Our industry experts, based out of Europe, North America, and APAC take a deep dive into deglobalization.
Exploring its impact on the global supply chain, manufacturing, and shipping industries, they provide analysis from a board perspective, looking at the effect on senior decision-makers and how it is driving senior-level recruitment trends.
The state-of-play: a view from the board
That boards want to de-risk their supply chains is no surprise to anyone. COVID-19 spelled turmoil for global supply lines, from raw material procurement right through to last-mile delivery. Zero-tolerance shutdowns in China have crippled the production flow of goods. Rising fuel prices have made transportation – by any channel – significantly more expensive. The backlog of goods deliveries built up over the pandemic has led to a dearth of warehouse space, naturally driving up warehouse premiums. And the shortage of long- and short haul lorry and van drivers has led to severe problems in ground transportation. The American Trucking Association estimated a shortage of 80,000 drivers in 2021 just in the U.S., causing major bottleneck issues in delivery.
At sea, similar issues are playing out. The drive towards emissions control led to many older, heavy fuel using vessels being scrapped during the pandemic. A move which made sense with trade slowing down but has resulted in fewer ships available with economies bouncing back so rapidly. With smaller fleets at sea and demand surging, shipping premiums are also at an all-time high, particularly in the container sector.
The challenges however, are not limited to price. The effect of port lockdowns and quarantines means there are currently 1000 ships in the wrong place. At the height of the pandemic there were 400,000 seafarers stuck at sea, barred from entering ports and well past their employment contracts. The knock-on effect has been significant. Thousands of containers are in the wrong ports and ships wait weeks to dock – in Long Beach California alone, there has been up to a six-week wait for a free berth.
Yet it would be inaccurate to blame the disruption solely on the pandemic.
The momentum for deglobalization began well before COVID-19.
Donald Trump focused much of his campaign on nationalism and reshoring elements of manufacturing and supply away from China and back to the U.S. In China, nationalism has also become politically popular with the notion of making Chinese goods for Chinese buyers more and more prevalent. At the same time, China is no longer the low-cost manufacturing haven it once was. The country wants to move up the value chain and now the average cost of a factory worker in China is six times that of a factory worker in India.
Impact on global supply chain and manufacturing leadership
Because of costs, COVID-19, and overall supply risk management, global manufacturers are diversifying out of China. The beneficiaries of this move will be Vietnam, Thailand, and Malaysia – all of which have developed workforces. Indonesia and India will be ‘second in line' with less developed workforces but still likely hubs for EMS manufacturers. Challenges include language and cultural differences, but more importantly workforce capability – China had 30 years to develop this; other countries will be starting almost from scratch.
New leadership will be required in these hubs to build this capability. Local pools of leadership talent are still relatively underdeveloped in these regions and therefore international candidates will need to be sourced. Much of this international talent pool exists in China and there’s already been an exodus of that talent, but with the country shutting its borders, that supply is far from abundant. At the same time, we’ll see a movement of operational roles to these hubs, including engineering specialists, plant managers, and supply chain and procurement directors.
Head of manufacturing positions are likely to become significant roles in this transformation. Headquartered in a regional hub they’ll be responsible for a portfolio of countries, able to switch manufacturing capability between those countries to limit risk, as and when the need arises. The shift to other Asian hubs is also an opportunity for companies to build more modern manufacturing on greenfield sites. Greater implementation of robotics and automation, with many sites becoming dark factories entirely, will also be the responsibility of these regional manufacturing leaders.
It’s a different challenge and skillset which will require new leadership talent.
The story is similar in the U.S. The semi-conductor shortage, resulting from supply chain disruption, is being met with the development of semi-conductor factories in sites across America. These sites rely heavily on automation with a limited factory floor workforce. These dark factories are not just in response to the need for supply chain resilience but to meet the labor shortage – currently, there are a million open positions on factory floors across the U.S.
The demand for global supply chain and procurement leadership roles in the U.S. is increasing. The primary responsibility being to identify new and better sources of raw materials and production. Whether it's raw materials or commodities, the US procurement leadership are today often turning to new Asian hubs or South America for alternate sources.
With such dramatic change to the industry comes a change in the type of leader required. A typical route would have been to take an MBA, go onto a leadership program, become an expat, and move into something like transport, import-export, risk, or compliance. In today’s world, supply chain and procurement leaders need to be more sophisticated. They are more strategic, have broader responsibilities, need to be able to build great relationships as well as be operationally savvy, and importantly, are both bold and innovative. The need for creativity in building partnerships with suppliers, managing risk jointly, and mobilizing entire supply chains of individuals cannot be understated.
Impact on global shipping leadership
Shipping has long been a cyclical sector and right now, the cycle is in an up-trend. With the world opening up, cruise shipping has returned to peak levels and demand for container transport is extremely high. Yet with supply and trade patterns in disarray and ports operating under extreme pressure, there’s an expected two-year timeline for any sense of normality to return. At the same time, the entire industry is wrestling over emissions controls and which fuel will be in future use; whether it will be liquified natural gas, biofuels, or hydrogen.
All this makes shipping an exciting area. Following the 2008 crash, shipping was a tough industry to be in. Now it’s enjoying a boom period and those executives who led successfully during the pandemic are either in high demand or being well protected by the companies they work for.
With the drive towards more sustainable fuel sources, the challenge of reorganizing supply lines, and grappling with how many ships to build in such uncertainty, shipping is currently a very rewarding career.
What’s more, the industry has tended to be out of sight and out of mind. Now, because of the challenges it faces, it’s very much in the limelight. And with the environmental push, more jobs are expected to open up in the technology and development side of the space. Both elements have the potential to make shipping more appealing to young people – a demographic the industry is keen to attract and critical for the pipeline of future leadership talent.
The future maritime CEO shares similarities to those in supply chain and manufacturing. They are highly strategic with a broad base of responsibilities and innovative in the way they approach uncertainty. They are also cognizant of their role in selling the industry to younger talent and are therefore in tune with the need for a purpose driven business. Importantly, they understand that new technology will be central to fuel sustainability and embrace technology decision-making rather than shun it – a sentiment reflected in our recent Leadership Confidence Index 2022. The Index found just 26% of executives had high confidence in their leaders’ capabilities to make tech investment decisions. The best maritime CEOs do not side-line this responsibility; instead, they own it.
For more information about the leadership trends in these industries please contact the authors.