Disruption and digital transformation in 2021

A lot has happened in 2020

2020 has been a year of disruption. Anticipated disruptions to bunker fuels and credit risk from IMO2020, the impact of trade disputes and concerns over the US elections all paled in comparison to the unforeseen and unprecedented global lockdowns triggered by Covid-19, and their impact on commodities, energy and shipping.

Whilst not on the same scale, there were several other disruptions to commodities that will also likely have an impact on the way we operate in future, including the fraud scandal in Singapore’s commodities finance sector which has led to banks withdrawing or tightening their credit line facilities.

And several long-term trends continued to create new challenges for the industry. For example, despite Covid-19 interrupting some aspects of the energy transition, such as delaying China’s planned national carbon market, 2020 has shown that consumers, investors and governments remain committed to environmental reforms. From Boris Johnson’s pledge to “build back greener”, to investment firms such a BlackRock voting against directors at companies not making progress on tackling the climate crisis, it is clear that businesses will continue to see new challenges in this space.

But the industry response has been phenomenal

As it turns out, the effects of several of the disruptions were less severe than expected. Demand reduction due to the pandemic muted the expected pressure on supply of very low sulphur fuel oil (VLSFO) following the introduction of IMO2020. And even given the unprecedented scale of the Covid-19 lockdowns (such as the first quarterly economic contraction in China since records began and a record quarterly fall of 20.4% in the UK economy), the commodities industry responded better and faster than many would have predicted.

The narrative at conferences and in discussions throughout 2020 has been one of agility and resilience, of moving faster than anybody thought possible to enact a rapid shift to home-working and keep business moving. Business continuity became a critical competency, but even organisations without plans covering the scale of the pandemic were on the whole able to adapt and keep their operations going, even if it wasn’t easy.

The disruption caused by Covid-19 has been a wake-up call for many in terms of the technology they use. Thankfully, there were far fewer cases of businesses being brought to a halt than there would have been even a few years ago, but many struggled, particularly in the early days, to keep their business running as usual.

Agility in response to the pandemic depended as much on the technology businesses had at their disposal as it did on organisational policies and culture. Organisations employed a range of solutions such as VPNs to ensure staff could still access their systems, but many did need time to adapt, and even now struggle to share information as effectively online as they had in person.

There has been generally steady progress throughout the year in improving how things are done, such as restructuring meetings and processes to avoid the “Zoom fatigue” that affected many in commodities early in the lockdowns, but effective digital technology remains the only way to ensure the most efficient sharing of the data that people need.

Organisations that already had Cloud technology were at an advantage as their technology allows their people to work from everywhere and on any device. And those with modern commodity management solutions benefitted from people being able to manage their role completely online, accessing the live information they needed without disturbing colleagues or spending the day in meetings.

Many organisations quickly closed this technology gap by removing barriers to new technology and undergoing rapid implementation projects. Companies who used the pandemic as an opportunity to migrate to digital technologies “are now leading their industries and outperforming peers”.

What this could mean for 2021

Predictions of market recovery vary depending on commodity and optimism about the end of the pandemic. For example, the World Bank anticipates that metal and agricultural commodities will make modest gains in 2021, whilst energy prices will stabilise below pre-pandemic levels.

At the end of 2020, it is still hard to predict when life will go back to normal following the pandemic, and many expect that it will not be the same as it was before. To take just one example, most companies that did not have provisions in place for home working are now set up for home-based and hybrid working models. Even after the risk to health ends, in many surveys the majority of employees expect to maintain some of their newfound location flexibility in future. Organisations that return to their pre-pandemic operating procedures could therefore risk losing valuable talent to competitors who better understand the new operating environment.

In responding to the disruptive events of 2020, most businesses have shown themselves to be more agile than they thought they were. This experience could set them up to respond better and faster to future disruptions, not just because of the new technologies they have implemented, but also due to cultural changes and the ability to make faster decisions when required.

Agility is a key competency for businesses looking to maintain their competitive edge, but it’s important to remember that your competitors have had the same imperative to improve their agility over the past year, and many are planning to continue or begin a digital transformation project in the coming months. 2021 could therefore be the year to step back from reactionary responses, survey the current environment and understand how your technology and processes compare to others in the market to ensure you are maintaining your competitive advantage.

Data management and access will also be core competencies in future. Being able to gain insights from company data is essential for agility and making decisions quickly as the situation changes. Better data management can also help organisations prepare for the changes that we can anticipate.

In the wake of the fraud scandal above, trade finance providers will likely need more assurance in future, such as data that verifies your processes. Sustainability and carbon dioxide emissions are other areas where we can expect businesses to require increased monitoring and record-keeping in the near future. Creating processes now that manage this data and can be scaled as future requirements dictate reduces the risk that these future requirements will cause major disruption.

As well as these trends of location-independent working and purposeful agility driven by data, 2021 may also bring a new focus on logistics management. Most organisations moving goods internationally were impacted by the pandemic and found themselves needing to quickly understand where their shipments were, how they were impacted and work out contingency measures.

Another major impact on logistics will be Brexit; it is hard to know what the impact of this will be as the details of the situation that greets us on 1^st January are still unknown. The pandemic has damaged almost half of business’ plans for post-Brexit supply chains and more than one third of respondents to one survey stated that they have failed to implement plans for delays. And as well as the need to optimise logistics as part of day-to-day operations, the growing cost and frequency of extreme weather events mean that optimising logistics to avoid regional disruption could also become a focus area in future.

Digital transformation showed itself to be one of the most important factors in the response to the disruption seen in 2020. It could well be the answer to the expected logistics challenges of the future, continuing the trend of businesses moving away from CTRM systems to wider-ranging commodity management solutions that provide much more control over, and insight into, operations and logistics. Developing the same agility in these areas that is currently being cultivated elsewhere could not only help businesses respond to the challenges currently on their radar, but can provide the systems they need to respond with agility to the next unexpected disruption too.