The Supply Chain is a series of interconnected primary management processes. The Supply Chain Council-endorsed SCOR (Supply Chain Operations Reference) model illustrated below, clearly depicts these management processes. For the Logistics Service Provider, it is the sixth Management Process viz. ‘Enable’ that interests us.

The role of the logistics service provider

In simplest terms, the role of the Logistics Service Provider (LSP) in the Supply Chain is to enable the movement of goods from point of supply to point of delivery, fulfilling a detailed Scope of Work (SOW) or Service Agreement. The SOW or Service Agreements stems from the Contract of Sale/Purchase as agreed between the Buyer and the Seller.

A small to medium sized LSP will dabble in managing deliveries and possibly returns, whereas a large, sophisticated multi-national LSP may have input into and actively participate in all or most of the management processes depicted above.

Regardless of where the LSP fits in the supply chain, the Contracting Party (Customer) i.e., the Buyer respectively Seller, depends on the LSP for fulfilment of that part of the Supply Chain covered by the SOW. Very often, the foundation of this dependency is a set of performance measures and real or implied guarantees perceived by the Customer.

If there are no hiccoughs along the way, all is well, but what about when things go wrong? Well, when you are up to your neck in alligators it is hard to remember that the initial objective was to drain the swamp (origin unknown). The message in this somewhat flippant statement being, keep your focus on draining the swamp.

Let us look at the past year or so in the logistics industry, focussing only on the three most significant disruptive incidents that negatively impacted global supply chains.

• In December 2019 the world was gripped by the unprecedented corona virus pandemic, which resulted in the temporary near-total lockdown of global economies.
• On March 23, 2021 the ultra large container ship, Ever Given, ran aground in the Suez Canal. After a week the ship was re-floated, but has remained detained in the Great Bitter Lakes (and may only be released in the next two weeks) while the Suez Canal Authority and the Owners battle over compensation.
• Towards the end of May 2021 there was an outbreak of Covid-19 in the port of Yantian, leading to a temporary shutdown of the port. Eventually there has been partial restoration of service in the port. Remember, the affected ports include Yantian, Shekou and Chiwan in the Shenzhen area, and Nansha.

Quoting Sam Whelan writing in The Loadstar on June 8^th, 2021: “Lars Jensen, CEO of Vespucci Maritime, said Hapag-Lloyd’s list of planned port omissions for Yantian over the next four weeks had quadrupled to 16, compared with just four only a few days ago. And he noted that Maersk’s advisory yesterday listing 40 vessel arrivals affected by the congestion was “quite an escalation” from just three days ago, when the shipping line said “several” vessels would be impacted, with cargo shifted to alternate sailings.

Given Yantian’s throughput of 13.3m teu last year and the current drop in productivity claimed by Maersk, Mr Jensen estimated there was around 25,500 teu a day the port had been unable to handle since the crisis began.

“Putting this in context, when Suez was blocked by the Ever Given, it impacted a daily flow of 55,000 teu. But that ‘only’ lasted six days. In Yantian, we are at 14 days and counting –and there is the impact on Nansha and Shekou,” he added.”

The congestion, shortage of empty containers, delays, rollovers of shipments and ships bypassing ports are an unintended consequence of these disruptive global events. All these events together have created unprecedented supply-demand imbalance with demand outstripping supply. Ship charter rates have multiplied in some cases by anything upwards of 300%. Short-term charter rates (2 to 3 months) for a 5000 TEU ship are topping USD135 000.00 per day. Longer term charters (3 to 5 years) are reaching USD50 000.00 per day.

Sam Chambers in the online publication Splash 247 dated June 28^th writes, “In the past few months, schedule reliability has been largely consistent, albeit at an extremely low level of 35%-40%, compared to a long-term average of around 75%,” Sea-Intelligence noted in its most recent weekly report.”

The extraordinarily high charter rates mean that freight rates are going to remain at unfamiliarly high levels. Port congestion and shortage of equipment means that schedule reliability is similarly going to be poor for some time to come.

Managing the supply chain

Notwithstanding that the above events are beyond the influence or control of the LSP the customer will try to hold the LSP to account for what it, the Customer, will perceive as Service Failures. The LSP can in response;

• Draw attention to its Standard Trading Conditions.
• Declare force majeure (if such a clause is included in the Service Contract).
• Blame the carriers, the port, Covid-19, or any other number of ills.

All of which may be true, but the customer sees only a failing supply chain, delayed deliveries to its clients, penalties, lack of stock, lost sales, etc. No justifying reasons, no matter how valid, add any value or offer any comfort to the despairing customer.

So, what can the LSP do? The short answer is that it starts with the take-on of the SOW/Service Contract, including a thorough interrogation of the customer’s business model, specifically the supply chain.

There are three important questions which the customer and the LSP must jointly and honestly interrogate.

1. Is the Customer’s business model dependent on Imports and / or Exports for the survival of the business? If the answer is “yes” meaning there is no alternative local supply, then the answers to question 2 and 3 become vital.
2. Does the Customer have a robust international supply chain that will sustain its business through 2021 and beyond? If the answer is “yes”, test it by considering multiple disruptive. ‘What if’ scenarios.  If the answer is still “yes” then drain the swamp. If the answer is “no”, remember the end objective is to drain the swamp. It may therefore be time for a thorough review of the customer’s supply chain. Consider all alternative options to keep the supply chain moving through disruptive global events. The worthy LSP is there to add value, not provide justifiable reasons for failure.
3. In the event of an unanticipated disaster or disruptive incident, are all parties unambiguously clear on the point where risk transfers from the Seller to the Buyer? In other words, “Who fights off the alligators?” in the event of a maritime disaster or disruptive incident? The importance of this question lies in:

• the correct use and understanding of the Incoterms® rules specifically the point where the Seller has fulfilled its final obligation under the sales contract and risk has transferred from Seller to Buyer; and,
• understanding the obligations of the Merchant (the Merchant as defined in the transport document) to the Ocean Carrier/Consignor (as contracting party) to the Air Carrier.

Conclusion

Apart from 2008/9, businesses dependent on international supply chains have rarely seen such unpredictable consequences arising from disruptive global events. The key to success in these times is resilient supply chains. The role of the Logistics Service Provider, if it wants to remain relevant, is to identify and get rid of the alligators, and drain the swamp.