Prologue’s Patrick Merkel:“Technology is ready for groundbreaking change.”
A lack of containers, significant price increases in freight rates, broken supply chains: Especially due to the coronavirus pandemic, massive adverse effects can be felt in transport logistics. As managing director of the 4PL service provider Prologue, Patrick Merkel has first-hand experience with the effects in the logistics sector.
Hello Patrick. Could you start by giving us some insight into your professional life? What do you have on your desk this week that is particularly on your mind or affecting you?
My central focus at the moment is mainly Prologue Solutions GmbH in Hamburg. That is why my family and I moved to Germany in 2019, after nearly 12 years in Hong Kong. What has kept us occupied the most at Prologue since 2016 has been everything to do with digitalization. We started some concrete projects as early as 2018 that have now gradually been implemented since summer 2020. This is as much about our internal processes as it is about partnering with customers, business partners, and service providers throughout the world. We are already able to offer our partners a high degree of digitalization and process automation.
Global transport logistics is currently experiencing massive disruptions, especially of course due to the global coronavirus pandemic. In which area do you currently see the most severe impacts?
The effects of the pandemic are currently preoccupying people and businesses alike. There is virtually no area where there are no restrictions or obvious effects. In industry, trade, and logistics, the first weaknesses were revealed when China went into lockdown and production across the country came to a virtual standstill. China is still the world’s workbench, and suddenly supply chains were being demolished. Other countries in Asia were also affected. Later, the exact opposite happened when the virus arrived in Europe and America. Fueled by the immense demand for products to protect against the virus, demand rose to unprecedented levels and overburdened the available production and transportation capacities. Massive price increases and severely delayed delivery and transport times are consequences felt today yet and place a heavy burden on the economy here in Germany as well.
How are you responding to the current challenges at Prologue?
As a fourth-party logistics provider (4PL), Prologue plays an overarching role in our customers’ supply chains; crisis management is also one of our tasks. One of the central pillars of our business model is partnering with transport carriers, i.e. shipping companies, for instance. Prologue works with long-term contracts in which all our customers’ volumes are pooled. This puts our customers and us in a situation similar to industrial or trading companies with their own large freight volumes. So the price increases on the spot market are not a real problem for us. The greatest difficulty is the out-of-balance distribution of containers among shipping companies. Empty containers do not arrive in time at our customers’ suppliers, which sometimes leads to considerable delays. At the same time, in the United States, the container ships are jammed in the ports which, due to the great volume, are falling behind with the unloading and onward transport. Our teams in Hong Kong and Hamburg are currently working day and night together with our business partners’ regional offices and local carriers to minimize these impacts on our customers. Our booking platform, which we have been rolling out step-by-step since 2018 for all ports and carriers worldwide and are continuing to develop together with the French supplier, is of central importance. Without the constant overview of the daily booking situation, we would have sunk into chaos long ago.
How has the coronavirus pandemic changed the supply chain management of individual companies?
While the biggest problem for large companies is the delivery time component and the lack of predictability, the price increase is hitting mid-sized exporters and importers equally hard. Up to 1,000% price increases in freight rates on the spot market mean that transport costs are making products much more expensive or it no longer makes any sense to transport goods. I know many companies that have had to cancel orders as the transport costs would have led to high economic losses. Fortunately, the big players are currently refraining from applying contractual penalties. It is not yet clear what lessons individual companies will learn from this time of crisis and who will actually survive the crisis, much less emerge from it stronger.
In turbulent times such as these, there is a lot of talk about the importance of resilient supply chains. What is meant by the term resilience, and how can I make my supply chains more resilient?
A supply chain is resilient when it is crisis-proof. Crisis-proof means that a supply chain functions reliably even when it is exposed to significant external influences. Therefore, resilient supply chains are an impossibility. However, each company can ensure that its supply chain consists of as many dynamic components as possible and that they are as controllable as possible so that external influences can be effectively countered. The decisive factor is, therefore, the selection of suppliers and service partners. However, that only works in times of crisis if there is full transparency and functioning communication, ultimately ensuring the flow and processing of information. Only then will the processes remain controllable. Even the last defender must have noticed that this does not work with Excel spreadsheets and emails, or even messenger systems. Modern supply chain management systems or even better corresponding platforms are not only ideally suited for this, but, in my opinion, there is no alternative to them for successful supply chain management in the future.
The entire logistics world is currently experiencing a huge boost in digitalization. From your point of view, what are the biggest challenges and the most important trends?
The industry has a lot of catching up to do when it comes to digitalization. The race to catch the industry up in terms of digitalization started 2–3 years ago, also driven by the disruptive business models of numerous startups. However, the ultimate deciding factor is what the end customers, i.e. the importers’ and exporters’ customers, really want and are prepared to pay for. The failed RFID revolution a few years ago emphatically demonstrated that technology alone is not yet able to have a far-reaching influence on business models. In my opinion, the same will happen with blockchain. The fact of the matter is that digitalizing or even automating bad business processes ultimately results in bad digital or automated business processes. The technology is ready for groundbreaking change, but are the key players’ business models ready?
In a few days, it will once again be Chinese New Year. Why is this such an important date for the logistics world?
For the Chinese, Chinese New Year (the first new moon between January 21 and February 21) is the most important time of year. Chinese New Year, or CNY for short, is traditionally celebrated with the whole family. Officially, there are six public holidays, but offices and factories are usually closed for several weeks. During this time alone, up to 400 million people who work in the cities as migrant workers travel back to their home provinces. In 2019, the Chinese government registered more than 2.9 billion travel movements during this period. Therefore, it is crucial to place orders with Chinese producers in good time so that deliveries can be shipped before the CNY holidays begin. This is especially important for the retail trade, which has to ship its goods for the spring season at this time. Year after year, this leads to a massive increase in freight traffic in the period between Christmas and Chinese New Year.
Thank you for the interview!