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What will be the impact of the Coronavirus Pandemic on manufacturing, logistics and supply chains? As a physician by first training and Futurist advisor / keynote speaker on manufacturing trends and logistics strategy to over 400 of the world's largest 2000 companies, across every industry and region, with a proven track record of longer term forecasting over the last 25+ years, here are some guiding principles to the future of manufacturing, logistics and supply chains as a result of Coronavirus / COVID-19.

Here below are notes I made on 25th March 2020:  judge for yourself how right they were.  Manufacturing and supply chain trends unfolded during April to July 2020 much as I described below.

I predicted many times future global threats from new pandemics

I have warned for over two decades about significant threats to manufacturing, logistics and supply chains from new mutant viruses which appear roughly once a year, usually emerging in Southern China (for reasons unclear), just one of many potential Wild Cards that could strike down successful global manufacturing business.  For example, when the SARS outbreak began to threaten our world in 2003, my media warnings about the threats from new mutant viruses reached an audience of over 300 million.

One reason I am so sensitive to the threat from new mutant viruses like Coronavirus is that 32 years ago, my own medical practice, looking after people dying of cancer at home in London, was hit by a new mutant virus called HIV - 85 million deaths since then. And 31 years ago, I started in our family home an international foundation called ACET preventing HIV spread and providing practical support in many of the world's poorest nations such as Uganda, Nigera, DR Congo, India, Thailand and so on as well as in nations like the UK and Ireland. So yet another new illness, like COVID-19, is no surprise.  It was only a matter of when.

Need for Agile Leadership and Dynamic Strategy

I have also warned many hundreds of times at global corporate events for manufacturers over the last 20 years that:

"The world can change faster than you can hold a board meeting. The days of having only one business strategy for manufacturing and supply chains are over.  You need plan B, C, D and E as well - because there is no time to plan for new supply chains when crisis hits, and in our hyper-connected world, the impacts are even greater and faster. That's why all manufacturers need Agile Leadership and Dynamic Strategy."  I was not just talking about viruses - but a host of Wild Cards which can have gigantic impacts at the speed of light across nations and industries.

Book your own board strategy review and coronavirus update - contact Futurist and Physician Dr Patrick Dixon 

Coronavirus pandemic will sweep uncontrolled across most emerging markets, rapidly

Whatever happens in the EU, North America, Japan, Australia and so on, 85% of humanity lives in emerging markets, many of whom have very limited health care facilities, and which are likely to see very rapid, uncontrolled spread, at a time when developed nations are still employing all kinds of radical strategies to flatten their own peaks of cases.  

The result will be that so-called herd immunity (when 70-80% of a population has immunity from previous infection) develops much faster in poorer nations, albeit with huge death rates amongst older and more vulnerable people. But many emerging markets have very young populations eg India, Nigeria etc because of much higher birth rates than nations like Germany, Italy and Japan.  And a high percentage of older people who have multiple medical problems tend to die far earlier than the average in developed nations.  So the combined impact of this means that COVID-19 may well kill a much smaller proportion of the general population of a nation such as Uganda, than of a nation such as Poland.

What this all means is that factory production will be returning to normal much sooner in the poorest nations (possibly within 3-5 months from their first major cluster of cases), who will be impacted by many deaths, but whose "community resistance" will climb rapidly to Coronavirus.  The situation will be more complicated in China, which has an ageing population, is highly organised in mass responses, and which will probably be faced by a prolonged threat from Coronavirus, until either vaccination programmes are implemented, or enough of the population (finally) gains natural immunity.

However there are many unknowns - for example how long immunity lasts after infection before someone can be hit again by the same virus or a slight variant.

Factory production in developed nations will be impacted for longer than in many emerging nations

Developed nations with the most powerful anti-infection strategies will have populations which are largely without any antibodies, for many months, maybe over a year.  Maybe longer.  Depends on many factors.  That will create an ongoing vulnerability to further rapidly growing clusters of infection, some of which may also become national threats.  The only answer to this will be very large scale vaccination, when the technology arrives.

Google N1N1 and look at Wikipedia entry to understand this more - repeated clusters some time after pandemic.

For these reasons, paradoxically, business disruption is likely to be much longer, and repeated, in many of the most developed nations, compared to the poorest nations.

Global Crisis will accelerate many pre-existing business trends

Many things will change less fundamentally than you might imagine - in March 2020.  Others will change faster and further than many expect.  The key is knowing the difference.

Most mega trends described in my books, including The Future of Almost Everything, will continue to shape manufacturing, logistics and supply chains as before, but the Coronavirus pandemic will bring forward the timings of many key events.

Examples:

Airlines (and associated air freight) will consolidate more rapidly in Europe - following US picture over the last decade.  Larger airlines will be most likely to be rescued by government.  Borderline-non-viable airlines will be allowed to fold.

Physical retail will lose out even more to online shoppers, with big jump in online sales which will only partially reverse after the pandemic has ended.  Many Shopping Malls will struggle to re-open in developed nations.

Even faster growth of virtual working and virtual teams.

Shift from broadcast media to streamed media.

Rapid implementation of factory automation, remote factory monitoring, predictive analytics to improve up-time in factories.

Many global trends will be relatively unaffected by Coronavirus Pandemic

85% of humanity will still be living in emerging markets, and most factories will soon be located there.

Most new middle class consumers will still be found in tomorrow's emerging markets.

The irresistible human desire to explore will drive growth in leisure travel and tourism - when this is all over.

Technology costs will continue to fall towards zero, and this will also reduce manufacturing costs.

Green tech investment for decarbonisation will continue to boom, and energy consumption per unit of manufactured goods will also continue to fall.

Auto industry manufacturers will still rush to produce electric vehicles.

Governments will take radical action to support national economies and major manufacturers

Expect Central Bank lending rates at almost zero interest or going negative to mitigate economic impacts of the Coronavirus pandemic.

Expect large-scale printing of money (digital equivalent is so-called "quantitative easing").

Whatever it takes to try to prevent this Coronavirus causing deflation and major recessions.

In the 2008-9 crisis, governments were worried about "moral hazard" - risks of bailing out banks and other financial institutions who may have contributed to the crisis any poor risk taking. If the bail outs were too generous, the argument went, banks etc might become even more careless in future. Hence moral hazard inhibited what governments did.

But this time around, there is no moral hazard.  There is no risk of rewarding poor behaviours in the past.

And because of huge steps taken to reduce risks in the banking sector, global banks are in a much stronger position on the whole than in the last, to withstand economic shocks.

The global economy was growing nicely before the crisis and many nations were seeing stable growth with low inflation, job creation etc, so the fundamentals are there for a strong recovery SO LONG AS governments manage to prevent massive closures of perfectly viable businesses, factories and supply chains which would otherwise generate national wealth for a really great future.

Increased government debts will create pressures on spending for a further decade

The longer term impact of the Coronavirus pandemic will be additional government debt, on top of debt created when fire-fighting the last global economic crisis in 2008-9, much of which had not yet been repaid. 

What it all means is that when all the Coronavirus / COVID-19 crisis has finally resolved, governments will be shorter of funds than they expected, paying more in interest than they expected, and needing somehow to reduce government deficits each year to zero, to then start repaying debt.

All this will be painful with pressures on government spending whoever is in power, plus higher taxation for manufacturers or higher purchase taxes, VAT etc, on manufactured goods, or combination of both.

Manufacturing, Logistics and Supply Chains - existing trends will be accelerated by Coronavirus

The Coronavirus pandemic will accelerate the longer term trend in many larger industries such as the Auto industry to shorter supply chains, within regions amongst small clusters of nations.

While the pandemic will cause short term disruptions to manufacturing of many kinds, and while this will cause some company failures, most larger manufacturers will weather the storm, with some government support.

Irrespective of Coronavirus, successful manufacturers will become far more efficient, and prices of most goods will fall in real terms over the next three decades.

They will achieve this with greater automation, larger factories, better design, thinner and stronger materials such as carbon fibre and composites, more recycling, improved energy efficiency, shorter supply chains, lower stock levels, and by moving factories to regions where labour costs are lower or to where demand is growing fastest.

While some have worried about exporting or importing infectious coronavirus on shipped goods, research shows that the virus loses infectivity within a day or two on all smooth surfaces, and in a much shorter time on absorbent surfaces like tissue paper.  Since transported goods are almost always in transit for far longer than this, there is no reason to think that fears of infection should itself disrupt shipping or most air freight.

A lot of supply chain trends will be relatively unchanged when the pandemic is over, indeed during it.  For example, this face remains true: moving a container 150km by lorry from Birmingham to Southampton costs the same as moving the same container 10,000km by sea from Southampton to Beijing.

It will continue to be cheaper to transport melons from Istanbul to Naples than to drive melons from a village up in the Italian mountains, to the same market.

This overwhelmingly huge difference in freight costs will be one of the single greatest drivers of future global trade, despite increased energy costs and the Coronavirus pandemic. It is the primary reason why global trade has grown at twice the rate of global production over the last 30 years.

Expect over $28 trillion a year of global trade by 2030, up from more than $18 trillion in 2019. Global trade will continue to grow around 25-35% faster on average than the entire global economy. For two decades, the use of shipping containers grew twice as fast as international trade, as companies seized the opportunity to be more efficient. But the container revolution is now complete, and so the growth difference will ease.

Regional trade will grow – and global trade will slow

Ten years ago, many global manufacturers were stampeding to move factories to China and other parts of Asia to save costs, while banks were shifting call centres and IT support to India. Several years ago I predicted that outsourcing would go into reverse, which has happened. Asia is becoming more expensive. Long supply chains are easily disrupted. Cultural gaps, tariff barriers and varying exchange rates can be troublesome. Local demand in Asia is growing.

So we will see more clusters of regional suppliers, delivering components to make products to be sold in the same area. And as I say, the Coronavirus pandemic will accelerate this trend.

That is why ‘south to south’ trade will grow significantly (e.g. India to Brazil, China to Malaysia, or South Africa to Tokyo). Such trade doubled from 12 to 24% of global trade from 2000 to 2011, and will increase to more than 40% by 2030. Half of all trade in Asia is already within the region.

A significant amount of offshoring is already being replaced by nearshoring or reshoring of manufacturing – ‘jobs moving back home’. Jobs are also moving around Asia. So Intel has built a new $1bn chip factory in Vietnam, just a few miles from the border with China where labour is twice as expensive. Samsung witched almost all manufacturing of electronic goods out of South Korea to many other lower-cost locations within Asia.

How to save money on logistics

It is a scandal that 30% of trucks on the road in the EU are empty, transporting just air over 150 million kilometres a year.  The coronavirus pandemic has highlighted such crazy inefficiencies even more, especially in ensuring food supplies.

Tens of thousands of journeys a year are wasted carrying identical end products, components or raw materials in opposite directions from different producers, factories, warehouses – literally passing each other on motorways. Expect new websites to sort out waste, and become money-spinners.

We will also see great efforts to speed up shipping. Automated cranes can already unload a giant container ship and reload it in 24 hours, re-sorting containers on the dockside as the Post Office sorts letters and parcels.

Every day counts. An average delay of a week on the shipping time can mean a loss of up to 25% of trade. It is often 20% more expensive to trade with a low-income country than a middle-income country, because of lack of infrastructure, red tape, slow customs, form-filling and maybe pressures for bribes to keep goods moving.

Paperwork and customs delays still account for over 10% of all shipping costs in many countries. We will see huge efforts by the World Trade Organisation and governments to solve this with secure electronic bills of lading and other freight records, together with wider use of electronic tags on every item.  Expect experiments with Blockchain and other secure ledgers to make this more efficient and safe. Many emerging economies will also invest in combined rail, road and port facilities. Mexico has spent over $220bn on such a super-hub in the past eight years.

Robots taking over the world – rather slowly

The Coronavirus pandemic has highlighted how little automation there still is in most factories globally.  We are still very dependent on human labour.  Having said that, in most larger factories it is possible to work at 2 metres or more distance from others, and so manufacturing in such factories should be able to continue without massive disruption caused by social distancing requirements.  

Of course, that still leaves major issues caused by supply chain disruptions and by workers becoming sick, going into quarantine or needing to look after children sent home from school.

Despite all the talk of robots taking over most menial jobs and putting tens of millions out of work, the growth of robots in factories has been slow – up from 92,000 to a mere 387,000 a year from 2000 to 2017. A third of that increase was in 2017. Compare this to growth of smartphones, for instance, and the pace is still snail-like.

Sales of such robots are likely to increase by around 10-15% a year – mostly confined to the auto industry, which owns most robots in America. Robots will become cheaper and more intelligent, but smaller models will still cost over $20,000 each in 2020.

Expect rapid growth in military robots – with tens of thousands of drones owned by the Pentagon alone, raising the prospect of swarms of small, semi-autonomous flying robots being thrown into the air above a major battle zone. “Suicide drones” will soon be available on the open market, able to fly 80 miles an hour, to detonate explosives at any target 40 miles away.

Domestic robots are already here, of course – cleaning floors, for example – but other uses will be hard for consumers to justify, apart from control devices in things like heaters or fridges as part of smart homes. The biggest personal use of robotics will be in cars – self-drive will be almost universal. The question is only by when.

Impact of Coronavirus pandemic on energy industry, green tech and speed of decarbonisation

The impact of the Coronavirus pandemic on the energy industry will be mainly one of consumption, mainly during the peak of the crisis. This will rsult in lower oil, gas and coal prices.  In turn, this will create severe economic pressures on nations like Russia and Saudi Arabia who are very dependent on carbon-fuel foreign exchange.

This will have a negative knock on impact for all production of alternative energy units such as wind power, solar power, district power and heating and so on.

However, patterns of energy use and prices will return to more normal levels as soon as the pandemic levels off and declines, which could happen in many parts of the world quite rapidly.

Book your own board strategy review and coronavirus update - contact Futurist and Physician Dr Patrick Dixon 


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