Sat | May 30, 2020

G. Anthony Hylton | A glimpse of a post-COVID-19 world

Published:Sunday | April 26, 2020 | 12:13 AM
Some of Kingston’s Logistics Facilities
Some of Kingston’s Logistics Facilities

The lessons of COVID-19 are yet to crystallise, but the evidence so far has yielded some early insights of developments that are likely to shape the national and global agenda for the immediate future. The speed and scale of the spread of the pandemic have overwhelmed national health systems and caused major disruption in the global economy as a result of the measures taken by governments in response to the rapid spread of the disease. In particular, the social- and physical-distancing measures enforced among populations in various countries (including Jamaica) to slow the transmission of the disease have resulted in the drastic demand reduction in the flow of economic activities and the disruption of the local and global economy.

Given the dependence of the developing world on the existing global production network for the supply of critical goods and services, including medical supplies, countries like Jamaica would be, and are, vulnerable to the global shock produced by the pandemic. What began as a shortage of critical medical supplies to fight the pandemic has quickly morphed into a wholesale shutdown of factories, starting in China and continuing across Asia into Europe and the United States, affecting the trade lanes and, ultimately, the entire global supply chain of produced goods and raw materials intended as inputs into manufacturing along the value chain. In other words, the entire system of imports and exports into and out of Jamaica, and elsewhere in the world, has been compromised, with the consequent loss of jobs, income, and revenue.

What are some of the early lessons learnt?

First, the Jamaican population has been reacquainted with the terms ‘logistics’ and ‘supply-chain management’. This time around, I will heed the injunction that a crisis is a terrible thing to waste. Therefore, I will start by explaining that logistics simply refers to the efficient movement of people, goods, data, and services. The term ‘supply chain’, on the other hand, describes the several processes by which products, raw materials, spare parts, etc., are moved across borders and around the world. Simply put, logistics and supply-chain management are two sides of the same coin and go together in the same way that an engine is essential in powering a car.

Second, notwithstanding the unpredictability of nature, pandemics, epidemics, and hurricanes, it is not a reason for countries, firms, and critical institutions to be unprepared. Given the scale of disruptions in the global supply chain, I am predicting that managing future supply-chain disruptions will become an integral component of corporate strategy. The pandemic has revealed that there is need to review and reassess supply-chain designs to withstand unforeseen major disruptions. Some considerations are as follows:

(i) Cost is not the only consideration.

When companies of the future plan their overall global supply chain strategy, they will be more likely to decide that paying a bit more to establish a resilient and flexible process is worth it by reducing risks. Ordinarily, companies find the lowest-cost supplier, but a clear COVID-19 lesson is that a single source of supply creates vulnerability in the supply chain of that company. And companies must move towards mitigating risks. That will require making investments in order to stabilise their supply chain by enlisting alternate suppliers, boosting inventories, or investing in a more diverse way of distribution.

(ii) Regionalising/localising more manufacturing and transporting

The pandemic has exposed the vulnerability of businesses that rely heavily on a limited number of trading partners in distant countries and far from their major markets. What is likely to result is that businesses will look to restructure their global supply chains, and some companies will consider regional and local supply sources in order to reduce risks attendant on operating longer and more complex supply chains.

Jamaica’s proximity to large regional supply and demand sources will itself help to mitigate the risk but may result in higher costs for the consumer. China, after all, has emerged as the lowest-cost supplier across a range of products and raw materials to the world.

(iii) Planning for future disruptions

The impact of COVID-19 on supply chains will compel businesses to anticipate disruptions in the future and build in quick responses to their supply chains. This involves a process called mapping, in which companies engage suppliers in order to better understand their sites and processes in more detailed ways.

Businesses must become proactive, not reactive. Knowing where the disruption will come from and how that will impact their products will allow companies sufficient lead time and the ability to create mitigation strategies.

(iv) Utilising technology

The Fourth Industrial Revolution has brought with it a plethora of new and efficient technologies that will boost the productivity of companies while improving visibility throughout the supply chain from end to end. Technologies such as artificial intelligence, the Internet of Things, machine learning, and robotic process automation will feature prominently in the supply chain of the future. Investment in these technologies will strengthen the supply chain and provide greater transparency to the process as stakeholders will be better able to track and trace products at the different stages of the supply chain with real-time data, allowing for predictive analysis and actionable insights.

Third, COVID-19 compels a reinvigoration of the Global Logistics Hub Initiative, which articulates the development of the physical and human infrastructure in Jamaica, to enable us to take advantage of Jamaica’s geostrategic location in proximity to an 800 million-person market in the Americas. The master plan for guiding this project’s implementation has been complete since 2017 by international consultants paid for by the World Bank and whose work product has been accepted by the Opposition and Government and tabled in the Houses of Parliament.

Logistics gateway

The vision established in the master plan is for Jamaica to become the logistics gateway to the Americas, capable of being the fourth node in the global trading system. Together with the Special Economic Zone (SEZ) Act, which creates the Special Economic Zone Authority (SEZA) to administer the act, the ecosystem is in place to support the build-out of these SEZs.

Jamaica remains poised to attract significant investments into the SEZs as companies review, reassess, and mitigate supply-chain risks to COVID-19. We are in a position to attract some of the major producers and distributors of goods and materials in the global supply chain and to add value to these goods and materials right here in the SEZs. After all, the SEZs, though situated in Jamaica, will operate under different trading rules and with attractive incentives sufficient to overcome the constraints of bureaucracy and regulatory inefficiencies.

Imagine for a moment that we are successful in convincing one or two Fortune 500 manufacturers or service providers to establish their glass-manufacturing or data-centre businesses in an SEZ here in Jamaica. Immediately, it would boost demand for competitively priced energy and hundreds of skilled and entry-level jobs. It would also result in significant foreign exchange savings as the millions of bottles and glass materials imported each year would be substituted. The benefit to local businesses would be several, including cash flow savings from inventory and CIF costs, to name just a few. The investment would be a boon to the local and global economy in the aftermath of the coronavirus.

Rather than simply becoming a victim of the pandemic, Jamaica has a great opportunity to benefit from the restructuring of global trade that is anticipated as a result of the COVID-19 crisis. Will we seize this opportunity, or will we sleepwalk into the future?

Ambassador G. Anthony Hylton is a partner at Samuda & Johnson, member of parliament for Western St Andrew, and former minister of industry, investment and commerce. Email feedback to columns@gleanerjm.com.