Supply Chains Won’t Go Back to Normal, DHL Says

Mexico City — Nearly two years since global supply chains were disrupted by the Covid-19 lockdowns, one of the big questions facing industries is when will they get back to normal.

“We are not going back [to normal]. The trends are here to stay. The causes of the disruptions have gradually gone away, but supply chains will not go back to what they were before,” Oscar de Bok, CEO of DHL Supply Chain, said in an interview with Bloomberg Línea.

De Bok’s view is more pessimistic than that expressed by the CEO of DHL Global Forwarding, Freight, Tim Scharwath, who said last week that “it’s going to ease in 2023, but it’s not going to go back to 2019”.

“I don’t think we’re going to go back to this overcapacity situation where rates were very low. Infrastructure, especially in the US, isn’t going to get better overnight, because infrastructure developments take a long time,” Scharwath said.

The pandemic accelerated trends that already existed prior to the arrival of Covid-19, and which are causing a shift in the way companies source their materials, and produce and move their products to market.

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One of these trends is shortages, such as materials and labor, with the shortage of the latter having already emerged prior to 2019 due to factors such as the aging of the population, although did not manifest itself in some markets until after the outbreak of Covid-19, De Bok says.

Another trend that already existed, but which has accelerated, is the growth of e-commerce, which creates complexities in supply chains, he added.

With e-commerce, intermediaries that are part of traditional trade, such as wholesalers and distributors, are being replaced by supply centers.

“With this, the ups and downs in demand move to the final stretch of the supply chain, which generates disruptions in the entire supply chain,” De Bok explains.

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Omnishoring vs nearshoring

The disruption to supply chains has forced companies to seek to bring materials closer to their production centers and these, in turn, closer to their customers. This phenomenon is known as relocation, or nearshoring.

However, for De Bok, nearshoring is not enough to help solve the problem that has affected industries from automotive to healthcare.

“Going to a single point nearby has not proven to be successful. It has been proven recently, with what has happened with the war in Ukraine, and in the automotive supply chain,” De Bok said. Instead, he says, companies should opt for the diversification of supply sources, called ‘omnishoring’.

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Farewell to ‘just in time’

De Bok, as the CEO of one of the leading companies in the logistics management and consulting industry, believes that previous supply chain management systems, such as ‘just-in-time’, and which seeks to have the right product at the right time in the right place, need to be revised.

What is important now when planning supply chain solutions is flexibility, agility and speed, he sayd. To achieve this, he pointed to the standardization of information and processes in order to be able to act quickly, as well as greater investment, as being key.

“There will be surprises and fluctuations,” he adds, and says that markets such as Mexico, and much of Latin America, have a DNA of rapid response.

The supply chains of the future will be more agile and more sustainable, capable of acting well in the face of change, but also in the need to reduce emissions, he says.

Translated from the Spanish by Adam Critchley