionless cross border trade is high and undermines competitiveness. Customers increasingly need delivery certainty and speed of response and at times this has proved difficult to achieve during 2020.
Building on this theme, it goes beyond transport. It’s about working together in different ways across the value chain including retailers and the behaviours of consumers. For example, the logistics industry needs to get to grip with how to deal with returns. Currently, it is a mess, and the associated carbon footprint is excessive. Likewise, in the major conurbations, at some point, the sheer volume of delivery vans will be clamped down on. Would this have happened quicker without Covid? A possible solution is having shared distribution hubs just outside of the main metropolitan areas to reduce delivery traffic.
“Who will pay for decarbonisation of transport? Consumers want it but many are not prepared or can afford the premium for it, the issue of affordability remains.”
Unsurprising, vehicle pollution is a major board issue and looking at alternative means of propelling vehicles is of critical importance. Electric vehicles (EV) may be part of the answer, but currently EV battery technology and charging infrastructure needs significant investment and customer acceptance before it becomes mainstream.
The option at offsetting carbon footprint by planting forests doesn’t solve the problem, especially in parts of the UK where the lack of transport connectivity is the real issue. At the same time, 3D printing is becoming more mainstream which is already changing some supply chains and will no doubt impact more in the future. Other embryonic transport and digital technologies will change the transport sector further.
“The low carbon future has to be embraced with confidence and a pragmatic approach. Time is running out, there is no turning back to 2019.”
The ‘Amazonian’ influence on the customer and consumer behaviours and its halo effects on the B2B customer base with the near perfect service at affordable cost, may well change the performance of the industrial supply chain. However, packaging remains a real challenge and may be a more joined up approach between suppliers and distributors can reduce waste further.
PEOPLE – OUR FUTURE
A NED cited, from a social perspective, now more than ever, working conditions are a key issue. We’ve got to drive the agenda forward as to what’s appropriate and right. At the same time ensuring that we’re really embracing the wider diversity issues. The logistics industry is still predominately white male, middle/lower working class and of a certain age. How do we change this to gain the many benefits of a more diverse workforce?
Another NED commented on their surprise at the limited diversity in the logistics sector, not just at management levels but in the operations as well. She spent the day with one of the few female drivers and concluded that there aren’t that many reasons why you can’t get more women into the industry. It requires taking ownership for the task and having pride in what the business delivers. It seems their customer base, the retailers, are much better at doing this. These issues were echoed by several other participants. It needs new thinking across apprenticeships, training in schools, sponsoring secondary education scholarships, in order to build a more diverse workforce at differing organisational levels.
We all know the future of the ‘work/life’ balance is likely to change to some degree after the pandemic. Perhaps not as much as some commentators suggest, as at the end of the day we are all social animals and most of us miss the social interaction. The younger generation are more flexible and agile to the changing environment and their potential and perspectives need to be embraced. These are the transport leaders of tomorrow who can move at pace and deal with ambiguity.
“No one has said 2020 has flown by, it has been a hard slog. However, the flexibility of people, their spirit and performance has been outstanding. We need to bottle this for the future.”
Stronger governance and the increasing rise of logistics CEOs remuneration could impede real, sustainable growth and entrepreneurialism, if the right metrics and balances are not in place. From a social perspective the rising multiples of a CEOs salary, compared to that of the shop floor worker, is becoming harder to justify. Likewise, in the PE sector, when supply chain companies are divested, should the spoils be more evenly distributed rather than concentrated on a few key individuals?
PARTNERSHIPS AND INVESTMENTS
There was a consensus that looking to the future one of the major questions will be: how much and where will Government investment be focused? Ideally, 5G and fibre broadband to act as a catalyst for digitalisation as well as ensuring the basic infrastructure to help port connectivity, the multimodal structure and the rail links. The key is to make it easier for people after Brexit to continue trading. At the corporate level, it is critical to understand what ‘core’ is to invest in and not to be seduced into vanity projects. Investment decisions must be made on liquidity constraints.
A Chairman remarked ‘how do we build infrastructure for the future if the Government is strapped for money?’. This will require imaginative thinking and private sector partnerships to ensure viable returns and a pragmatic approach.
Not everyone was optimistic about future Government actions and pace of investment. ‘Whilst it would be great to have clear Government policy around the carbon agenda, energy, transport etc, it will probably be collaboration amongst companies which will be the better answer. We cannot necessarily wait for government action.’ This, plus the impact of digital is likely to make for some interesting partnerships as no one company can do this alone.
“Companies are either thriving, dying or dead – where is your future?”
Aligning supply chains to the new world may require changes to both company culture and leadership ethos to become more open and collaborative. The pace of change we have seen over the last nine months has shown what is possible and there is no turning back. As we become more interconnected, transport operators must think wider than just their infrastructure and across the whole value chain.
Global trade is the bloodstream which keeps the economy heart beating. The two are interlinked and what happens on one side of the world, the ripples affect us all. The impact of Covid has accelerated change, including market structures, consumer buying behaviour and overall social expectations. Corporate boards will need to grapple with all of this.
The three general themes noted above generally fall within the ESG catch all. It has been a very difficult year for some transport operators whilst others have seen their demand (though variable at times) increase dramatically. There is no ‘silver bullet’ for the future and the supply chain industry by its nature is ripe for more digital application to increase innovation and efficiencies. In the meantime, the world remains complex but more connected.
The impact of the changing geopolitical landscape for 2021 and beyond, with the new Biden administration, outcome of Brexit and the wider political influence of China will impact on world trade and international supply chains. Earlier in the year ‘resilience’ was a recurring theme and the structure of global supply chains were called into question with possible moves to more regional networks. We have yet to see how this plays out.
What we do know is, the rest of the decade will be defined by 2020. Can we look back with pride on how we tackled some of the pressing issues and built the platform for a better world?
Hoggett Bowers are very grateful to all our guests and a special thank you to: