1676862742 Journey to the heart of supply chains the latest chaos

Journey to the heart of supply chains, the latest chaos of globalization

“That’s the past,” says an LF Logistics employee while pointing to a group of employees moving packages in a room at its massive warehouse in Singapore, the manufacturing and logistics epicenter of Southeast Asia. The future awaits just a few meters away in a deserted room 15 stories high where the floor cannot be seen from above. That’s where the machines go deep. And from them they constantly take out pallets of well-known Western brands such as Moët & Chandon, Ballantine’s or Winston. “There’s enough alcohol here to supply Singapore for many years,” jokes the manager. In fact, less than 5% of all goods are destined for the local market. The rest will travel to other Asian countries.

There is much more than champagne, whiskey and tobacco. Ferrero, Lego or Vans are among his partners. Another warehouse at the same facility stacks boxes of Nike clothing and shoes for online purchases by consumers from a dozen Asian countries, including China. A screen shows the results in real time: 5,999 orders were shipped two Saturdays ago; the next day it was 3,992, mostly to the Philippines and India. “Asia is not yet a mature market and countries like India are growing very quickly, although they are logistically more complicated. Everyone will want to wear Nike and Adidas, so there will be more business,” predicts Thean Siak Sin, LF Executive Vice President, to a group of media including EL PAÍS, which is headed to Singapore by Danish Shipping, the organization that is coming together Danish shipping companies were invited.

The company, for which ocean and logistics giant Maersk paid $3.6 billion last summer, uses its 230 distribution centers on the Asian continent to help the exports of major European and American companies reach more customers without invest in their own equipment or hire staff. The task is not as simple as it seems: land is expensive in Singapore, the cost of energy to keep the temperature at 22 or 23 degrees so that alcoholic beverages do not spoil is high in a country where thermometers and humidity do not give up . and given the shortage of local labor, LF imports workers from China and Malaysia. They do not hide that they want to reduce this dependency through robotization and save salaries, even more so when you consider that with its well-paid expats, endless skyscrapers, luxury restaurants and prohibitive real estate prices, Singapore is one of the most expensive places in the world. world to live in As much as New York, according to a ranking by The Economist.

So why not change location? “The big players are here. Everything moves agile and fast. It’s very efficient,” argues Siak Sin. The port of the city-state has a lot to offer. It is the second largest in the world, behind only Shanghai. This means privileged connections and shorter waiting times for products to reach their destination. Or what is the same: savings. A boat ride around the area is enough to see these hundreds of shadows filling the distant sea horizon grow larger, from oil transport ships refueling to container ships making a loop round trip to Europe.

The growth of companies like LF illustrates a reality: the massive rise in consumption in Asia. In 2030, the continent will generate half of global GDP, 50% of consumption growth over the next decade, and 42% of world population growth between 2022 and 2040. This demographic and economic boom, confined to Chinese power, will mark the transition from Asia 1.0, the world’s factory and supplier to the West, to 2.0, the world’s consumer power. China is already the country with the most cars sold and the main market for manufacturers like Volkswagen.

However, there are those who deny the current model. Ditlev Blicher, President of Maersk Asia Pacific, welcomes journalists to the company’s Singapore office. And he begins his speech by saying that supply chains are obsolete. Not just since the chaos of the pandemic, but before that, structurally. He cites two examples: Because purchases are planned months in advance, a store can receive hundreds of winter jackets that later, when temperatures aren’t cold enough, as was the case this year, try to undercut them with deep discounts , thereby losing profitability. “Customers need transparency. They need to know where those damn yellow vests are and they need to be able to redirect them to where they really need them,” he says.

The downside to these shortcomings, Blicher muses, is even worse. “You have an interested customer who walks through the middle of town and enters the mall. He saw that his best friends bought these purple shoes and he wants them too. When he walks into your store, you don’t have his size. And when you turn around, since all these fashion companies tend to be together, it’s very easy to walk into another one and say, “I really want brand A, but since I’m here, I’m going to see brand B.” You may then find shoes that you never thought of before and they become your new favorite shoes. So you’re not just losing a sale because you don’t have size, you’re losing all future sales. You put a customer in the hands of a competitor.”

To solve these problems of excess or shortage of products, he defends that logistics companies must have an advanced technological platform and a physical execution capacity that allows them to be flexible and agile. Blicher’s thesis is that supply chains have so far operated as independent segments. For each step, the cheapest provider was selected and not the one that brought the greatest added value. “The way supply chains have worked for the last few decades is no longer fit for purpose,” he concludes emphatically. In line with this diagnosis, one of the European companies with the most benefits in 2022 (almost 30,000 million euros) has proposed becoming a logistics giant, covering the entire end-to-end chain, while benefiting from its good financial health in Sectors such as aviation, warehousing or trucks make enough purchases to grow organically.

“China will not collapse”

States like Singapore are well positioned to receive a share of this huge investment. Also neighboring Malaysia. Only two passport controls and an hour’s drive – if you’re lucky with traffic – separate Singapore from the Malaysian port of Tanjong Pelepas, the fifteenth port in the world by container volume. In the warehouses there, Maersk carries out the so-called “consolidation” for some of its customers, including the Spanish Zara.

They open their containers from different parts of Asia, which could bring t-shirts from Thailand, shoes from Vietnam or trousers from Bangladesh, and mix them up just to send them back ready-prepared for the spring collection in Spain, for example. “It’s faster and cheaper. It saves Zara from having to store more garments in Spain and repack them later,” said a Maersk spokesman. It’s the just-in-time model with reduced inventory levels as opposed to the just-in-case model – stocked just in case – that was used when supply chains failed and brands demanded more to keep from running out of product .

Containers in the port of Tanjung Pelepas (Malaysia), this Thursday.Containers in the port of Tanjung Pelepas (Malaysia), this Thursday.

2021 was the best year in its history, say those in charge of the Malaysian port. It was the year of major global traffic congestion, as images of long lines of boats waiting their turn amid heavy post-pandemic demand circulated around the world. The scenario has changed. Megaship congestion has ended, freight prices have collapsed, and while China’s reopening spurs hopes of rising demand, there are fears of economic stagnation and a slowdown in global trade in 2023, prompting Maersk and other shipping companies to keep profits strong to lower prospects.

Regardless of what the short-term says, Singapore-based executives’ faith in growth remains intact and phenomena such as de-globalisation, regionalization of supply chains or the search for alternatives to dependence on China do not seem to bother them. Maersk Asia’s Blicher, noticing growing demand in Vietnam and Indonesia, is responding to those who see the Chinese nearing collapse after their struggles in dealing with the Covid-19 crisis. “There are ups and downs, but China is still by far the largest manufacturing market in the world. It won’t collapse,” he says with conviction.

Everyone agrees that the center of gravity of world trade, like so many other things, is shifting more and more eastwards. Alongside China, Malaysia is the only country with at least two ports in the top 15 in the world. In a list clearly dominated by Asia, only two others, Rotterdam and Antwerp, are European.

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