Rudolphe Saade, CEO and Chairman of CMA CGM, gave a brief video speech last week (Apr-16th) about the state of his company during the COVID-19 crisis and his views on its implications for the future of the shipping market. Much of it was an unsurprising statement about CMA CGM still being open for business, however, Mr Saade did make some interesting comments on what he saw as the prospects for trade patterns.
In particular, he said that the crisis “will impact world economic flows and will necessitate that we all rethink our supply chain models” as a result of changed consumer behaviour. Also, such new supply chains will have to be “redesigned with more resilience” as well as developing the ability to “quickly adapt to sharp fluctuations in supply and demand”. Mr Saade suggested that the nature of globalisation will be modified with “diversified sourcing for companies and the development of intra-regional exchanges”. In addition, “digitalisation” will continue to have “have a major impact both on logistics flows”.
For the head of a leading container shipping line to suggest that the pattern of world trade will change is quite significant. The underlying implication of his statement seems to be that trade between China and the rest of the world will decline in importance and sourcing of many products will take place in other regions, presumably ones closer to the point of consumption.
If this were to be the case, the effect on the container shipping sector would be very significant. Since the 1990s shipping has both grown in size and consolidated around networks of very large vessels with appreciable economies of scale. Changing this would have huge commercial implications for the largest container lines. Although more intra-regional supply chains may sound attractive, the cost of production and possibly even the cost of transport may increase in the long-term as batch-sizes and economies of scale fall. It would also suggest considerable new investment in port infrastructure or even its replacement by land transport.
The world described by Mr Saade may not come to be, however, his points should be considered seriously.
Source: Transport Intelligence, April 21, 2020
Author: Thomas Cullen
GLOBAL SUPPLY CHAIN INTELLIGENCE (GSCi)