Jun 15 | 2020
BBC’s Ulrich Ulrichs and GSF’s James Hookham Offer Further Insights
Following the recent Breakbulk365 webinar, “View from the Boardroom: What Lies Ahead,” attendees’ questions stretched past the webinar’s duration. Breakbulk took the opportunity to direct additional attendee questions to panelists Ulrich Ulrichs, CEO of BBC Chartering (left), and James Hookham (right), secretary general, Global Shippers Forum. Their responses appear below and we’re lightly edited.
Q: What would you say is your organization’s biggest learning from the last five months?
Ulrichs: Appreciate a good team and realize that communication, especially internally, is the key during crisis times.
Hookham: Logistics and the movement of freight remains the steady drumbeat to the sometimes idiosyncratic melodies the world chooses, or is forced, to sing along to. This was the year the music stopped but, fortunately for everyone, the drummer kept going!
Q: Considering the Covid-19 pandemic and low-sulfur bunker fuel, does it make sense to be active in the spot market rather than long term contracts/agreements?
Ulrichs: We have no choice but to be active spot and long term, but of course we have to pay attention to the details assessing the respective values, contribution and risks.
Hookham: This is a sore point with shippers because commitment and loyalty in the form of long-term contracts doesn't guarantee better standards of service at times of stress. Contracted cargo get left on the dock along with the spot when the sailing is blanked. … But regardless of whether you ship at spot rates or under contract, the great leveler will be the surcharges often amounting to as much as the original contracted rate.
Q: How are the panel members addressing their businesses related to "discontinuity risks" and building resilience?
Ulrichs: Frequent communication, verbally and via memos, supported by numbers and facts.
Hookham: In building a business continuity plan there are three generic scenarios to consider: 1) the inability of large numbers of employees to work (due to illness, imposed travel bans, stay-at-home orders, security or severe weather); 2) inability to work at a workplace, site or home office due to collapse or corruption of corporate IT systems, loss of Internet connectivity or other utilities outage; 3) loss of access to workplace due to fire, catastrophe or other imposed restrictions. The Covid-19 crisis is a rare occasion where Scenario 1 has played out. Fortunately, many businesses had equipped staff with laptop computers (or quickly did so), and together with Zoom and Microsoft Teams and generally reliable and stable broadband networks, these provided the means for much business to continue. Unfortunately, though you still can't email cargo!
Q: Do you think that we will see a growing trend towards increased efficiency in the logistics industry? If so then in which ones?
Ulrichs: Yes. In general, digitization has to be higher on the agenda. If you look at the airline and container industry, the multipurpose/heavy-lift segment has to catch up quickly.
Hookham: The pressure on cost reduction will be even greater than it was in the recovery from the recession of 2008-09. As I mentioned in the webinar, this won't just be in response to the hit from Covid-19, there are other factors that will increase costs, including environmental, security and technological, never mind the shortage of skilled, energetic people wanting to work in the shipping and logistics sector.
Q: How do boardrooms view labor market disruptions within the breakbulk sector with the latest pandemic (across emerging and developed economies) and what are key trends that appear worrisome?
Ulrichs: That is a concern. The industry risks to lose talent, and will have difficulties in being attractive for new talent coming in. That is a trend for years and Covid-19 has accelerated that trend, unfortunately. It is the responsibility of every player or company in our segment to contribute to reverse that trend.
Q: Shippers have suffered significant losses due to sudden “ghosting” of so-called reliable carriers that have recently declared liquidation with the ships and cargoes in the middle of sea. It is likely that we may see similar cases in the near future. What can be the measure to protect market players?
Ulrichs: Get the financials of your contract partners and review the ownership structure.
Hookham: The indebtedness of most of the major carriers has long been a cause for concern and the dislocation of cargo and recovery costs incurred from the collapse of Hanjin line in 2016 still haunts many shippers. However, several major carriers already benefit from significant support from “home” governments to get them through the Covid crisis. There is a moral hazard that such businesses believe they are “too big to fail” (or “too bloated to sink!”). This must be addressed by governments, as it is unfair, not just to customers but also competitors and potential new entrants. As to protective measures for market players, there should be an insurance product to cover this kind of risk, and pricing policies would be a reasonable indicator of the underwriter's expectation of an imminent claim.
Q: This pandemic has surely affected how companies will approach their business in future. Should companies review their supply chain processes to enable a quicker reaction to such instances? How can we be better prepared for sudden change management?
Ulrichs: For consumer goods and medical products, the supply chain should be reviewed. For project cargo it is more difficult to adjust. Look in detail at what lessons your company can learn from the Covid-19 pandemic, what worked well, what did not and adjust your processes accordingly.
Hookham: Speed of reaction is one aspect to consider, but so too is customer communications, A feature of the Covid crisis has been the effect on market demand as well as the disruption to means of supply. Many shippers rushed to ship goods out of China as production resumed in early March only for them to make landfall in Europe and North America just as lockdowns were being introduced, extinguishing consumer demand for those goods overnight. So in addition to diversification of sourcing as I mentioned in the webinar, make sure the timing and effectiveness of communications with customers and suppliers is reviewed. My advice is make this a separate project from current crisis management activities. There is still a long way to go to on Covid-19, and the behaviors of markets and counterparties during recovery have yet to play out. These will need to be factored into a supply chain review just as much as their behaviors during market contraction.
Q: How can we ready for next pandemic as logistics teams? Face masks and medical equipment needs permits in some countries. Possibly governments will be more flexible next time. How do we avoid high prices in airfreight for shipping necessary equipment in the next pandemic?
Ulrichs: I think governments have learned their lesson, and face masks will not be the problem next time around. The production of certain goods will be reviewed and can be relocated or localized. The question is: what will the next crisis look like? In any case, always try to expect the unexpected, try to see the Black Swan in advance, be mentally prepared.
Hookham: I would draw up separate plans for the actions you will take to protect your workforce and maintain your ability to operate, from the measures you take to manage the impacts on suppliers and customers. The first addresses your ability to “keep the lights on” and the second your ability to keep trading and manage cash. If there is a next time, I would expect a much greater degree of spontaneous adaptation of behavior by businesses and consumers, such as boycotting exports from outbreak regions, and immediately move staff to home-working. They won't wait for governments to decide whether it is a public emergency. Facemasks and other PPE could be stocked in readiness, but that is a containment response, not a management strategy. Companies could invest in offering voluntary antibody tests to employees and fund vaccination progras among staff (when both options are deemed reliable and available). You would need to do this in a way that is consistent with local employment legislation, reflects the values of your business and follows all official medical and health guidance at the time.
Q: (Directed to Ulrichs) The community appreciates BBC Chartering’s investment even within these poor times. But what is the final plan if markets will not fully recover? Too many ships for limited cargo volumes. Can shippers continue to build upon BBC services on the long term?
Ulrich: Yes, you can build on BBC's services in the future. The demand will come back slowly and the fleet will shrink due to age and inefficiencies. Medium-term I am not too pessimistic. Long-term, it is the key to deliver acceptable returns on investment to shareholders in order to justify investment in new tonnage.
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