“Just-In-Time” is a series of written interviews with experts from different backgrounds, all of whom have extensive experience with supply chains, including knowledge of current trends and future developments. Similar to the “just-in-time” supply-chain philosophy, we strive to bring valuable insight when it is needed most, particularly in light of COVID-19 and an increasingly volatile geopolitical environment. This series will continue in the months ahead as we seek further guidance from clients and friends on the state of global supply chains and distribution contracts.
Interviewer | Dr. Joachim J. Modlich | Partner | Mayer Brown
Interviewee | Jan Läzer | Managing Director | Dortmunder Eisenbahn GmbH | a member of Captrain Group
Brexit: How do you manage the changes that came along with Brexit?
I see companies such as my former employer, a traditional tech company, closing its operations in the United Kingdom. And suppliers located in the United Kingdom might also suffer from the increased complexity and costs of exporting its products. To be very clear: the sheer volume of exports from the United Kingdom to mainland Europe is so enormous that it will be practically impossible to process such volumes customs-wise under the conditions of a “hard border.” Therefore, either these volumes will reduce over time or a solution must be found at the political level to make the customs clearance of such volumes practically possible. To date, the additional costs of customs clearance at the UK border cannot be precisely calculated, which is unacceptable on a midterm basis.
Is COVID-19 accelerating positive or negative supply chain trends?
COVID 19 has become an accelerating factor for the further growth of the rail transportation sector and, from my perspective in particular, the New Silk Road Initiative of the PRC Government. This is particularly true as sea transportation is facing material obstacles these days. On the other side, borders have become an increasingly limiting factor at a time where governments are trying to isolate their respective countries in order to fight against the pandemic. So far, I am seeing a trend towards “de-globalization,” which will not automatically pause if the pandemic crisis ends.
Which are the future drivers of developments in supply chains?
The security of supply has overtaken price as the key decisive factor to build and engage supply chains. Going forward, ecological aspects might also overtake price as an overriding factor. These trends will also play in favor of rail transportation as a reliable and ecological form of transportation. In addition, we will have to break new ground in the future supply chain and move away from traditional forms of transport. Very interesting and innovative experiments are already underway in various European countries. One trend is the extensive use and linking of different supply-chain models. As a simple example, there are attempts in Scandinavia to link the disposal chain with the supply chain. The otherwise empty garbage truck driving into the city takes goods to the customer and then fulfills its original mission and transports disposed goods to the same train. Of course, technical solutions must be created for this, but the economic and ecological savings potential is obvious.
What do you think supply chains will look like 10 years from now?
The just-in-time approach where trucks were used as rolling warehouses comes under pressure. Instead, the future will show a more sophisticated planning of production processes with a reduced necessity of transportation (and in particular street-bound transportation) over long distances. We will see a reduced number of produced components coming from multiple places. Transport space is severely limited, especially in the rapidly growing urban regions, and the expansion of freight volumes in the current road transport mode is exhausted and cannot be further expanded. Even initiatives such as alternative engines do not solve the fundamental problem. Other concepts for deliveries including the 3rd dimension—to use the air in the form of drones—are in development but are currently not marketable for bulk goods. Therefore, the use of rail-based modes of transport—in a further stage of development with likewise alternative engines, autonomous driving and possibly also a return to alternative carrier systems such as the magnetic track (Transrapid)—is an inevitable development.
Are there business models connected to the supply chain you think may struggle with investment?
I think this question is very difficult to answer with a blanket response. To the same extent as many market segments have dislocated, the opportunities and risks for an investment have also changed. A few years ago clear trends such as IT or BioTech were propagated for investment in the market; at present it is certainly sensible to look away from the major trends and away from general and global projects, and look deeper into individual and local projects broadly across the market and then invest in them. For example, I would no longer invest in the global energy sector, but I would invest in local and ecological energy production. The same applies to the transport market; here too I would prefer to invest in local projects such as connecting industrial parks to rail and promoting urban mobility and regional supply concepts instead of the large and overflowing trends of recent years (e.g., container ships/large fleets). In my eyes, this makes an investment more difficult, because you have to deal more with the product and the producers. But in the long term it leads to more development taking place in the area, because more capital is spread more widely.