The Decisive | Season 5 Ep.12 - Logistics Finds a Way: Lessons in Supply Chain Resilience

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Kristen Hallam:

You're listening to the Decisive Podcast. Insights and analysis to empower confident decision making. Hello and welcome to the Decisive Podcast. I'm your host, Kristen Hallam. This episode comes to you from the sidelines of the Trans Pacific Maritime, or TPM, conference, which took place in Long Beach, California, from March 1st through 4th. I sat down with Chris Rogers, head of Supply Chain research at S&P Global Market Intelligence, on March 1, one day after the joint US-Israeli strikes in Iran. Chris and I explored a question that's become a defining theme of modern logistics—how this industry keeps finding away no matter what hits it.

We unpacked what resilience really looks like in practice, how logistics networks adapt under pressure, how shippers and carriers think about disruption when it's no longer an exception, but a baseline and what the current moment reveals about the industry's capacity to absorb shocks and keep goods moving anyway. Geopolitics, risk and disruption are also on the agenda for the Breakbulk 26 conference in New Orleans in April. Like TPM, Breakbulk is organized by the Journal of Commerce by S&P Global. Click the link in the description of this episode to learn more. And now my conversation with Chris Rogers.

So I am here with Chris Rogers, head of Supply Chain research at S&P Global Market Intelligence. We are at the TPM 26 conference in Long Beach, California, and we are talking about how logistics finds a way. And it's a very timely discussion because we've just had a renewal of conflict in Iran with the U.S. Israeli military action there. So it’s deja vu all over again, Chris, is it?

 

Chris Rogers:

It is. Yeah, it is. It feels like there's always something, right, with supply chains. That line we use, logistics finds a way, it's actually a quote from Jurassic Park.

 

Kristen Hallam:

Is it?

 

Chris Rogers:

Yeah. So it's like, “Life finds a way.” The—I can't remember his name—the guy that Jeff Goldblum played is all about maths and chaos and so on. I just feel like there's always something coming up and we're like, oh, it could be a huge issue. And then the shipping lines or the transport firms are just like, “Well, this is how we're going to deal with it.” And it just staggers me. I always say the heroes of global supply chains are the folks that do the planning, are the folks that work on the docks, the folks who put their lives at risk at sea to get what we want, where it needs to be, really, no matter what happens. Now, that could be famous last words.

There'll be a major dislocation at some point. But yeah, generally speaking, logistics networks have proven to be really resilient. And there's been something different every year for the past decade at least. But they found the way through.

 

Kristen Hallam:

A disruption of the week.

 

Chris Rogers:

Exactly. Well, it keeps research analysts busy, so I guess it's good for me.

 

Kristen Hallam:

Sure does. It sure does. So let's talk about how logistics finds a way. How did logistics find a way the last time we saw this kind of conflict disruption in the Middle East?

 

Chris Rogers:

I mean. So the good thing is for logistics networks generally is there are both different modes of transportation available. And the Earth is a sphere. Yeah. It's not, it's a squished sphere. Right. I'm sure there's some name for that. But the point is that because the bulk of trade happens by volume, happens at sea, there are normally different sea routes that can be followed.

So if one route is blocked, you can find another way around. So to a certain extent, the network is self-healing. Now, the challenge, when we first, at the end of 2023 and into 2024, saw the Red Sea become less available for shipping, that was because of actions by the Houthi regime in Yemen and the Houthis attacking shipping in the Red Sea. And so that led, quite rightly, most shipping firms to say, “We can't use that route anymore.” And in that instance, there were two other major routes that could be followed. One, to go around the Cape of Good Hope. It takes longer, takes about two weeks longer, uses more fuel and so on. And the other is to go through the Panama Canal. Now the good news is that the Panama Canal issues had been before that with low water levels that were cutting shipping back via that route.

But because basically vessels can move anywhere in the water they want to, then you could redirect around that. This time may be a little bit more different because the shipping hubs, there's a couple of big shipping hubs inside the Gulf, so the other side of the Strait of Hormuz, particularly at Jebel Ali in Dubai, disrupting those hubs can be more of a challenge. But again, because freight is dispatched on a daily basis, then the container lines can decide really at a heartbeat where they're going to send the vessels. And in fact, we can see where they're moving via S&P Global's maritime system. We use satellite tracking to find where all the vessels are in the world. And you can see those flows change pretty quickly. So that's how they kind of adapted to that. And in many regards it actually suited the container lines to have a slower route because they had more capacity coming on.

And so, because that longer shipping time effectively took 5% out of global shipping capacity, just at a time that there were lots of boats that were being delivered, ships that were being delivered—we’re at TPM, someone will correct me—a boat, ship. But the vessels, there we go, container vessels, because there were more of those coming, that was acting as a downward pressure on container shipping rates. So it kind of suited them to run a little bit slower. And actually, slower is greener as well. So, yeah, because you're running, the engines aren't running as intensively. The emissions per container carried is somewhat low. We're talking percentage points. It's not, you know, the secret of green is slow, but there is an element of that.

 

Kristen Hallam:

Okay, let's talk about another example where logistics found a way. When the Port of Baltimore was knocked out of commission due to an accident.

 

Chris Rogers:

I mean, that one was slightly different. So what happened in that instance was a container ship had a wiring fault that led the powering system to fail. And because, you know, it's not a matter of just turning the rudder on these things, you actually need to power them to change direction. A complete power failure meant it was just going to go where it was going to go. And it was a human tragedy first and foremost. People did lose their lives on the bridge, and the bridge collapsed, and that took, you know, quite a while to sort out. Now, what effectively happened there? The Port of Baltimore is relatively small as a cargo port for containers, but it is connected by rail. So anything that was already there, that needed to get out of the country could be railed to a different port.

And then the vessels that were due to come in could go to neighboring ports pretty easy. We did see congestion build up, particularly Philadelphia, which was the kind of the next available port there. But, you know, you could go to Philadelphia, you could go to Norfolk, or you could go to even up to Newark or New York as alternatives. Actually, in that instance, the biggest issue wasn't for the container lines. It was for car shipping. And so effectively, the big car shipping firms had a pretty big handling facility at Baltimore. It's the biggest vehicle handling facility on the Eastern seaboard at the time. So they had to go elsewhere.

And it's difficult to move cars. I mean, you can drive them. Clearly nobody wants their new car having driven 300 miles. But it was more of a challenge. So we did see the big car companies have to find other routes, and the rail companies had to lay on extra carriage chassis to be able to move the vehicles around. There were delays as a result and normally that's what we actually see is that trade still gets there. It just has to take a little bit longer to get there. So there were delays in vehicles being delivered of two, three, four weeks.

I think what's interesting is that since that’s happened and you know, we've all forgotten about it to the extent you can't even remember when it happened, but that's not the only port in the United States that has a vulnerability linked to bridges. And a lot of the infrastructure in the United States is relatively old now. So there are other ports where bridges are being assessed. I wouldn't want to get into the specifics of it because I know the U.S. army Corps of Engineers is still assessing like all the different bridges around the country and the effects those could have on shipping more broadly. But again, that, really the recovery there reflected the fact that these shipping networks are multinodal, so they've got different nodes that you can ship to instead. Clearly air freight wasn't an option in that part unless it was a particularly fine Ferrari or something. I guess it might ship by air.

 

Kristen Hallam:

Yeah. Well, let's talk about a different kind of disruption, labor unrest. So you know, last year at TPM or leading up to TPM, there were very real concerns about labor disruption, labor strikes at the East Coast ports and that ended up not materializing. But how do you see labor unrest, you know, sort of evolving like in the one-year outlook, as our risk analysts might say? And how does logistics find a way in that situation?

 

Chris Rogers:

Yeah, so I think, you know, as I said earlier, the, kind of, the people who make logistics networks work are the heroes of it and they expect to be paid well for it, which is perfectly reasonable. They also expect to be kept safe, which is also perfectly reasonable. The issue for the US specifically is the level of employment at the ports, if you like, per box delivered is much higher than it is elsewhere in the world. There's been less automation brought into play for all kinds of different reasons that we don't need to get into. But what that means is that the US ports particularly are more exposed to the risk of labor strikes occurring. Now the good news is because you have mass negotiation and because you have contracts that typically run on a four yearly basis, you can very predictably see where potential bottlenecks are going to occur upfront. And so you can plan around that. Now one of the ways that logistics networks dealt with those risks at that time was via inventory front loading.

So if you know that there's a risk that on October 15th there'll be a port strike because a labor contract that was being negotiated for a year at that point wasn't going to happen, then you could make sure you get ahead of the curve. I think we've gone from inventory front loading being the kind of purview of trade nerds like me to now being kind of more broadly recognized as a strategy in the business community. It's partly because of that and also partly, of course, because of tariffs, which we've talked about at length. I'm sure we'll talk about again at some points. So the inventory front loading, I think was one key element there. Another was effectively just shipping to the West Coast because the East Coast ports and the West Coast ports negotiate at different times effectively.

We saw preparations to ship into the West Coast and then rail from there, which again is expensive. It's not a perfect solution because obviously you can't economically put all of the trade that would have gone into the East Coast into the West Coast. Roughly speaking, about 30 to 35% of all of the imports to the US that come from Asia going to the East Coast, not the West Coast. So you couldn't readily kind of swap all of that around. But again, it gave time to put provision in place, particularly for goods that are seasonal. So like the must-deliver stuff, they could put plans around that. But labor issues aren't just an issue for the United States. We've seen those issues emerging in Europe as well.

And we've seen shipping networks adapt. So if there's been strikes in France, you deliver into Germany. If there's strikes in Germany, you deliver into the Netherlands and so on. So we've seen adaptation around that. And Europe has a little bit more of an advantage there because you don't have single union negotiations for an entire seaboard. It happens very much kind of port by port and or country by country. And in fact, the biggest issue for European ports right now has actually been weather disruptions. So we've had particularly bad winter that's led to storms, which you're based on the US Eastern seaboard.

You know all what storms are about.

 

Kristen Hallam:

Oh, yes.

 

Chris Rogers:

And snow and all of that kind of good stuff. So they've had to deal with that. Where labor has been less of an issue has been in Asia, with the exception of South Korea, where they had some disruptive port strikes in the past 18 months or so is because there's been a much higher level of automation. And as a consequence of which, if you don't have the workers to go on strike, strikes aren't an issue. So you've had that very different profile around the world. The next round of strike action, you know, touch wood, I’m sat on a metal chair, I need to find some wood to touch but, you know, the U.S. which is more prone to that, we've got another couple years before the next round of negotiations start on the West Coast before we start to see that emerge. So hopefully we got a couple of TPMs before we need to worry about that again.

 

Kristen Hallam:

All right, I'll pencil it in for three years’ time. So, Chris, what can you tell us about how logistics have adapted, you know, in the context of all these different disruptions of various stripes? And what does the future look like?

 

Chris Rogers:

Yeah, so the adaptations are partly, I've discussed, physical in nature. So having the flexibility to deliver into different ports, having bigger shipping companies and alliances of companies where, you know, effectively the big ten shipping firms operate within three alliances. They account for, roughly speaking, depending how you measure it, 60 to 70% of global delivering capacity. That gives them a lot of flexibility to say, okay, we're not going to deliver into Newark, we're going to deliver into Norfolk, but we're not going to deliver into the East Coast, we're going to deliver into the West Coast, or we're not going to go through the Panama Canal, we're going to go through the Suez Canal. So having that scale gives you that diversification and gives you the ability to do a lot of that. I think technology plays a big part as well. Obviously, a big part of logistics planning is the classic traveling salesman problem, which is basically just a giant maths problem, still not easy to solve. And, you know, we've talked about AI before.

It's not an AI thing, it is basic maths. Funnily enough, if we're thinking future, then actually quantum computing is very well suited to redrawing logistics maps in real time, very well suited to that sort of math. Bigger issue probably for inland delivery, which is a lot more fragmented, so trucking and so on, or air freight, as we were talking about earlier. Obviously air freight and the issue in Iran has led to a couple of the airports being closed and they're big cargo hubs. So how do you work around that in real time?

In the longer term, though, what we're starting to see is a move towards, call it intelligent manufacturing, physical AI, whatever you want to call it, that's going to lead to more regionalized manufacturing. And as we move towards regionalized manufacturing, that changes the way that logistics networks are going to operate more broadly, you'll move towards more shipping of materials rather than finished goods, more trading components as a consequence of which that takes some of the timeliness issues out when we're not—it's going to be a while before we're talking about fully kind of decentralized manufacturing at the home. And therefore it's all about global trade in plastic beads.

And plastic beads aren't seasonal. Right. But I think that structure of trade is changing as we see that kind of more regional element, and that will require logistics networks to adapt yet again. But you know, as we said, logistics does find a way and whatever comes next will ensure they'll continue to find a way.

 

Kristen Hallam:

All right, that's a good note to wrap up on. So thanks for taking time out of your TPM to sit down with me and talk about how logistics finds a way.

 

Chris Rogers:

My pleasure. And hopefully it will continue to find a way.

 

Kristen Hallam:

Yes, we all hope that. Thanks, Chris.

 

Chris Rogers:

Thank you.

 

Kristen Hallam:

Thank you for listening to the Decisive Podcast from S&P Global. Please subscribe and join us for next week's episode. Until then, stay curious and stay informed.