Shaping Southeast Asia’s supply chains in 2022

The abrupt arrival of Covid-19 disrupted supply chains massively, creating bottlenecks that stymied the seamless flow of goods and raw materials that powers the global economy. As the effects of disruptions including the pandemic continue to reverberate, businesses in Asia Pacific, Southeast Asia included, have pivoted their supply chain strategies to address the ongoing disruptions. The current crisis in Ukraine demonstrates the need for businesses to further enhance resilience and respond as required to further supply chain disruption.

Today, we’re observing an enhanced focus on supply chain resilience, including steps that mitigate risk and insulate against additional shocks. This places the region’s businesses in a stronger position to seize growth opportunities as the global economy recovers. Aligned with megatrends such as the e-commerce boom and the increasing diversification from China, there are clear pathways for the supply chain industry to accelerate Southeast Asia’s long-term economic potential and emergence as a global logistics hub.

Following the conclusion of the first quarter, it is timely to examine the key developments set to shape Southeast Asia’s supply chain landscape in 2022 and how organisations can best adapt to meet new business requirements.

1. Regional Supply Chain Challenges Are Increasingly Observed Globally

Varying rates of infection across the world has led to wide-ranging pandemic restrictions with supply chains in certain territories bearing the brunt of economic uncertainty. While bottlenecks have remained regional for the most part, their impact has begun to be felt worldwide as businesses pick up again.

Long vessel waiting times and port-side labour shortages have complicated the transportation of cargo over the last six months, impacting any supply network that includes the United States as a key node. Asia has experienced an outsized impact in comparison with the rest of the world, stemming from global container shortages, due to the region’s stronger recovery at the onset of the pandemic. This has led to lengthened turnaround times and a dramatic increase in ocean freight rates; trends that will collectively change the supply chain landscape and call for new strategies.

In a webinar organised by Toll Group to discuss global ocean freight, Lars Jensen, CEO and Partner of Vespucci Maritime, stated that rates are forecast to increase for at least the next 18 months before normalising in 2023. Jensen also added that companies should anticipate worsening congestion in the near term, in addition to a gradual but bumpy normalisation of operations at the end of this year.

2. Multimodal Transport Will Become the New Normal

Bottlenecks and rising ocean freight costs are making it increasingly essential for businesses to relook their supply chain strategies to remain competitive. The rapid spread of the Omicron variant has also seen many countries tightening pandemic restrictions, potentially impacting crew change schedules and lengthening shipping timelines. Businesses across the globe are shifting from a supply chain model driven by lowering cost (just-in-time) towards a model that builds in vital resilience measures (just-in-case).

However, this shift is not a zero-sum game and supply chains require careful planning to strike the right balance between cost and flexibility. Alternative solutions such as multimodal transport have the flexibility to balance cost efficiencies and transit time requirements.

With the problems in the container shipping landscape unlikely to subside in the near term, a multimodal approach to the supply chain can offer an effective way to ease capacity and cost constraints for businesses in Southeast Asia. These could include a combination of road, air, and rail transport, leveraging established links across the region. While rail has emerged as a real alternative for supply routes such as the Asia–Europe network, a combination of sea and air is likely to remain the optimal intermediate alternative for most regions and businesses.

3. Local Players in Asia Set to Dominate Regional Supply Chains

Shifting customer priorities towards faster deliveries and the increasing involvement of Southeast Asia’s manufacturing networks—as businesses diversify their supply lines out of China—have led to shorter supply chains in Southeast Asia.

It has catalysed the rise of local supply chain players who are familiar with the unique nuances of the region and possess the right capabilities to better meet current business demands. We anticipate that global e-commerce players will find it challenging to compete in Southeast Asia and the broader region, despite their global expertise. Examples of these local champions include Shopee or Go-Jek in Singapore and Indonesia respectively, which integrate shopping, delivery, and payment options on a single super-app, presenting a better value proposition to local businesses.

This is not to say that larger players will be completely out of the picture. Asia-centric service providers will still be able to deliver competitive value to businesses. These players typically possess the requisite expertise to excel at the country level, but also boast an extensive regional or global network that can enable businesses to tap growth opportunities both locally and abroad.

Based on Toll Group’s conversations with businesses in Asia, this represents an extremely attractive proposition to retailers and consumers in the wake of the pandemic-induced disruption.

Advice to Supply Chain Players

The impact of the Russian invasion of Ukraine is a sobering reminder that the recovery of global supply chains will not be linear. The challenges of the past two years are expected to continue through 2022 – including congestion, rising input costs (such as fuel) and rising and rising freight rates.

As we face another year of supply chain challenges, it is imperative that businesses maintain an open dialogue with their supply chain partners. To adequately prepare, businesses require a nuanced strategy which enhances resilience in a cost-effective manner whilst enabling supply chains to better-respond to the opportunities provided by the e-commerce boom across Asia.

Source: https://www.businesstimes.com.sg/asean-business/shaping-southeast-asia%E2%80%99s-supply-chains-in-2022