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The Global Agenda Council on Logistics & Supply Chain has completed a successful second term. The Council has delivered significant impact through:
- Action-oriented initiatives like the Supply Chain & Transport Risk Initiative, and the Enabling Trade – Valuing Growth Opportunities initiative, both of which were proposed by the Council and with which the Council has been actively involved
- Introducing important supply chain issues onto the global agenda, such as supply chain risk
- Providing insight to the Forum’s Logistics & Transport Industry Partners with the Council Chair presenting the Council’s insights and recommendations to the CEOs (Governors) of the Industry programme at World Economic Forum Annual Meeting in Davos
- Council Publications in several trade journals, the Forum blog, etc.
The Council’s insights, recommendations, impact, publications and members are presented below.
Supply chains today have globalized thanks to increasing efficiency in transport and logistics, the globalization of manufacturing and consumption as well as large investments in new infrastructure in emerging markets. All forecasts seem to indicate that global trade will continue to increase, and as a result, so will the gateway regions. While, trade is high on the global agenda, the logistics industry, which is critical to the expansion of global trade, has largely been overlooked.
Indeed, the logistics industry mostly works under the radar. When it works, as it does almost all the time, nobody notices. For most people, it is an invisible service, which is taken for granted. Consider all the products available in any given supermarket for your convenience. To make these products available, thousands of separate supply chains converge to give consumers the level of product availability that they have come to expect.
Still, logistics and supply chains are essential to any company’s competitive strategy as well as its survival. While, logistics may seem like a detail, it is a detail that can make or break a company. In the 21st century, logistics touches every aspect of every organization’s daily operations.
Its importance can be seen in the following facts:
- Revenues earned by the logistics industry equalled US$ 910 billion in 2002
- The logistics sector accounts for 5.5% of global greenhouse emissions
- 90% of global trade flows through only 39 bottleneck regions
- According to a PwC study, 40% of CEOs think it is harder to hire talent in the industry
- Businesses pay 10% to 35% of gross sales in logistics costs
- The Indian logistics industry is valued at more than US$ 14 billion.
With trade facilitation, catastrophic risks, sustainability and job creation on top of the global agenda, the Global Agenda Council on Logistics and Supply Chain has considered how the industry can play a critical role in tackling challenges. The industry is an important driver of growth and prosperity, and can play a key role in economic growth, particularly for developing nations.
Yet, for now, it is only when supply chain networks are disrupted, by bad weather, industrial disputes, pirates, earthquakes, terrorism or even volcanoes, that logistics gets news coverage. Journalists often speak of “logistical nightmares”, instilling a negative perception of the industry in the public mind. People often also complain about the negative effect of freight transport and warehousing on the environment.
The logistics and supply chain industry is trying to change this perception and raise the public profile of the industry to make people realize just how vital it is to modern life. In the United Kingdom, for instance, the Freight Transport Association launched a campaign called Love Logistics. UPS has developed advertisements expressing similar sentiments.
2) Council Focus and Recommendations
Since the Council’s inception in 2010, it has focused its efforts on trade facilitation, supply chain risks, supply chain decarbonization as well as bridging the skills gap in the logistics and supply chain industry.
During both the 2011-12 term and the 2010-11 term, the Council tackled all four of the abovementioned issues, but delved into one more deeply each term. In 2010-11, it focused much of its efforts on the supply chain risk work stream, leading to the creation of the World Economic Forum’s Supply Chain and Transport Risk Initiative (SCTRI). This initiative resulted in a useful collaboration with the Councils on Catastrophic Risks and the Disaster Management, along with the Forum’s Risk Response Network and Accenture. This term, the Council prioritized the role of logistics in trade facilitation as a dominant issue.
I. Logistics and Trade Facilitation
Despite efforts over the past year to revive the Doha round of trade negotiations, there appears to be little prospect of succeeding. Hence, the Council’s main focus in terms of trade facilitation has switched from the global to the regional level.
There is growing acceptance that the traditional form of negotiation, which was preoccupied with trade barriers and tariffs, is out-dated in a world criss-crossed by complex supply chains and where value is added incrementally in numerous locations. Research has shown that deficiencies in the physical movement of goods are a greater deterrent to trade growth than institutional trade barriers. Often these logistical constraints are not confined to the borders but extend across the internal infrastructure and freight market. The importance of these constraints is not sufficiently recognized by trade negotiators, partly because they lack an understanding of modern supply chain practices, but also because they do not adequately consult the businesses affected. Discussions with the Global Trade Systems Council confirmed this general diagnosis of the problem and outlined a possible way forward.
To highlight the critical role of logistics in trade facilitation, the Council recommended the Forum launch an initiative with the following objectives:
- Assess what has been done and is being pursued at the regional trade negotiation level from the perspective of international supply chains
- Analyse several specific supply chains with a view to identifying comprehensively all of the major policies and regulatory requirements that impact the supply chain and to quantify the effect on these various factors on the final cost of the products concerned
- On the basis of this information, extrapolate to arrive at an estimate of the impact of prevailing policies that affect the efficiency of supply chains on economic welfare (real incomes) for a country/region
- “Unpack” the sources of these potential supply chain costs into different components to separate out policy drivers from other factors (e.g. infrastructure weaknesses) with a view to identifying those easiest to access, so that targeted institutional action can be recommended to capture them
- Propose a set of principles, approaches and performance targets that could be embedded in trade agreements and identify key gaps in the coverage of what is currently being proposed in the WTO or regional trade negotiating context (specific areas of regulation and government policies that have a significant impact on the functioning of international supply chains and that could be the subject of specific, binding commitments by governments).
The above were presented and fully endorsed by the Forum’s Logistics and Transport Industry Governors, who supported the creation of the Forum’s Enabling Trade – Valuing Growth Opportunities initiative, which would endeavour to introduce a supply chain approach to trade negotiations and cooperation by identifying and quantifying the impact of regulation and policies on the functioning of international supply chains.
II. Supply Chain Risk and Resilience
Supply chain complexity and inter-connectedness is increasing rapidly at a time when the risk of disruption by weather extremes, geophysical disasters, terrorism, strikes, etc. is mounting. In addition to the standard list of mega-threats, the Council drew attention to others that could potentially have a major impact in the next few years. These include:
- Piracy – if this continues unchecked it may precipitate industrial action by maritime trade unions
- Bankruptcy of one or more major carriers although the freight market would adjust, the removal of significant amounts of maritime or air freight capacity at short notice could dislocate time-sensitive global supply chains
- Cyber attack paralysing cloud computing networks on which logistics systems are becoming increasingly dependent; more needs to be done to stress-test supply chains against potential risks and to take more account of near misses.
- (i) Continue to support the wider Supply Chain and Transport Risk initiative, which was created after the 2011 Annual Meeting in Davos based on the Council’s proposal. Specifically, the Council will continue to build risk response networks of organizations exposed to supply chain risks
- (ii) Give greater priority to developments likely to pose a greater supply chain risk in the short-to-medium term, such as piracy
- (iii) Through liaison with the councils on Catastrophic Risk and Disaster Management, apply the latest thinking on risk management and disaster recovery to logistical systems.
III. Supply Chain Decarbonization
The Council noted that over the past year several major logistics-related developments have occurred in supply chain decarbonization. In the maritime sector, significant progress had been made in establishing energy efficiency standards for new vessels and the use of market-based instruments to promote carbon-efficiency was being actively discussed.
In effect, the European Union had set a target of reducing CO2 emissions from transport by 60% by 2050, with “zero-emission city logistics” by 2020. The World Economic Forum has taken the lead in trying to get a group of international organizations to harmonize the measurement and reporting of greenhouse gas emissions (GHGs) from freight transport. In an individual capacity, Council members are contributing to each of these initiatives.
The Council is also exploring with the Council on Climate Change the opportunity to present logistics as a sector in which industry-led initiatives are achieving significant reductions in carbon intensity. To date the Council on Climate Change has been preoccupied with macro-level, top-down approaches to cutting GHG emissions. It is now interested in developing industry case studies to show how bottom-up efforts by individual companies and trade associations can yield significant carbon savings, independently of any new global agreement on climate change.
- (i) Continue to support the Forum’s work on supply chain decarbonization, consignment-level carbon measurement and the harmonization of carbon measurement and reporting standards and procedures.
- (ii) Jointly with the Council on Climate Change, prepare a document outlining the efforts of the logistics sector to improve the measurement of its GHG emissions and decarbonize its activities.
IV. Supply Chain Skills Gap
Logistics companies and trade associations around the world are reporting problems in obtaining enough qualified staff. Over the past year, studies done in India, Korea, China and the United Kingdom have confirmed that there is a skill shortage in logistics.
Indeed, as Dr. Grube, Chairman and CEO of Deutsche Bahn, stated: “The demographic changes that we see occurring in many of the regions where we operate shrinking populations, an aging workforce, and diversifying demographics compound the challenges we face and intensify the war for talent.”
One Council Member has conducted an international survey of logistics executives to shed new light on the problem. Results revealed that two-thirds of the respondents had trouble finding enough qualified staff and many complained about the low profile given to logistics in schools and colleges.
There are, nevertheless, initiatives in some countries to improve the image of logistics to potential recruits and improve skills at all levels in the employment hierarchy. As a result, the Council will continue playing a role in raising awareness of this issue among public policy-makers and in cross-fertilizing good practice in logistics skills development.
- (i) Publicize the results of the international executive survey through the World Economic Forum to raise awareness of this issue
- (ii) Liaise with key players in logistics training bodies and professional institutes around the world to determine what is currently being done to address the skills shortage
- (iii) Prepare a report outlining the efforts that are being made in different countries to improve the attractiveness of careers in logistics and raise related skill levels.
3) Council Impact
The Global Agenda Council on Logistics and Supply Chain has had substantial input over its two terms in driving action-oriented initiatives, introducing important supply chain issues onto the global agenda and providing insight to the Forum’s Logistics & Transport Industry Partners.
a) Action-oriented Initiatives
- Supply Chain and Transport Risk Initiative brings together a range of leading experts from across the Forum’s diverse communities to explore the most critical threats facing supply chain and transport networks, and to apply new risk response tools that can promote efficient risk management, security and resiliency in the complex global trading environment. While the project received input from several Council members throughout 2011, two members in particular were heavily involved with the imitative – Jonathan Wright served as project adviser and Christopher Logan served on the project steering board. The final project report is available here.
- Enabling Trade – Valuing Growth Opportunities was launched by the World Economic Forum in collaboration with the World Bank in January 2012. Developed by the councils on Global Trade System and Logistics & Supply Chain, the project aims to introduce a supply chain approach to trade negotiations and cooperation by identifying and quantifying the impact of regulation and policies on the functioning of international supply chains. Council member Bernard Hoekman serves on the steering board of this initiative.
b) Introducing Important Supply Chain Issues onto the Global Agenda
The Council on Logistics & Supply Chain has played a key role in introducing several important supply chain issues onto the global agenda through the platform of the World Economic Forum, including supply chain risk and barriers to global supply chains. Council members have also served on panels at World Economic Forum meetings on issues related to supply chain risk, trade, infrastructure, etc.
c) Providing Insight to the Forum’s Logistics & Transport Industry Partners
The Council’s recommendations were channelled to the Governors (CEOs) of the Forum’s Logistics & Transport Industry programme through presentations by Council Chair Alan McKinnon to the Governors, at the Forum’s Annual Meetings in Davos in 2011 and 2012.
4) Council Publications
- Report of the Logistics and Supply Chain Council, Logistics & Supply Chain Industry Council Final Report 2010-11, published October 2011 http://www.weforum.org/reports/logistics-supply-chain-industry-agenda-council-final-report-2010-2011
- Blog post by Alan McKinnon, “Logistics- our life support system”, 28 September 2011 http://forumblog.org/2011/09/logistics-our-life-support-system/
- Blog post by John Manners-Bell, “The implications of Chinese globalization for the logistics industry”, 29 September 2011 http://forumblog.org/2011/09/the-implications-of-chinese-globalization-for-the-logistics-industry/
- Blog post by John Manners-Bell, “The next few days will certainly be stimulating”, 9 October 2011 http://forumblog.org/2011/10/the-next-few-days-will-certainly-be-stimulating/
- Blog post by John Manners-Bell, “Catastrophic risk high on the Forum’s Supply Chain Agenda”, 12 October 2011 http://forumblog.org/2011/10/catastrophic-risk-high-on-the-forums-supply-chain-agenda/
- Blog post by Alan McKinnon, “Life without Trucks”, 22 December 2011 http://forumblog.org/2011/12/life-without-trucks/
The opinions expressed here are those of the individual members of the Council and not of the World Economic Forum or any institutions to which they are affiliated.