SEKO Logistics take a deep dive into supply chain complexities

On a recent media conference call hosted by Itsaca, Ill.-based third-party logistics (3PL) services provider and global freight forwarder SEKO Logistics, the company’s Chief Commercial Officer Brian Bourke addressed various aspects of what the company calls the heightened volatility, uncertainty, ambiguity and complexity that has challenged supply chain stakeholders across various modes.

Bourke touched upon how going back to the onset of the pandemic in early 2020, with the disruption from lockdowns that continued into 2021 globally, coupled with subsequent supply shocks and demand shocks being a constant amid the situation, turbulence has been a really key differentiator and a driver, too.

“And it's not been without its headaches and turmoil, and a little blood, sweat and tears, but it's been a challenge,” he said. “This year, there is more of that, it's just different challenges. We don't have a congestion. What we do have is a lot less demand for containerized trade, for pallets moving around the country, moving around the world. And even though the volume has gone down, in many cases, the activity hasn't. So, a lot of our clients are actually shipping as much, if not more, than they were before the pandemic. But each individual shipment is a few containers or a few pallets less. So, it does create different challenges and separate challenges, and these are clients that expect the same level and standard of service.”

China Plus One: From a sourcing perspective, Bourke addresses the “China Plus One” multi-country strategy used to reduced supply chain dependency on China.

For SEKO’s clients adhering to this strategy, he said that they seeing major diversification, on the back of the success of U.S.-based shippers investing and opening up new manufacturing hubs in Vietnam and other countries in Southeast Asia.

“We certainly don't see this trend reversing anytime soon,” said Bourke. “But critical to that…it's China Plus One. China's still at the center. It's very difficult to decouple global supply chains from China, from companies that have relied on the sophisticated manufacturing sector in addition to the logistics infrastructure that is bar none one of the best in the world, if not the best.”

VUCA: When assessing VUCA (volatility, uncertainty, complexity, ambiguity) among SEKO’s customer base, Bourke said it is very apparent in the form of lower volumes across nearly every sector and geographic regions SEKO serves.

“Not every sector is moving at the same pace as we saw back in 2020,” he said. “We saw a lot of sectors actually accelerate at the start of the pandemic and some shut down and others restart and others surge. And for us, we're definitely seeing some tailwinds and some sectors like high-tech, much of that being driven by AI. In high-tech, we're seeing a surge. And as we've seen in the news, due to geopolitical risk and war in many places around the world, we're seeing accelerated trends in demand for movement of government and defense items as well in addition to medical.”

Bourke said that these are some of these sectors that are seeing increased demand for containerized freight and cargo shipping around the world, in addition to some segments of e-commerce are certainly starting to rebound, or revert, to their pre-COVID trend lines of e-commerce, continuing to take a larger percentage of market share of total retail sales.”

Supply chain normalization: Looking at supply chain normalization, with the pandemic largely in the past, Bourke viewed it as a reversible whip, in that while volumes remain down annually, they are seeing some sequential improvements, for ports, throughout, and containerized trade volumes across various sectors.

“The good thing about year-over-year comparisons is once a downturn has gone past a year, the year-over-year numbers start to look better,” he said. “And that's what we're starting to see.”

What’s more, he said there are some of things that need to happen in order for the global supply chain and. in particular for cargo volumes to really return, including inventory destocking amid blips and spikes in volumes.

“You may see year-over-year that these will not be lasting,” he said. [Inventories] will go down again and then go up and go down and go up, but there will not be a surge as we saw during the pandemic, because inventory-to-sales ratios are still not to the level that they need to be in order to keep goods moving at the pace that they would normally be moving. But the good news is for a lot of companies, especially companies that are looking to get rid of inventory carrying costs off their balance sheets, destocking has been successful for a lot of companies through the better part of this year. There is a relationship between inflation and real wages, and especially in economies like the United States where it's primarily driven by the consumer economy, that's an important data point.”

Peak Season: With the holiday shopping season now in full swing, Bourke said there is some level of optimism heading into it, with the caveat that it is with a watchful eye.

SEKO is definitely cautious about how it sees the rest of this year, especially as it relates to freight volumes, in particular on the parcel side, while, at the same time, for the first time in three years, some of its clients' forecasts are accurate and reverting back to these trend lines.

“That’s exciting because when shippers are unable to accurately forecast, that has all kinds of economic implications on their bottom lines, and their ability to respond to demand for their goods,” he said. “It's not a good scenario for them, for the 3PL, for the freight forwarder. And, so, we're starting to see forecasts becoming accurate.”

Looking at the air freight peak season, he said SEKO is seeing signs that there's not going to be a huge spike between now and Black Friday, Cyber Monday or the end of the year, or even the Lunar New Year.

“But obviously there will be one-offs,” he said. “There's going to be exceptions. We're seeing some of that. But it really is all around how the U.S. consumer is going to spend, how is the Chinese consumer going to spend starting with Singles’ Day here in a little bit, and Europe, and in particular countries like the UK where mortgages reset higher interest rates, and may eat into household disposable income faster. How are these economies going to and consumers respond to these increased costs when it comes down to holiday season? This is something we're all watching with cautious optimism, maybe a capital C and a lowercase O, but it's not going to be completely flat.”

While Peak Season is expected to be largely muted, Bourke said SEKO does see some green shoots in the recovery of air freight volumes in particular.

“We're cautiously optimistic for e-commerce volumes to accelerate closer to the e-commerce peak season, typically around the week, the last two weeks of November and the first two weeks of December,” he said.