The COVID-19 pandemic has impacted the world in an almost unprecedented way. We keep on seeing companies being affected, even in industries that have been perceived as more resilient in this crisis –such as e-commerce. The shutdown of Indonesian fashion e-commerce giant Sorabel, which was being announced yesterday, is an example of such incidence.

But how about other industries such as supply chain and logistics, which operations are tightly related to international and local travels, currently restricted by partial or full lockdown in various markets?

In this interview with e27, Marc Dragon, Managing Director of Reefknot Investments, a Singapore-headquartered global Venture Capital firm jointly formed by Temasek and Kuehne + Nagel, shares his insights on the major changes that have happened in the sector recently.

We also look into the available opportunities for the Southeast Asian tech startup ecosystem.

The three buckets of impacts

Before jumping into discussing the impacts that COVID-19 bring to the regional supply chain and logistics sectors, Dragon points out that significant changes have become apparent even before the pandemic strikes earlier this year.

“What the pandemic does was accelerating the need for transformation,” he stresses.

Also Read: Singapore’s new VC firm Reefknot makes maiden investment in AI startup PROWLER.io

Dragon elaborates on how the recent US-China trade war has led industry players to consider how their businesses are being run, and he divides them into the “three buckets” of impact:

1. Digitalisation and visibility of the supply chain

“It’s not only about having visibility of the supply chain and goods itself but also about being able to dynamically manage those supply chain systems, as enabled by the visibility,” Dragon says.

2. Sourcing strategy including the supply chain network design

“As soon as the US-China trade war began, companies are looking for alternatives to China … and COVID-19 has accelerated that. It is the kind of thinking that is saying, ‘We have to be aware of the risks’,” Dragon explains.

“Wouldn’t it make more sense to have [the supply] much closer to the demand countries? It sort of alludes to some form of a decentralised supply chain as well,” he continues.

3. Cash flow management, resilience, and financial stability of the supply chain

“In the industry, previously, there is this general sense of looking at lean supply chain and being as low inventory as possible, as efficient as possible. But with the trade war and COVID-19, we have to ask ourselves … is being too lean really that good?” Dragon says.

“It’s even more important to be resilient. So there should be a combination of efficiency and resilience into the supply chain thinking and design,” he concludes.

Also Read: Reefknot Investments, SGInnovate enter into partnership focussing on logistics innovation

Now that the three buckets of impacts have been identified, industry players still have to tackle some challenges in order to make positive changes.

“The industry needs to figure out how to balance demand and supply. With COVID-19, what we see is not demands being cut … but different countries are coming in different waves. For example, China has pretty much passed that pandemic, the curve has flatted and the demand has come back. Manufacturing capacity has gone back by 100 per cent. But other countries in the world are still struggling to bring the curve down … So we see waves of demand,” Dragon explains.

“How this will impact ASEAN is a big question mark,” he adds.

The restriction of movement as imposed by partial and full lockdown in some markets also brought its own challenges, combined with the fact the airline and shipping industries have not started operating in full capacity. This has caused shipping rates to increase.

“Digitisation needs money, it’s urgent now, but companies are also not in a place where they can spend money freely,” Dragon stresses.

The startup ecosystem

Now here comes the question that has been on everybody’s mind: So what are the available opportunities for tech startups in the ecosystem? Especially since digitalisation is a big theme here.

Also Read: Startups should adopt the glocalisation mode of design and thinking: Reefknot Investments’s Marc Dragon

First and foremost, as investors are becoming “pickier”, there will certainly be challenges in terms of fundraising, Dragon admits.

But there is still room for startups to innovate, especially if they work in an area that is in dire need of it.

Reefknot Investments has worked with SGInnovate and NEXST to produce a white paper on digital transformation for the supply chain industry. The document displays case studies of startups that have the potential to help industry players tackle the challenges.

One example of such startup is Singapore-based DiMuto, whose technology is currently being used at an agriculture facility in San Joaquin Valley, US. The company’s Digital Asset Creation (DACky) device scans QR codes on boxes of fruits; these QR codes are associated with trade information such as purchase orders and shipping documents.

This kind of technology can help solve trade disputes such as orders that failed to be delivered.

So far, DiMuto is said to have identified, classified, tagged, and tracked over 30 million fruits (worth over US$100 million).

“The good news is that there is no one specific type of technology or one specific type of business model that will be successful,” Dragon closes.

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Image Credit: Reefknot Investments

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