While the world spent 70 years building supply routes that could provide efficient models such as Just-in-Time delivery and asset-light business models, the West Asia crisis has broken that to a degree where companies are now looking to get shipments “anyhow, anytime”, according to Yuvraj Narayan, Group Chief Executive Officer of DP World — a Dubai-based global logistics company.
During a media round table, Mr. Narayan painted a grim picture of the global shipping sector, saying that shippers and their clients are facing substantially higher costs, a paucity of manpower, and uncertainty to a degree that the industry itself is being forced to transform.
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“You have a completely broken order,” he lamented. “It is in that situation that you have to design resilience, and there is going to be massive inefficiency in that.”
“Over 70 years, the world built and found out the most efficient routes,” Mr. Narayan added. “We were all very thrilled about Just-in-Time supply chains and asset-light business models. All of that means nothing now. It’s broken. There’s no such thing as Just-in-Time. Get it anyhow, anytime is the mantra of today.”
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Trouble at Jebel Ali
For DP World, the main trouble centres around the port of Jebel Ali in Dubai, which is the ninth-largest port in the world, and the largest in West Asia.
“Access to Jebel Ali is blocked because of the Strait of Hormuz situation,” Mr. Narayan explained. “In normal years we would do 15 million Twenty-Foot Equivalent Unit (TEUs) of traffic through Jebel Ali. That 15 million is going to be maybe 1 million in the 10 months of this year. We are trying to create new routes.”
He said that the centrality of the Jebel Ali in global supply chains meant that it used to connect Asia to Africa, the Gulf countries, and Europe, but the constraints around the port have meant that established shipping strategies have had to adapt.
“When the big 22,000 TU capacity ships were designed, they assumed certain network routes,” Mr. Narayan explained. “They assumed that the east of the world would be where everything would be manufactured and along the line, somewhere halfway, the 22,000 TEU ships would be replaced by 12,000-18,000 TEU ships as they drop the Asia and sub-continent goods off.”
That strategy has now been forced to change, with routes becoming more direct, and therefore longer.
Crewing issues
He added that another problem logistics companies are facing in West Asia is the lack of crew members willing to risk the passage through the Strait of Hormuz.
“The issue is that I have trouble getting crew on board,” Mr. Narayan said. “I can fix insurance, I can take risk. Somebody is paying for it. I can even pass on everything to the consumer, because the consumer is desperate. But the nature of crewing ships will be that we will have to get mercenaries on board. It’s not sustainable.”
“If a mercenary says he will take $20,000 an hour to pass through the Strait of Hormuz, that is not sustainable,” he explained.
Ultimately, Mr. Narayan said, the need for peace is inescapable for trade to return to its earlier levels and costs.
“Ninety percent of the world is water, and that’s why 80% of trade is water-borne,” he said. “There’s no getting away from it. Yes, land is an alternative and there are land-routes. But how long does it take to bust a road, blow up a bridge, destroy a pipeline? You can do it now for less than $100,000. Ultimately, there is no running away from peace.”