corporAID: What impact will the corona pandemic have on your global value chains?
Herbs: As a forwarding company, we are dependent on our customers' value chains. The pandemic hit us in shock waves that messed up the entire supply chain. There were extreme shifts between air, rail and ocean freight - depending on where the virus was currently dominant. In February, our business declined by half in many regions. From March to May, air freight took off, while sea freight dried up with the production stop in Europe. Sea freight lines are currently reducing their capacities and empty containers are stacking up in Asia, while they are in short supply in Europe. This has severely hindered European exports. Because air freight is now five times more expensive and sea freight is extremely slow due to slow steaming, the trans-Siberian route is now starting up strongly again.
Haslacher: We too have perceived a kind of wave movement, which fortunately has had relatively little effect so far. We supply systems for security-critical infrastructures, so our customers are usually authorities. In terms of orders, we even had a stronger first quarter than last year. Our setup with 500 customers in 140 countries helped us: In February, our entire business in China was down, but China started up again when the virus came to Europe. Our supply chains were little to no affected. Because we source more than 90 percent of our components in Europe. In addition, due to the safety-critical systems that we have to maintain for up to 20 years, we always have everything in stock to be able to supply our customers even in emergency situations. Restricting travel can be problematic in the long term. Because air traffic control lives from the number of aircraft in the air, and that has dropped to ten percent. This is why the states are now asked to provide budgets for the operation of these safety-critical infrastructures.
Kühnel: Not only regions are affected differently, but also companies - depending on their products. Some products, such as those from Frequentis or in the medical field, are now all the more needed. In Austria, we are heavily dependent on Italy for a number of supply chains - many companies suffer from this. Companies that buy products or components from Asia have survived the worst. China has ramped up production again. The economic impact on companies therefore varies greatly depending on the customer and product portfolio. This is an opportunity to see how we can diversify supply chains more to reduce dependencies and in some cases even bring core production back to Europe in order to emerge from the crisis stronger. This also includes rethinking globalization in certain areas.
Is there a new normal in business?
Herbs: The new normal has not yet occurred. In the crisis situation, the company has done things that we would not have thought possible. We were 95 percent overnight in the home office - it was surprising that everything went on anyway. When it comes to digitalization, I definitely expect that there will be a cultural leap and that we as a company will take an enormous step forward. Another point is that the current recession was not caused by the pandemic, it was only triggered. The point here is that more and more is produced more and more productively - we cannot consume more than we produce. I would very much like to see this in particular in view of the environmental problems of our business and that we in Austria, where we are now producing expensive, should take advantage of this new normal.
Haslacher: As a family company, Frequentis is shaped by the generation. Our stock exchange listing has not changed that either: cost optimization has never been the driver of our decisions. The corona crisis will only reinforce this approach. I think that home office is a double-edged sword. Especially in the safety-critical area, we have a culture where there is a lot of direct exchange and risks are discussed several times. We are already missing this direct communication. In addition, there is no closeness to the customer. In our industry in particular, closeness and trust to the customer are a very important component of the business model. Overall, however, the crisis will change the culture. For example, we are currently piloting the concept of a virtual business unit, in which we collect ideas, what we learn for our business and how we can derive new business models from the exceptional situation of the past few weeks. It may sound trite, but every crisis also has opportunities. Just three months ago, it would have been unthinkable that a customer in Thailand or Colombia would use video to accept a system and put it into production - ten people would have had to fly there. So far, everything in the security-critical infrastructure had to take place on site, under the watchful eye of the customer, double and triple security. Here, one or the other customer will probably think a little bit in the future as to whether a software-as-a-service model is also an option.
Kühnel: The crisis has made us very much aware of our dependence on functioning supply chains, a functioning internal market and a functioning globalization. It goes without saying that we can offer our products internationally, get on a plane and get off again after 12 hours anywhere else in the world. All of this can no longer be taken for granted, and the awareness of the dependencies will certainly change the supply chains towards reshoring. In addition, we are experiencing an unbelievable surge in digitization, which harbors enormous potential for increasing efficiency. We are currently in the process of designing an export radar that will bring together information from the spread of the pandemic to entry regulations in the individual countries and export opportunities worldwide, so that companies can see at a glance how they can move in the new globalization.
How do you see the impact of this crisis on emerging and developing markets?
Herbs: It is not easy to separate the pandemic as a trigger from other effects. All in all, I anticipate that this will have a major impact on countries in Southeast Asia. You have now experienced painfully what it can mean when you have put everything on one card and depend on a supplier. There is therefore a tendency towards diversification and, moreover, towards near-shoring, i.e. that productions, for example, are located in Turkey instead of in China. Turkey or Egypt will be among the profiteers. From the current situation, the fast, agile and decision-making companies will get the most benefit, while the slow, too cautious ones will lose ground. Unfortunately, the European economy, in international comparison, unfortunately tends to the latter.
Haslacher: The emerging markets are certainly less attractive to us as export destinations than they were four months ago. Investment behavior will depend on their economic development in the next few years. But the three megatrends that affect our industries - namely security, mobility and technology - are still valid. The race for more airports and infrastructure is particularly noticeable in Asia. India wants to build 100 new airports in the next ten years, Indonesia 80 - this will only be put on hold for a short time due to the pandemic. Africa, on the other hand, is special because stability, security and funding opportunities still need to develop there before we can deliver our systems. In spite of all this, the African continent will be an interesting market for me in the next ten to 15 years, because the number of flights will multiply there.
Kühnel: If you just look at economic forecasts, emerging and developing countries are less affected. Structurally, however, these countries will face major challenges because their economies are much more vulnerable - especially those that are heavily dependent on the export of raw materials. This will be a big issue, but at the same time Corona has an enormous negative impact on per capita income in these regions. Nevertheless, I believe that Africa continues to be a great opportunity market that nobody can afford to miss. The continent offers unbelievable potential especially for Austrian companies that are strongly positioned in the fields of renewable energy, waste management, water treatment, health and agriculture. Therefore, as foreign trade, we want to bring Austrian companies into African markets in the coming years, and on the other hand, to explore which solutions these markets need and to identify corresponding points of contact for Austrian companies.
What does it take to make the Post-Corona economy more sustainable?
Herbs: First of all, a political will is required, as the EU has articulated so strongly. But it takes more. Companies need to recognize the opportunities that arise from opening new, sustainable markets. With more of the same, we will not be able to fix our problems, but something new must be tried out. We should think one level higher and really ask the question in which direction the Austrian economy should develop and with which regulatory instruments we can gently control this.
Haslacher: Some companies will surely rethink whether costs are the only truth and focus on the long term, away from short-term profit optimization. In addition, many companies have painfully experienced what it means to be dependent on just one country, region, customer or product. Diversification will undoubtedly take on new significance as a result of this crisis. As far as sustainability is concerned, I am very happy that our employees are currently not flying very much. We normally have thousands of flights a year, which not only causes enormous costs but also terrifying CO2Emissions. I hope that from now on there will be increasing questions as to whether it is really necessary to fly to the USA, Thailand or Brazil to meet a customer for two hours.
Kühnel: The European Commission made clear in its revised work program at the end of May that the European Green Deal remains one of the priorities of the European Union. Sustainability is certainly an important issue, but first of all we have to make sure that we manage the recovery phase well. If this can be combined well with climate and environmental protection, then we are happy. I assume that the value will be a little bit different.
Many thanks for the interview!
Norbert Haslacher has been CEO of the Frequentis group.
Mariana Kühnel has been Deputy Secretary General of 2018 since Austrian Chamber of Commerce.
Stefan Krauter is the founder and CEO of the Austrian logistics provider cargo partner.