Sumit Varma 04 April 2020

世界末日秩序 (*Shìjiè mòrì zhìxù) 1st February 2020
The Epicenter, China

Li turns his smartphone on himself and snaps a selfie, which he then posts to Weibo, a social media app along with a message. He is pale-faced, lying on a hospital bed and wearing a respirator.
Li hits the keypad : “Today the nucleic acid test result is positive, the dust has settled and the diagnosis has finally been confirmed.”

The day has been hectic though- 7000 miles away in the USA, two GOP members rushed out of the senate after securing a key vote in the impeachment trial with a big message to the Whitehouse - within 4 days from now the congress would eventually vote for the acquittal from impeachment of the President, a big reprieve indeed. In the far away western Europe, its triumphant UK that lies between North Atlantic Ocean and North Sea that is celebrating with the journalist turned Prime Minister Boris Johnson on the national televi- sion heralding the Brexit day that promises renewal and change to the prosperity of the nation. Whereas in Asia, India’s union minister of finance had just finished presenting the annual budget hoping to secure the confidence of the investors and the countrymen detailing out governmental priorities clearly in the backdrop of the much discussed and debated goal of us$ 5 trillion economy by 2024.

Back in the hospital bed, Li punches the power button of his phone to put it off. Six days later, life breathes out of Li.
W U H A N- The epicentre. Its global citizenry, high speed trains and international flights, serving 30 bustling hotspots worldwide is all what it takes for the virus to go global. A message would be delivered in a matter of few weeks to the world leaders, those who were building border walls, propagating protectionism, contemplating exiting regional unions, conceiving tougher immigration laws and engaged in trade wars that globalization was far from over and chooses to strike where it hurts the most - their economies.

The dominant themes of the past decade

Every ending is a new beginning. So was the decade that went by (2010-2019), now best described as 2020 BC (before coronavirus). Some of the most dominant themes of the past decade has undoubtedly been the geopolitics, global right wing upsurge, effects on globalization and trade war. The first decade of the millennium almost ended the left of center philos- ophy, that it was only equity in opportunities, social liberalism, progres- sive centrism and democratic socialism that sets the development ideolo- gy of the state that would give us the continued benefits of a globalized world. The second decade of the new millennium changed that. The right of the center ideology dawned in the horizon, a phenomenon that later on went to create a global upsurge of right-wing leaders and their elected governments, especially in major economies like India, USA, UK, Australia etc. Strong, decisive & often authoritative, they enjoyed un- precedented mandate at their home turf. Populism was a natural up- swing born out of these leaders to create narratives and hold the sway, often through social media, forging a historical connect that extended from their electorates to opinion leaders and nations worldwide. The scales were tipping for trade and globalization from the left to centre and then right as the discourse of conservatism, nativism and hostilities against liberalism or more importantly against economic liberalism became rampant. An impatient younger generation, a fractured social order, created as a by-product of the left centrist globalization agenda and the economies of the world just reeling after a global financial cri- sis(2008) with uncertain future was just what these leaders encountered to set the plot for their next leap.

Right-wing populism isn’t an indivisible social structure. Modern day geopolitics, demographic changes and the global world order has influ- enced this historic shift to a single political trend of our times. Of course in different countries, their features are different, yet, they do have some common aspects as well. The political parties or its affiliates that belong to it subscribe to the ideologies of egalitarianism that comes with strong nationalistic, authoritative and aggressive pursuits that guides all its policy matters.

A case in point are three geographies, disparate, once a fiefdom of elitist, liberal and left leaning policies that has had a tectonic shift in their na- tional mainstream narrative of the now populous and many a times ex- treme right of centre politics.

Europe, gets to see noticeable increase in prejudice against other coun- tries and its people, especially that of immigrants and asylum seekers. At the same time, a cornerstone of regional cooperation which was the Eu- ropean Union had a major dent by way of Brexit vote in 2016 along with the surge in extreme right wing movements across the continent.
Donald Trump who rose to power on the back of right wing populism has an active anti-immigrant narrative that has in turn delivered key structural policy changes. India saw the dramatic rise of the ruling na- tionalist political party under Narendra Modi. That the first term in 2014 happened because of anti- incumbency was laid to rest through an even higher mandate secured in 2019 on the backdrop of quintessential patri- otic and nationalistic fervours amidst many key decisions taken in the areas of economy, internal & home affairs and constitutional amend- ments.

That, many leaders who run the world today weren’t remotely consid- ered incumbents for their jobs not very long ago, talks a great deal about the rise of right wing populism across the world, especially in democra- cies. Large scale corruption allegations against previous administration in India, explosive & dramatic revelations of data privacy shockwaves set out by WikiLeaks scoops and NSA sponsored global communication & data surveillance program uncovered through Edward Snowden in USA have provided tail winds in advancing an unavoidable shift in both of these democracies to the day’s present leaderships.

The early ascendancy of Chinese Premier Xi Jinping since 2012, in the ideologically left controlled communist part of China, followed by emer- gence of new right wing leaders in the global stage & modern age diplo- macy among nations that resembles a twenty 20 cricket match and less of a long drawn set of strategic intents, globalization, especially in terms of the political economies has become an equalizer that leaders use for bal- ance of power equations, eventually leading to trade wars.

Modern trade, that propelled globalization of what it is today wrote its own antithesis since the subprime crisis led global financial meltdown of 2008. It has since then gone on to create broken global economies. Inequality, social unrest & marginalization have been the themes that governed most parts of the world, that saw the Chinese premier becom- ing the premier emeritus with unlimited term and America go into au- thoritarianism with the world at large putting its prime inhabitants, the humans as the last priority. This is because the gains from the global

trade early on were not used to create free societies, build social, secure, economic and healthcare infrastructure that would improve the quality of life of the average person. One of the reasons for this is the capitalism that went global saw the humans as disciplined workers and efficient consumers. The intellectuals, elite and economists subscribed and pro- pounded this theory whereas this upsurge went on to create social barri- ers that prevented free society, livability and democracy. Many nations and their political economies do not allow them to call this act out- that is balancing free trade and reasonable quality of life for their citizens. One of the many reasons for this is, gains from the trade is not invested to build hardcore physical infrastructure or lay strong foundations of social contracts. In the end average citizens are forced to demand the end of a globalized system that doesn’t benefit them and are seen instead as clinching evidences of taken their opportunities away offshore. The aver- age person is left to look at debilitated industrial outputs and declining social order. This in turn drives his need to look out for immediate safety, security and stability, even if their leaders come in as strongmen and dictators.

The global economy was on the edge by the end of 2019. The full blown trade war between China and USA, Brexit, two large export driven econ- omies weakening (Germany and Singapore) and Hongkong protest that saw one of the busiest airports and employees of the national airline Cathay pacific joining the protests bringing the operations to its knees. That a greater Abyss was in the waiting was probably delivered by this airline, early enough to the rest of the world. The predictions by global pundits for 2019, the last year of a tumultuous decade was fairly accu- rate, driven largely as a consequence of the aforesaid events.

The new decade rings in with 2020. Twenty 20 is a format of international cricket that brings amazing thrills, twists, turns and more over an incred- ible pace to the game. There were already the usual suspects in the crease to battle it out - trade war hungry USA & China, India’s growth trajecto- ry, gaining protectionism turf among many political economies, Brexit fall out, rise of Gig economy and climate change among many others to follow.

The global trade facilitators in the past decade- Ocean container shipping lines and Airlines

The global shipping lines have truly epitomized the Churchillian quote- ‘When you go through hell, keep going’. Throughout the second decade of the millennium starting 2010 all the carriers have been through the financial anxieties, primarily because of their debt burdens. The fall of south Korean Hanjin shipping line in 2016 also drove home the vulnera- bility and exposure of many carriers. The compliance with IFRS (Interna- tional Financial Regulation Standards) in 2016 was the final nail in the coffin- this meant that the containership leases that appeared as operat- ing costs was to move in as a balance sheet item. For those of them oper- ating with large fleets, the debt skyrocketed. The shipping line commune who could hitherto borrow funds- off balance sheet would now be ques- tioned on their debt sustainability levels. What this meant was the supply chains involving these carriers were on a knife’s edge brushing with threat of bankruptcy filing. A case in point is the collective*Altman Z score of major shipping lines that showed a drastic decline by the end of the third quarter of 2019 as compared to 2018. The study of these ship- ping line financials undertaken by AlixPartners gave the score as 1.16 for the period as compared to 1.35 for 2018
The times did neither bring good news from increasing variable costs either. The impending International Maritime Organization (IMO) cap on sulphur content in ship emissions begins on 1 January, lowering sul- phur levels allowed from 3.5pc to 0.5pc. All key stakeholders like bro- kers, freight forwarders and the steamship line themselves are waiting to see whether the price differential which in any case would be passed on to the consumers (the shippers) would stand in the wake of chronic over- capacity and decreasing demand for the containers. Thankfully though pricing discipline or a common minimum benchmark has never existed among the key players.

*Altman Z-score is a metric that gauges a company’s credit strength and the likelihood that the company will seek bankruptcy protection within the coming 24 months; a score of 1.8 or lower signals a high risk of bankruptcy.

Most of the shipping lines have recorded a recovery in profitability in 2019. The fuel costs spread, deployment strategies and routings will in many ways influence the ecosystems consisting of the brokers and freight forwarders leading to a spike in shipping rates, added to the com- plexities of trade war stand offs. Shippers will continue to bear the costs of increased freight and fuel charges, whereas the memories of Hanjin collapse will continue to haunt the investors who will chase the carriers and focus on debt burden, costs management and profitability.

Things haven’t been much different on the air cargo carriers and their fleet when it comes to capacity. Over the last five years leading to 2019, the global airfreight carriers have had meagre rate of growth, thanks to the chronic over capacity and of course the cost competitive alternative available with the decision makers, which is sea freight. Despite increase in global income levels and growth of tradeable merchandize goods and products, demand for the freight has been weak. Reports suggests that, the total value of world trade has decreased at an annualized rate of 0.4% over the five years to 2019. Meanwhile, unlike maritime segment, the marked decrease in fuel costs have dented any chance by the carriers to gain advantage through fuel surcharge escalations.

IATA, the international Air Transport Association in its reports released in November 2019 has given three pointers with respect to the airfreight demand as of 2019. They are:

Industrywide FTKs (Freight tonne kilometres) went down to 1.1% over the year to November, recorded a 13th month straight decline.

Europe market contributed positively to year-on-year growth as in 2019, followed by Africa. All other markets were degrowing, the biggest of them all being Asia Pacific(-1.3ppts)

Freight load factor eased by 2% points over 2019 following the capacity which has been growing ahead of the demand
These are valid indicators for long time to come and is of significance for the users of pallet positions inside the aircraft. The capacity will continue to outpace demand as an estimated 60% of the freight is carried in the belly of passenger flights. This share is only going upwards in the years to come, clearly signalling more capacity expansion allowing the freight rates to remain competitive if not soften.

Freight Forwarders

For the first time, a decade later since the global financial crisis of 2008, the estimated $130bn air and sea freight forwarding industry faced the most challenging year culminating one of the most critical yet transfor- mative decades in the years to come.

It’s the airfreight decline for most global forwarders followed up with a marginal increase in sea freight volumes that has clearly led 2019 perfor- mances. The continuing consolidation acts through M&A’s has helped some of the traditional European forwarders into a bigger commune. Leading industry analysts projected a real term contraction of business for the first time in little over a decade since the crisis of 2008. The USA- China trade war that has costed lost opportunities in the trans-pacific sector of shipping, followed up with lacklustre performances from export driven economies like Germany & Singapore, lighter movement in high tech, automotive and smart phone segments considerably due to marked down domestic consumption in China, have been sighted as major shifts that have taken place in the run up to 2020.

DHL Global Forwarding, exemplifies this situation in their annual report for 2019. The global freight forwarding revenues contracted by 1.3%. The airfreight volumes reported 4.7% decrease highlighting the state of air- freight volumes globally and the revenues decreasing by 3.1% over the previous year. While on the ocean freight, the volumes were down by 0.6% year on year basis. Although the ocean freight revenue rose by 2.9%, the gross profit came down by 3%. Obviously the sheer volumes handled by DHL in 2019 and their resultant drops over the past year (3.6mn tonnes of airfreight & 3.2mn TEUs) helps realize the industry which is nearing the threshold of an impending crisis. It’s interesting to note that without exception, all major players taken on discontinuous ex- ercises on systemic efficiency enhancement practices and costs optimiza- tion that allows them to hold and grow their operating margins and claim parity in this benchmarks with their fellow peers. DHL makes no bones about this in their report through their performance improve- ments disclosures and summary.

Expeditors, a much respected global organization, a primeval start up darling of the worldwide forwarding market once, sums up the catastro- phe in air and ocean freight trade putting a brave face in their annual report of 2019. A 10% year on year drop in the revenues of airfreight -

globally, followed by ocean revenues that showed 2% contraction over the past year with the saving grace being that of global customs broker- age services, a flagship quintessential expeditor product growing 16% in revenue terms over the last year summed up the overall performance. The company talks about an uncertain future, driven by factors mostly external and outside their circle of influence like shifting purchasing be- haviours(online shopping), manufacturing units relocation, closer to the customers owing to heightened tariff on imports and to top it up interest- ingly and quite importantly the significance of credit risk in highlighting the customers ability to pay as well.

Kuehne + Nagel, the bellwether of the conventional global freight for- warding industry sets the narrative early on in their annual report of 2019 when it takes you through a guided description of each quarter in the light of market forces and its own resilient action and consequent achievement neutralising any residual negative sentiment by the time you are done with the report. What catches the eye however is the consis- tent fall of GP from 7% in Q1 to 1% in Q4, whereas EBIT clearly stands out in Q3 and Q4 with 16% and 10% respectively, evidencing the costs optimization and restructuring gains accrued, something all global orga- nizations do as a defence mechanism in the face of adversities. The break-up of sea freight revenues reflects the industry headwinds espe- cially in Q3 and Q4 with degrowth despite which a respective 4.1% growth overall year on year is reached. However the airfreight situation is palpable with a 2.8% fall year on year basis.

Caution, by the end of 2019 was the buzzword among the global freight forwarders, no, not because of a SARS like virus that seemed to have hit a Chinese city, for, the loss of transpacific trade, dwindling airfreight vol- umes, excess capacity and an economy that simply refuses to dawn in the wake of a new decade were resting heavily on their minds. Pulling all the stops in your core dominant areas of expertise, (global customs broker- age for Expeditors, K+N) optimizing costs, driving efficiency in the oper- ations have been actions that figured in most of these top executives’ dis- courses.

The great American architect and designer turned writer Frank Lloyd Wright famously quoted ‘Less is only more where more is no good. This is true when talked about the independent freight forwarders who con- stitute majority of the forwarding community across the globe.

Many of these entrepreneur led organizations made progress from asset less to asset light to asset right entities before being favourably acquired by regional or global corporations. The role played by many freight net- works in shepherding an estimated 250000 independent freight forward- ers, leveraging their strengths, dotting their network presence to as high as 185 countries and provide a stable platform to securely deal with each other has been the competitive edge, enabling them to maintain their customer base and grow them profitably. However, rising costs, credit risk and margin pressures has helped many of these organizations to adopt a more prudent bottom line driven focus and stay away from the once successful formula of higher revenues always equals higher reten- tions. The art of staying nimble and ability to quickly adapt to customer requirements yet maintaining competitiveness has been absorbed by the dedicated employees driven smaller independent freight forwarders.

There cannot be any arguments about who took the limelight in the first two decades of the new millennium. In many ways, it belonged to the neighbourhood freight forwarder. The one who almost invented 24x7 access first with the real time updates on shipments when technology did not exist, who delivered the proof of flexibility in services as com- pared to straightjacketed MNC’s claiming compliance to processes, who weathered all storms, from 911 to global financial crisis in 2008 and beyond, improvised global reach through innovative freight networks, jumped in technology bandwagon to differentiate.

The Shipping that went digital

‘To be or not to be’, Shakespeare’s immortal words in Hamlet couldn’t have in any better ways ascribed to the dilemma of the steamship lines today. On one hand is the desperate need to digitize and protect its loyal customer base from the predators, who are a bunch of asset less match- makers in ocean freight business, having manifested as e- platforms. On the other hand is the fundamentals of what to digitize and where to begin from? An outside in perspective of the steamship line operations tells you that any repeat and cyclical processes like pricing, shipment booking protocols, container releases, load planning among the core activities could be digitized. However, many operational processes still requires manual intervention which is understandable.

The inertia among the steamship lines comes from the belief that a state of the art IT system is a precursor to digitization. Having an integrated IT suite that supports all the functions of a business is pre-requisite for run- ning a global steamship line. However, digitizing key processes provides you with higher efficiency, enhanced customer service improvements and a quicker turnaround time of the business cycle itself, besides gener- ating valuable data on your customer service touch points with respect to port pairs, destinations, container choices, trade segment etc which qualifies for advance analytics at a later stage.

It is precisely this attribute a digital disruptor or an e-platform brought to the table.

The low cost base allows these new comers to inch up the value chain in offering value added services which includes transportation, clearing and forwarding as well. The threat lies in the form of a gradual conver- sion of the steamship line’s loyal customer base and the resultant posi- tioning that it gets as a generic carrier over a period of time. Freightos, Logistitrade, NYSHEX have moved in to carve a new segment that signi- fies the expectation from the service users whose ability to provide quick turnaround of quotes and responses coupled with real time information to the shipper is no more a value added solution, but a dire need.

Maersk has been a first mover in this segment and quite decisive with Twill, their e-platform extension which delivers an enhanced customer experience besides making an effort to retain their customer base.

The Digital Freight Forwarding

The freight forwarding business model that evolved over the last many decades pre and post globalization could be easily be placed in two buck- ets- the haves and the have nots. That is those players who were asset based from large MNCs to the quintessential truckers with large ware- houses who turned freight forwarders and the mom & pop ones with some fleet of pickups to cater to local deliveries. The have nots have been the independent brokers, truly entrepreneurial lone rangers and many in partnerships among friends, old allies, those graduated with many years behind them in large MNCs with solid customer base and loyalties. Many among this group of have nots went on to create asset light and asset right organizations as well.

The key about the business model in both cases were primarily relation- ship, trust and loyalty followed by geographical reach, overseas net- work, carrier influence and execution abilities. The business which was once cash & carry over a period of time moved to short credit periods and by the turn of the new millennium, longer credit periods besides other factors to withstand the emerging market forces.
All this time, between the forwarders and their customers the cutting edge technology made use for providing visibility of transactions was still the ubiquitous and unassuming tool of everyday life, the email.

If the new millennium changed one thing in forwarding business, it was technology, as an enabler. The initiative, obviously were taken by the large and global MNCs whose CIOs ordered for a large investments to see through the ultimate benefits this intervention could provide. The leadership, besides readying the war chest, framed a vision of enabling the technology to ensure locking in their loyal customer base with visibil- ity and transactional dashboards alongside that of a customer portal which facilitated data exchanges and delivered for them a superlative ex- perience hitherto unmatched with the conventional tool of email deliv- ered excel sheets.

It took the proliferation of big data, internet of things and advanced ana- lytics around the beginning of the past decade for some of the well informed players to jump into the freight forwarding business. They came with a promise of disruption on many areas of the business and then a concept was born.

There is a strong belief that it was uber-ization of freight followed by Amazon’s freight push through ocean forwarding business besides en- gaging their own aircrafts to begin with that led many large private equity players to get the wind of opportunity that resides within the ge- neric freight forwarding business that sans any disruptive ideas.

It was imminent that capital would follow this opportunity.

The problem was cargo & shipments doesn’t talk to each other, unlike the technology engaged in demand aggregation business of ride sharing and cab hailing services wherein the users could communicate with the carriers. Besides for the cargo traversing borders had someone still pos- sess the local knowledge manage the event to the satisfaction of the users- the forwarder was just irreplaceable.

Enter the digital forwarder.

Digital forwarding was a game changer in the past decade and a trans- formation that was long due in the freight forwarding industry. The new kids on the block came with venture capitalists who as per estimates
*(BCG analysis) poured in us$3.3 bn in shipping and start-ups between 2012 and 2017 with majority getting to the freight forwarders market place.
Freightos, Flexport, Freighthub, Icontainers, Haven, Cogoport are few of them that brought the promise to shake up the industry. For once, these start-ups displaced a long held belief, that a necessary past experience of freight forwarding business is not a pre-requisite for you to enter the business.

Well, entry barriers of no other kind as such existed here.

There are many interesting articles that tracks the genesis of each of these start-ups and multiple series of funding that they have received and what they offer to the customers. What we intend to dwell here is how these start-ups found a common business model, what is digital about them and their future existence within the industry along with tradition- al freight forwarders and shipping companies as part of the eco system.

Freight forwarding market could be easily be tracked down with its unique set of characteristics:

  • A highly fragmented market with the leader (DHL) having only 13% market share (by revenue) as of 2017* (*source BCG analysis)
  • Estimated > 5mn entities in the market combined services of an end to end transaction involved in forwarding.
  • More than 5 entities involved in one single transaction with less than 20% of the entities as asset backed
  • Major revenue component is air and sea freight in a transaction- carried outside but earned revenue in brokerage terms (sell minus buy)
  • Pricing regulated by carriers

The market gap for the digital forwarders presented in terms of the rela- tionship that existed between a service user (customer) and a forwarder, which is essentially comprised of:

  • Cost competitiveness
  • Visibility
  • Reliability of services

While cost competitiveness was always a subjective issue customer to customer, the reliability of services undertaken always remained with external entities partaking the processes involved in a transaction. Cus- tomer ended up holding the freight forwarder responsible for the roll overs in container shipping, space issues with air cargo carriers, delays in cargo handling at port/airport/container freight stations and even cus- toms brokerage while realizing that there is hardly any control with the forwarder. However, customer always expected the forwarder to be on top of the situation to keep him abreast of the situations. Customer ser- vice and reliability was key.
Visibility however remained most of the times in manually made daily status reports and through ad hoc reporting of events, the medium being email and events relayed after they have taken place.

The digital freight forwarders provided few answers, but they were recognizable in quality and maintained consistency throughout the vari- ous facets of transaction. For instance an ad hoc request for quote was met up quickly, within minutes that is compared to the response from a traditional forwarder that could have consumed hours together. Visibili- ty changed to actual real time, technology and reports came in live, as if in the hands of the customer who could plan and make timely changes in supply chain planning and execution.
Booking process, shipment execution and documentation meant fewer emails from the forwarder to ponder through and viewing pipeline ship- ments didn’t require scrolling through manual daily status reports. They were customized and found within minimum entries to the keypad of the customer computer- overall it gave a fast superlative experience.

What was at work in the background for these digital entrants were tech- nology that includes IOTs, big data analytics and machine learning en- abling the data across various networks stream across a single platform to the customer. With the impregnable fortress of the traditional for- warders loyalties broken into and with carriers warming up to the new entrants with contracts and deals, the digital forwarders are getting ready to inch up the value chain with services hitherto that are consid- ered out of bounds of a large MNC or a local forwarder.

Industry information and demand aggregation capabilities, enabling B2B transactions and supporting customer supply chain planning & exe- cution functions are some of the value added logical service extensions.

Co-existence of digital and traditional forwarders and their future

Its sunset for standalone brokers: In the age of global trade wars and upheavals, e-commerce and highly competitive retail environments, the process of conducting a transaction with a customer has to be fast, accu- rate and highly disciplined. Unless the forwarder can automate the pro- cesses, integrate his network with participants in the transaction, in the process do away with redundancies and maintain cost control, the bene- fits of which is passed on to the customer, the forwarder will be walking into the sunset.

The writing on the wall for traditional forwarders: Whether you are small, medium sized or large multinational- it’s clear that you have to acquire digitization. Many of them, especially the large ones have already started acquiring digital front ends, installing robotics and ad- vance analytics.

Digital forwarders to seek handling support. Not all the digital for- warders will get their hands dirty in operations. They will need partici- pation and support on the ground. They will need that ‘local support’ to physically execute the transactions.

Digital Freight forwarders will continue to evolve. The digital forward- ers and asset backed large MNCs will find themselves to be in cross pur- poses. A rush for the digital forwarders to backward integrate and create physical infrastructure is growing. You could see many of them acquir- ing smaller asset backed organizations and increasing warehousing space. Soon many of them will aspire to beat a Kuehne + Nagel or a DHL in their own game. Similarly, large MNCs will forward integrate and transform their technological prowess to achieve digitization and its ben- efits, however will still maintain redundancies that will not enable them to remain nimble and adaptive to the customer expectations in the digital world. However both of them will evolve to find a perfect balance be- tween the required ground force in infrastructure and efficiencies to be delivered to customer as a benefit of digitization.

2020: Birth of a new decade and a year that did not quite start.

Dec 31 2019 was a day to prepare for the bash welcoming not only a new year, but a new decade as well, world over. In the bustling city of Wuhan in China, the government health authorities declared that they are seeing a dozen patients with a new infection, possibly a virus and were doing everything to prevent it.

As the world took no notice, it only needed another 11 days to report more infections in China and the first death to be recorded. A week later the virus reached USA, Japan and Thailand among other countries. An- other week later, Wuhan with a floating population of 11 million was sealed from the rest of the world.
As the infected cases and deaths spiked, it took another week, that is by Jan 30th for the World Health Organization to call this disease a public health emergency of international concern(PHEIC). One more week had to pass by before WHO termed this disease as COVID-19, death toll just surpassing 1000 mark.
At the time of this note, both active and closed cases of infections are nearing to the 1mn mark with about 50000 deaths across 190 countries.

Globalization just showed its capability of executing unarguably one of the modern economic apocalypse, something that the world may never quite recover from.

China’s economy was the first to be shut down by the spread of COVID-19 but as it continues to proliferate in other parts of the world there seems to be no end in sight as to when the threads can be picked up to return to normalcy. Businesses and offices have been closed and under lock down with the citizens confined to their homes. Normal economic activity has been disrupted on an unprecedented scale in peace time as patterns of everyday life are upended. Governments are intervening to try and stave off the collapse of companies and livelihoods. Many econo- mists believe that the world has already entered a recession.

Coronavirus pandemic has pushed the demand/supply recessionary trend currently in play. Besides supply chain disruptions and closing of borders, the pandemic does something much more than the intended damage, for, it destroys the liquidity in a dollar centric global financial system. We are not looking at a traditional bell curve shaped pandemic response situation, but a long term structural change.

COVID – 19 fallout : A war that doesn’t destruct physical assets

We look at a set of critical parameters like global economy, trade, oil, po- litical establishment and globalization amidst the spread of COVID-19.

Global economy

Mass shutdowns have wrecked the supply chains worldwide. Figures from Asia to Europe and the USA has shown manufacturing taking a severe hit with demand employment and production all in decline.
There will be unprecedented impact on expenditure around the world with declining demand for a wide range of products as a result of busi- ness closures, lockdowns and rising unemployment.
The governments and their central banks through correction in their monetary policy has pressed on buying bonds injecting money into the retail banks that can find its way through liquidity in the market and host of other measures to stabilize their economies.

Loans default(both personal and corporate) and liquidity crunch are short term fall outs from the pandemic that will seize the world. Shock to the Chinese economy is bigger than initially thought about and many people, especially the economists were caught off-guard by not making the leap to think where the world will go, if it were to experience the same level of shock as experienced in China. It can be said with certainty that economists, foreign policy experts and the market experts complete- ly missed this.

What the governments are doing is to protect lives over livelihoods. Safety net for businesses and their employees is a state obligation. Small businesses, gig workers and part-time workers are to be protected. The question is will it be too large for the state to don the responsibility for the business?

The R word is back and with certainty after Covid-19 pandemic man- aged to steamroll all major economies globally and the governments worldwide along with their central banks in the fight back, changing interest rates and policies to desperately lay the ground for a hopeful recovery. USA which has constitutionally managed trillions of dollars bailout package amidst a sudden spurt and that too in millions on the -

unemployment front saw many businesses shut down and trade screeching to a complete halt. There are parallels drawn by economists to the situation today comparable to Spanish flu or great depression. The impact is much stronger and deeper because of the interconnected nature of businesses, supply chains, trading patterns and globalization. Although the supply side has resumed in China, they will face a demand problem(in USA and Europe particularly) and the growth rate for the second largest economy is expected to turn negative. With emerging markets already weaker, China will be less willing to lend especially in Latin America, Africa and Asia.
The virus has destroyed currencies after downing the shutters for busi- nesses, cutting the economic flow and chased out the fleeing investors those who lost confidence. The obvious damage is resultant trade inter- ruptions and consequent balance of payment problems.


None of the modern crises as far as this generation can remember, which is the oil embargo of early 1970’s, great recession four decades earlier to that, the most recent September 11 attacks and to top it the 2008 global financial crisis- none of these has altered the trade flows or literally con- stricted them, that too sharply as the Covid-19 pandemic has.

The economic disaster has had a paralyzing effect on the global supply chains and ended up silencing some of the bustling busiest hotspots of the world as the curtains came down and citizens obeyed the state’s orders to stay at home.

The data that originates from some of the busiest ports from shanghai to Rotterdam to long beach to savannah has seen diminished cargo traffic and the economists expects this to persist for another six months from now, the immediate three months because of total shutdown and the remaining three because of the consequence of the life thereafter.

The total infected virus cases have breached 1million mark worldwide and with stalled factories, restaurants and retailed shops, this has led the consumers scrambling for necessities. A.P Moller- Maersk A/S the larg- est and leading shipping container line announced to the customers that they are expecting lower volume of demand in the coming days. The pe- culiar twin supply and demand crisis that has affected the shipping -

industry which transports reportedly 80% of the world’s food, energy, raw materials and manufactured goods.

Transportation, especially the last mile as well as the production facilities to the terminals/ports have taken a hit worldwide. There are huge reportage of drivers across the world having had to produce themselves enroute for multiple screenings that delays the turnaround times severe- ly besides the lockdown of recreational facilities in the highways creating absolute shortage of drivers.

S&P global market intelligence reports an unprecedented 45% YOY slump in imports from china during the first couple of weeks of March. There is no further testimonial required on the nature of the hit as the consumer electronics industry shows a 66% decline in Chinese ship- ments into USA and 64% drop in imports of computers as compared to the year earlier.


For those involved in the international freight market, negative freight is a term that is quite familiar and widely used. This simply means that a carrier or a shipping line or their agent pays you for shipping, something rampant in those trade routes that has maximum one way traffic wherein the reverse haulage is incentivised in order to recover the repositioning cost.
Cut that to present situation. Some of the oil producers are paying their customers to take the output because of nosediving demand and storage of the produce already reaching its capacity. Negative oil prices are here to stay, at least for some time. The major drillers of the world are scaling back and shutting down production. The damage is near total in demand. Global citizens’ curtailment of travel, grounding of aviation industry and challenges in facilitation of local haulage means a blackout for the demand of gasoline, jet fuel and diesel. A cursory look at what demand used to be in normal times is worth a look to grasp the extent of the shockwave. The suspension of commercial air travel has taken out 75% of the jet fuel consumption, converted to volumes that means usage equivalent to 5 million barrels a day plummeted. As for gasoline, in USA alone the normal requirement is 9 million barrels a day. With large -

populations in cities like California and New York shut amongst restric- tions in various other states within the USA, an oil trader estimates a hit of 22 million barrels a day in April.

Approximately 700 refineries around the world convert crude oil into gasoline, diesel and other fuels. Most of them are contemplating scaling down or even a complete shutdown. In India, that had announced a 21 days lockdown leading up to mid April, the nation’s biggest refinery has cut processing rates at most plants by as much as 30%.

The world is looking at place to store the oil. Today the oil producers are looking at all possibilities to store, from storage facilities in hinterlands to tanker vessels in the coastlines. It just dawned on the economists and the oil producers that oil wasn’t meant to store, instead it was made to flow and fuel the economy.

Political Leadership

The fight against this virus happens to be the supreme test for most of the leaders those who have adorned the world stage in the past decade. Right of centre, populist leaders in the world will need to pull out all the stops as each country as it appears now is drawing up its own plans for containment, perhaps driven by expedient politics as much as the under- lying prevalent infection rate.
One thing which you can bet on the populist leaders is upending the na- tional spirit and drawing up of the imminent attack from the enemy or migrants. This time however, the threat of course is real and the enemy that is certainly destructive but invisible. The response need to be care- fully calibrated, scientifically deliberated and show preparedness for flexibility to admit mistakes and re-launch plan or deviate from plan as required. This is unprecedented fight back and hence no standard oper- ating process exist.

The world citizenry behind their doors and safe houses are observing all political leaders and their directions including the societies ability to cope with them and get desired results in flattening the curve towards normalcy. This fight is absolutely scientific and results show up the truth completely dislodging any sway in the process. The terming of Covid-19

as Chinese virus and Wuhan virus among others have been early attempts to sway the narrative in projecting the gullibility of the state from the attack of the enemy. The deep nationalists among the leaders have their guns blazing. They have been able to argue the decimation of globalization that brought the virus into their lives. At least for now, they have shown through closure of borders and self-sustenance that lives can be protected.

From Italy to Germany to USA to UK to Brazil and Mexico, all of their political leaders will be hugely tested for this is not about economic crisis and immigration, whereas it is about a methodology and a fight back that just doesn’t get achieved by stopping immigrants, building border walls or draining the swamps. There is no anti elitism here and no oppor- tunities to sway public opinion. Tough calls are the order of the day and once lives are protected, citizens will demand the protection of liveli- hoods. The political leadership in India has so far tempered their responses that speaks of restraint and calibration. There has been no call for victimhood from Chinese virus. Instead there has been a continuous dialogue and feedback among its institutions, guidance to the public from time to time, bureaucracy that has stretched in delivering orders on behalf of the administrations and making sure that implementation is near total for a 1.36 billion lives in one of the largest democracies in the world.

2008 global financial crisis and thereafter has been a period in history of many nations around the world which helped lay the foundation for the leaders in power today. Will the present crisis help to consolidate their positions or see a shift?


TThe world is in quite anticipation as to whether the pandemic will just prove to be the prescription that the right wing supporters across the globe were seeking to pull down the curtains on globalization.
Globalization for sure cannot be today looked at as resultant of trade pro- liferation and integration of economies across the world. This is just uni- dimensional and just one aspect. There are socio cultural and political aspects to this and moreover a questionable future that awaits the next

generation whose predecessors thrived in the globalization upswing and been true beneficiaries through their lifetime now wanting to sermonize the opposite? Neither can globalization be seen in the context of world- wide supply chains crisscrossing the earth, for, over the past decade, fac- tories have moved closer than we think to where consumers are and supply chains have become more regional in nature.

The socio cultural and political aspect first. Fundamentally, the business- es, governments and organizations that develop global interactions and exchange trade services, goods and capital lays the foundation of a truly globalized society. New ideas, technology and its proliferation makes the governments become interdependent and allows their societies to flour- ish. Globalization has significantly impacted the daily life of countries such as work culture, family values, social attitudes, etiquettes, develop- ment of fine arts, literature, television and cinema etc. The aspects like gender inequality, equity in opportunities, other social and political values also gets make over in the process of globalization.

Education, technology, healthcare, child labour, social insecurity, family structure and values, eating habits, language and literature are some of the aspects that have changed for the better in many of the developing countries. Globalization has never been a one way street. The softer skill and cultural aspects have travelled from developing to developed na- tions as well. Development of sports, fine arts, cinema, universal music are now globalized. Talent is drawn from all parts of the world for sports training, music is mixed in different studios of the world, photography to sound to vfx special effects for regional films in Asia or Africa are col- laborated by technicians world over.

The world has become interconnected in ways that it cannot disengage. At the level of nations and their allies, groups like G7, G20 and BRICS bring home the inevitable co-operation that exists and show the degree of interdependence. Demands of citizens for better quality of life are only going upwards, with resources that countries can single handily fend for being few and far between.

Take for instance a virus outbreak or global terrorism or global recession. No country can fight any of these on a stand-alone basis. What is needed is a thoughtful, well-coordinated and uniform response across a region

and the world. Take for instance, the Covid-19 pandemic, there are econ- omies of scale when it comes to health care, whether it’s the pooling of financial resources to fund vaccine research or the procurement of medi- cal equipment. Sharing of information is key to make sure that any supply chain bottlenecks can be monitored and addressed accordingly. The risk of restricting the flow of essential medical equipment, through export bans or border controls which is growing is certainly not wel- come. India has been a clear role model in this regard with its calibrated response, in this context, sending a consignment of PPE’s to a Balkan country in need and showing the way forward.

It is in the interest of each nation to ensure that their neighbours and trading partners have what they need to control this pandemic. This be- comes important to make their own citizens to be reassured about resuming trade and movement when normalcy returns.

Globalization is a clock that can never be turned back.

世界末日秩序 (*Shìjiè mòrì zhìxù) : End of the world order
Li is mourned in his death and is a national hero in the Peoples Republic Of China. Perhaps the biggest whistle-blower in human history.
Dr. Li Wenliang, the ophthalmologist in China’s central city of Wuhan had first sounded a stark warning, as early as 30th December, only to be reprimanded promptly by the authorities in false reporting and mislead- ing general public of a possible outbreak.
Dr. Li could not be silenced. He went on to share the admonition by the authorities and put it online, conveying more reports on the lackadaisi- cal attitude of public health department and their mishandling of an outbreak that was going up in large numbers by the day. Dr.Li knew about the limitations of being under a political ideology and administra- tion that doesn’t tolerate dissent.

The infection turned out not to be SARS, dislodged the collective conscience of a country and also made the global health authority WHO to misjudge the infectiousness and transmission capabilities leading to a modern disaster the world has seen as of today.

Dr. Li Wenliang himself succumbed after being diagnosed with Covid-19 after having treated many patients, reportedly getting transmitted with the virus from an infected glaucoma patient. Since his hospitalization with symptoms on Jan 12, Dr. Li, until 7 Feb kept at his life, proving there is no force on earth more powerful than the will to live.
Despite his timely warnings, the pandemic advanced and now in a free run that will end the world order, by the time its eventually conquered.

Sumit Varma is an entrepreneur associated with the logistics and supply chain services business. He is a Director with Transys Global Forwarding Private Limited, a freight and logistics solutions company and is based out of Mumbai, India. In a career spanning more than two and a half decades, Sumit has been associated with Print, publishing, pharma and healthcare industries as well. His areas of interest includes airfreight, ocean freight, contract logistics and digital solutions besides following the micro and small enterprises engaged in supply chain businesses.

Follow Sumit @transysGF on Twitter

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