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July 20 2020

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July 20 2020 | The Journal of Commerce 33 www.joc.com Commentary Lars Jensen WE ARE NOW into the fifth month of the COVID-19 pandemic, and it has become normal for stakeholders in international container shipping to keep a close eye out for either additional blank sailings or the rein- statement of blank sailings. If one were to look at the sheer volume of blank sailings and disruptions, one might mistakenly conclude that the pandemic has disrupted the entire global supply chain. However, we should also be mindful that despite the disruptions when the market bottomed out in April and May, more than 80 percent of the "normal" volume still got shipped. It might not have been on the desired routing, but the cargo got shipped. Even more interest- ingly, schedule reliability for the vessels that did sail improved as the pandemic's impact worsened. This speaks volumes to the resilience of the global container shipping supply chain. But, perhaps the most interesting aspect is the impact the pandemic has had on land-based employees. Just as a side note, seafarers — who are, of course, also employees — are clearly horribly impacted due to the inability to perform crew changes, resulting in their working literally months beyond their contract with- out being able to go home. But the focus here is on the land-based staff. On July 1, CMA CGM still had 50 percent of its worldwide staff working from home, and the situ- ation is not materially different for other carriers. In South America, the portion of staff working from home was as high as 90 percent. This pokes a hole in a common myth in the industry: that carriers had not embraced digital tools and somehow remained stuck in the pro- verbial electronic stone age. Clearly, carriers already had sufficiently robust tools to handle the majority of tasks, even when most employees suddenly could no longer come into the office. The backbone operational and customer service systems were clearly up to the task. Did the systems account for everything? Certainly not. There are plenty of examples of manual process gaps and physical paperwork that needed to be expedited under difficult circumstances, but these issues have been resolved. Automation accelerator This also means that over the past five months, the land-based employees have proven how adapt- able and valuable they are in a time of crisis. But this is where, for them, a potentially troublesome outlook also begins. If you can switch such a large part of the operation over to home offices almost immediately, it also means that the underlying systems are getting closer to automation. The current situation serves to highlight the manual gaps in the processes, and this will speed up the process of developing targeted systems to auto- mate these tasks also. In cases where the process gaps are due to regula- tory issues, governments are now seeing the urgent need to change regulations to allow pure electronic documentation. This means that the process of automating the entire end-to-end flow of data and documents will now accelerate. In turn, this means that there will be a reduced need for back-end customer service staff to handle these tasks. What will remain is staff related to tasks that cannot be automated, namely exception management — i.e., adjusting for something not going according to plan — or specific services being tailored to an individual client's needs. At the end of the day, this means a reduced need for land- based employees. The ones who are retained, however, should be highly skilled, as they primarily need to handle exceptions. But how much will the work- force be reduced? Most carriers do not provide specific public data to make a reasonable estimate, with Hapag-Lloyd a notable exception. In 2010, the German carrier shipped 4.9 million TEU and had 5,457 shore- based personnel at the end of the year. This means, as a simple average, that each employee had a productiv- ity of 17.4 TEU per person per week. In Q1 2020, Hapag-Lloyd's productivity using this measure was 21.6 TEU per person per week. Hence, the productivity improve- ment had reduced their total workforce by 2,590 people com- pared with a situation without such improvement. Hapag-Lloyd has a global market share of 7.2 percent. If all other carriers have undergone a similar productivity improvement since 2010, this means the industry has de facto shed 36,000 jobs over the past decade. If the other carriers have not yet seen such improve- ment, digitalization will push them in that direction and the job reduc- tions will follow. How much additional improve- ment will the industry see going forward as a consequence of digita- lization? If we very conservatively estimate that productivity by this measure can go from 21.6 TEU per person per week to, say, 25 or 30 TEU per person per week, this would mean an elimination of an additional 20,000 to 42,000 shore-based jobs in the coming years. Right now, the carriers' shore-based employees are very successfully ensuring supply chain continuity despite having to work from home. However, they are fac- ing a future in which fewer of their jobs will be available. JOC email: Lars.Jensen@SeaIntelligence- consulting.com Picking up the pace By highlighting manual gaps in processes, the COVID-19 pandemic will further speed up the automation of those tasks.

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