TORRANCE, Calif. — After a record-setting 2018, when tight capacity led to rate increases, 2019 was back to a more normal year in freight and logistics. The industry was poised for a solid 2020—and then the pandemic hit. Panic-buying and stay-home orders scrambled the supply chain, and logistics and transportation companies are still adapting.
“Nobody can be certain what normal will look like, other than an increase in e-commerce,” said Michael Zimmerman, partner with Kearney and co-author of the 31st annual State of Logistics Report from the Council of Supply Chain Management Professionals, in a press briefing before its June 23 release.
“It is abundantly clear logistics have a driving role in assuring resilient supply chains,” Zimmerman said. “Logistics practitioners will need to become even more agile as they navigate recovery in the second half of 2020 and into 2021.”
Before the COVID-19 pandemic , supply chains were lauded for ultra-efficient, single-source and just-in-time capabilities. Now, the report notes that the logistics field will need to construct entirely new levels of supply chain resilience. Companies that manufacture goods and services will begin to further value resilience in new ways and it will transform the way companies think about supply chains.
Shippers are looking for options, including multishoring and changes in how inventory is managed. It also means increasing use of technology.
“Whether it’s brokerage companies using technology to improve communications and carrier tracking so they can service customers and carriers better, or carriers adopting route optimization technology that allow fleets to be used more efficiently, in all aspects of the logistics industry, you’re seeing technology become more and more common in the execution of logistics,” Zimmerman said. This has the potential to both lower costs for shippers and improve profit margins for carriers that can operate more efficiently.
Shippers demanding more
Freight rates dipped year over year for six months straight, Zimmerman said, “and now with COVID-19 and continued demand destruction, road carriers will need to do something different to survive and do better.”
Large carriers, he said, need to look into technology investments for more efficiency in routing and running trucks. Smaller carriers must look to app-based solutions and brokers for access to better-fit routes and backhauls. For all fleets, relationships with shippers are key.
“Small to medium sized carriers with a tight list of customers in highly affected industries will be hit the hardest” by the fallout from COVID-19, he said.
Jacqueline Bailey, North American regional lead for Cargill Transportation & Logistics, explained that as it become apparent the supply chain was facing disruptions due to the pandemic, the company started looking for alternatives to make sure it had redundancy, so it could both get the materials it needed to manufacture products and the ability to get those products to its end customers. It had to pivot from food service to grocery retail, and it was vital for its carriers to provide “input and insight into what was changing in their networks.”
“We looked at the service capabilities of logistics providers, and … providers that did not have the service levels [we needed], we began to diversify away from them.”
When asked to explain further, she said most of the company’s analysis was around liquidity – how likely were their carriers to make it through the pandemic and the resulting market volatility? That was balanced with the service levels they had historically had from those carriers.
“When you’re in a situation like we’ve been for the last several months, we know rail and truck volumes are down, and we don’t have enough to keep all our providers busy, we had to make difficult choices.”
The pandemic has made it clear that omnichannel is here to stay, Zimmerman said, and that will affect how carriers and 3PLs work with their customers.
“They are clearly looking to their 3PL partners to help them think through and implement e-commerce solutions,” he said.
It’s easy to boil down omnichannel into a “buy-anything-get-anywhere” acronym, but it’s a lot harder to translate that into IT, decisions on which inventory to allocate to an order, and what inventory to keep where, he added. If shippers want flexibility in their supply chain to help control costs, he said, “someone has to absorb that by being more agile, and shippers are looking to 3PLs to do that.”
Marc Althen, president of Penske Logistics, said business-to-consumer local deliveries aren’t something Penske and other 3PLs are eager to jump into. “It’s high risk, it’s low margin.” What the e-commerce boom does mean, he said, is that “we will take a more active role helping shippers manage their inventory, visibility throughout the supply chain, and how best to manage it.”
Similarly, Bailey noted that her company doesn’t dabble much in the e-commerce space, with its primary markets being connecting farmers with the market and supplying customers with ingredients. However, she said, what’s known as “the Amazon effect” has made its way into customer expectations for all types of shipments. “Everyone wants to know where their package, their truck, their rail shipment is,” she said. “And we look to gather that information and make it more available to our customers. That’s how I see the e-commerce space influencing more of that B-to-B commerce space.”
Warehousing and distribution
Those trends are also resulting in changes to the warehousing and distribution industry. Technology will play a role here, Zimmerman said. “Technology-driven innovations such as machine learning and robotics are going to force the industry into the 21st century.”
He also noted that shippers are looking for flexibility in space utilization at warehouses and DCs and want third-party logistics companies to help make that happen.
Althen said Penske Logistics is seeing increased activity in its warehouse business. “Shippers are looking to increase their storage capacity closer to their customers,” he said. “I think customers are starting to move away from very large DCs in the middle of nowhere closer to urban areas.
The report indicates that attention to sustainability will only increase. Shippers, Zimmerman said, want 3PLs and carriers to use more efficient equipment and routing and sustainable electricity. “Logistics should and can encourage the use of renewable energy.”
When asked how COVID-19 has affected the industry’s appetite for sustainability measures, Zimmerman said, “I think that in the short term it may have put these initiatives in a bit of a pause situation, just because of the scramble to adjust supply chains to get things delivered and make things work.” Bringing sustainability into the supply chain, he said, is a fairly involved process.
“The fundamental story is that it is happening and companies are going to continue to invest in this and have these conversations” between shippers, 3PLs and carriers, asking questions about how carriers are implementing more fuel-efficient equipment, electrification, renewable fuels, and so on. “These conversations are happening, and I think it’s going to come back very strong. I think it went down in the list of priorities during the pandemic.”
Kevin Smith, president of Sustainable Supply Chain Consulting and panel moderator, said in his view, “It’s going to come down to choices. Companies have to figure out which of the sustainable projects that are available are going to deliver the best bang for their buck, both within the corporation and for their industry, and for the environment.”
Steps to build supply chain resilience
- Supporting demand for surges in areas like groceries and e-commerce.
- Reconfiguring supply chains for other sectors, like heavy industry, that have cratered.
- Adapting to the residual effects of social distancing: The industry is accommodating an even larger consumer appetite for home deliveries.
- Redirecting idle trucks and distribution center capacity to the booming sectors, companies must recognize, though, that even with their renowned agility, logistics providers cannot reconfigure all their capabilities and relationships on the fly.
- Supply chains will need to be more flexible to cope with uncertainty. That will result in less emphasis on lean operations and more on optionality and inventory.
- Will this all lead to more reshoring of manufacturing operations?
- The advancement of 5G technology will play an important role in further increasing supply chain visibility.
This article originally appeared at www.truckinginfo.com, and is reproduced under an editorial sharing agreement between Today’s Trucking and Heavy-Duty Trucking magazines.
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