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Life After COVID19: Diversifying Supply Chain Sources Proves to be Necessary

June 14, 2020

Launched jointly with the Dubai Future Council on Logistical Services, Dubai Future Foundation (DFF) has published its latest report titled ‘Life After COVID-19: Logistics’, with a spotlight on the future of the logistics sector amid COVID-19. The report discusses the challenges and opportunities faced by the industry considering the various stages of global societal lockdowns and the measurements taken by countries to secure supply of essential goods and services.

Launched within the Foundation’s ‘Life after COVID-19’ series which includes nine reports to date, the report addresses the different challenges and opportunities that the UAE and the Arab world will face in the aftermath of the global health crisis.

According to recent survey results revealed by Institute for Supply Management, logistics companies report supply chain disruptions in vast variety, depending on sector, location and mode, due to coronavirus-related transportation restrictions. In the UAE, we have not seen shortages of essential goods such as food and medicine of the scale experienced by countries in other regions. This might be interpreted that the resilience of supply chain controlled by the UAE is due to the significant investment in multimodal facilities and infrastructure over many decades. Around the world, governments have had to inject trillions of dollars of liquidity into various business sectors in order to sustain supply of goods and access to markets, according to figures revealed by Statista, online portal for statistics.

The report goes on to emphasize that most countries have recognized the need for greater diversification of their supply chain, as well as a shortening as such. The risks associated with driving economies of scale and thus becoming reliant on a smaller number of supply bases have been exposed during the pandemic, as well as the length of supply chain. Many countries have sought to review manufacturing sources of key essential goods and their proximity to the consumer base. As such, countries are looking to manufacture locally or regionally, even if incremental cost of manufacturing proves to be more costly. Japan, for example, has already set aside $2 billion to help companies shift production from China back to Japan as reported by Bloomberg.

According to Sultan bin Sulayem, Chairman and CEO of DP World, “What we have seen over the past three months is a focus on securing supply chain and improving resilience. The advent of digital advancement has been significant. We, at DP World, have accelerated plans to launch new digital platforms to ensure we can continue to deliver during the crisis. We have also seen that many of our customers are looking for diversity of supply of materials and sourcing these closer to home. With our global portfolio of assets, we can easily adapt to these changes, and work with our customers to find solutions to improve resilience and effectiveness of supply, particularly in essential categories”

Khalfan Belhoul, CEO of the Dubai Future Foundation, stressed the importance of strengthening collaborations between the government and private sector as well as international organizations, to not only support and build a resilient logistics sector, which is seen as one of the vital economic sectors in the UAE, but also to anticipate changes and propose suitable solutions to overcome those changes that are imposed by the global health pandemic.

Belhoul further added, “The “Life After COVID-19: Logistics” report aims to serve as a source of insight and information on what the future of logistics locally and globally may look like post pandemic, as well as identify the current situation, highlight key trends and proposes short- and long-term recommendations as a means to support leaders and decision makers within the sector to mount a reliable plan of action”

The report’s findings claim the need for higher buffers of inventory levels, and the recent growth in e-commerce has put the focus on industrial real estate, with investors already having begun to identify opportunities. In the MENA region, there is a sufficient supply of industrial real estate in the free zones adjacent to ports. Some of the larger free zones in the region include King Abdullah Economic City (KAEC) in Saudi Arabia next to King Abdullah Port, Khalifa Industrial Zone Abu Dhabi (KIZAD) in the UAE next to Khalifa Port, Jebel Ali Free Zone (JAFZA) in the UAE next to Jebel Ali Port, and Free Zone in Oman next to Sohar Port.

Supply Chain, Interrupted

Despite high levels of automation and advanced robotics in manufacturing industries, the report states that the pandemic has shown that securing the supply-side capacity of supply chains alone does not prevent the disruption of business. The interruption of highly automated supply chains and the shutdown of automated production plants are proof. It has become clear that no amount of automation can prevent a recession if ‘human agency’, the ability of humans to engage in social and economic activities, is undermined.

In the short-term, the report suggests free zones could introduce incentives to logistics tenants to support the industry. In addition, manufacturer can produce products with longer shelves-lives, minimizing the impact from potential supply chain disruption. Looking at the long-term changes, the report recommends developing a regional storage hub, allowing nearby countries to secure their supply chains, and letting suppliers to maintain demand.  A resilient supply chain is dependent on an increased dependence on automation and robotics in manufacturing and ports.

Dubai Future Research, DFF’s research arm, issued a series of comprehensive and forward-looking reports and studies that tackles challenges arising from the emergence of the novel COVID-19. The series aims at introducing modern technologies to support key sectors in Dubai and the UAE to better navigate and anticipate the future in light of the current global health pandemic, through highlighting current opportunities and providing recommendations for the short- and long-term period.