As free trade gives way to protectionism and many Asian yards turn inwards for their supply chain requirements, Danish Export Association head of marine Mark Lerche considers what this means for European suppliers
The global shadow of the Covid-19 pandemic has highlighted to many of us in the supply chain industry the importance of flexibility of supply lines. Even multiple suppliers may not be enough when, within a few short weeks, they are unable to export across borders and their factories are in lockdown.
This emphasises the importance of having a diverse geographical supply chain, so that in the event of one local or regional issue – the obvious example being Covid-19 – suppliers elsewhere in the world can hopefully still be in a position to operate with minimal interruption.
It is not enough to have two or three cheap suppliers from China if you have to move your production or your refurbishment outside of that area.
In terms of business models, change may also be required for those organisations that become, or are to remain, successful over the coming years. If you are in a niche, stick to it, but also try and diversify your customer base. That might mean working a little harder on smaller, more niche shipyards and smaller owners, because they still account for a significant percentage of the world market.
As suppliers, that means attending more meetings, building more relationships and generally working harder on that side of things. Which brings us back to the current pandemic situation, because meetings are becoming ever more difficult to hold in lockdown or post-lockdown environments.
And all of this is taking place in a global economy that is turning its back on free trade and looking more inwards, at protectionism and protectionist policies.
With this in mind, the obvious question is, what can we do about it?
I found it very interesting when talking to some of our Danish members recently, who felt in many ways the picture had not changed as much as first impressions may suggest. They explained that depending on your size, you must now act more globally, but the big suppliers that are already global and established in markets such as China, South Korea, or Japan obviously will not find this as much of a challenge as their smaller competitors. In that respect, little has changed for those smaller companies trying to make their mark.
One of the options they may pursue is to spread their risk across more industries, or to become part of a larger consortium. Partnerships, if not full mergers, can clearly afford significant benefits in terms of both economies of scale and visibility in a particular market.
“Despite our current shellshock at the Covid-19 pandemic, the trends many companies are now facing started a long time ago”
Government support, in the form of more lobbying, might also provide assistance, but it is not guaranteed.
But the truth is that despite our current shellshock at the Covid-19 pandemic, the trends many companies are now facing started a long time ago: Japanese yards taking orders and building the vessels in China for example is not a new occurrence. And the nationalism, trade barriers and the local content rules in the US and Brazil are also nothing new.
In terms of long-term trends, we have to consider that trade lanes might be affected through the politicisation of cross-border business. We may experience more intra-regional trade lanes – intra-Asia, intra-Africa, intra-Indian Ocean.
Finally, we must consider technology, because the more state-owned interference grows, the more innovative technology is hampered.
These questions must be addressed by suppliers as they address the challenges of a restructured Asian maritime hub.