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Michael Zimmerman of Kearney
David Maloney, Editorial Director, DC Velocity :
What is the state of logistics, and how has the pandemic affected our supply chains? Our nation's ports experience declining volumes. And autonomous vehicles find a new home.
Pull up a chair and join us as the editors of DC Velocity discuss these stories, as well as news and supply chain trends, on this week's Logistics Matters podcast. Hi, I'm Dave Maloney. I'm the editorial director at DC Velocity. Welcome.
Logistics Matters is sponsored by Fortna. Fortna partners with the world's leading brands to transform their distribution operations to keep pace with digital disruption and growth objectives. Known worldwide as the distribution experts, Fortna designs and delivers intelligent solutions powered by their proprietary software to optimize fast, accurate, and cost-effective order fulfillment. For more information, visit Fortna.com.
Ben Ames is on vacation this week, but Victoria Kickham will be along to provide insight into the top stories of this week. And pinch-hitting today for Ben is Susan Lacefield. Susan is executive editor of Supply Chain Quarterly, and also an editor-at-large with DC Velocity. Susan is here to present today's guest. Susan.
Susan Lacefield, Executive Editor, Supply Chain Quarterly :
Thanks, Dave. About a month ago, the Council of Supply Chain Management Professionals released the 31st annual State of Logistics Report. The report is written and produced by the global consulting company Kearney, and it's sponsored by Penske. Every year, the report provides a snapshot of the logistics industry, most notably by calculating U.S. business logistics costs as a percentage of GDP and pointing out major trends that each sector in the industry is facing.
Today, we are fortunate to have with us the lead author of this year's report, Michael Zimmerman. Michael is a partner with Kearney and leads the consulting company's analytics practice for the Americas region. Michael, welcome.
Michael Zimmerman, Partner, Kearney :
Thank you, Susan.
Susan Lacefield, Executive Editor, Supply Chain Quarterly :
So, this year's report is titled, very fittingly, "Resilience Tested." What are some of the main ways that the pandemic has tested the resilience of the logistics industry, and how did the industry fare?
Michael Zimmerman, Partner, Kearney :
Well, the personal stories that we got from shippers and carriers were almost universally positive. I mean, clearly there was some pain out there, but the logistics providers really rolled up their sleeves instead of rolling out force majeure and got to work. And so there was a lot of collaboration between shippers and carriers in recognition of how disruptive this pandemic was.
As I said, it was not without pain. So, carriers and 3PLs that business models that heavily depended on automotive or durable goods, you know, suffered a lot with stoppages of production and stoppage in demand, and those that were more in the e-commerce space or in grocery retail saw surges. So some of the best performance was when 3PLs were able to shift resources from a stricken industry to one that was privileged and therefore, you know, 3PLs with with good diverse portfolios, you know, came out well, and those that were more concentrated suffered a little bit.
Susan Lacefield, Executive Editor, Supply Chain Quarterly :
Yeah, that seems to be what occurred across the board. I remember reading in the report that motor carriers that were small and specifically focused on certain sectors had a harder time than larger ones adapting. So what are some of the ways that you see the industry continuing to evolve as the pandemic sticks around and begins to spike again in the U.S.?
Michael Zimmerman, Partner, Kearney :
Yeah, the insurance industry did a study and found that over the last decade, the occurrence of high-impact events—hurricanes, trade wars, tsunamis—they've actually increased, and supply chains are becoming less stable. We kind of see an end of optimization in companies that have global supply chains that have tended to optimize to one country, to minimum inventories. And what's happening is that industry has to evolve to be more agile. And that means being able to shift assets in a more agile manner. So this, you know, Black Swan event called the pandemic is just another wake-up call.
But different industries have been planning for it in different ways. So, you know, we have a very large electronics client, who had been hit hard by the tsunami, you know, seven or eight years ago, they immediately moved to a crisis center, where they were working more closely with their 3PLs, their freight forwarders, and their carriers to redeploy the assets, because some of their routings had to change. So it's going to be all about agility and less emphasis on optimizing from one country, from one supply chain, with minimum inventory, and more about having optionality and having agility.
Susan Lacefield, Executive Editor, Supply Chain Quarterly :
Excellent. Yes. You know, it's interesting what you were saying about the insurance company reports. I have seen a lot of other research reports coming out this year that conclude that what the pandemic has done is, it's accelerated already-existing trends that were out in the industry right now, such as e-commerce and the move toward reshoring. And the, as you mentioned, the focus on agility. Would you agree with this overall? Or do you see, in some cases, some reversals of trends or new responses developing because of the pandemic?
Michael Zimmerman, Partner, Kearney :
I would largely agree with the surge in e-commerce, more nearshoring, more need for technology, either in automation or in software, to help companies sense what's happening and pivot more efficiently. So generally, the pandemic was a shot of adrenaline for these trends.
I think the one that's most interesting, and that logisticians are going to have to think of the most, is the combination of nearshoring and reshoring. And Kearney has a reshoring index, and we found that there was a dramatic reduction in imports from China in favor of either North America or other low-cost countries and Mexico. So think Thailand, Vietnam, Mexico. And as companies seek to be more agile and have more optionality, what nearshoring or multi-shoring means is that logisticians are going to have to be better at coordinating those multiple sourcing options that their supply chains are going to be counting on. So it's no longer about optimizing shipments from China to LA-Long Beach and then sending it over the country via intermodal, and then eventually to your forward-deployed inventories in your urban areas. It's going to be about doing that across multiple supply chains, and deciding where you're going to skip some of the longer transit times to be faster at making those cost tradeoffs. So logisticians are going to have to be more agile with more options.
Susan Lacefield, Executive Editor, Supply Chain Quarterly :
Interesting. So nearshoring does not necessarily mean simpler. It actually sounds like it means more complex, then.
Michael Zimmerman, Partner, Kearney :
Exactly, Susan, because one of the things that happens during any kind of an emergency is that your traditional sources and your traditional routes are blocked for some reason or another, and if that's a trade war with China, well, then you'd better already have options in place in Vietnam, Mexico, Thailand, and the United States. If it's a hurricane, it could hit Mexico, so you'd better have options in place even though you thought you were you were safe with a Mexico option, you'll have to you'll have to look elsewhere. So it's absolutely a question of being agile against more options.
Susan Lacefield, Executive Editor, Supply Chain Quarterly :
Excellent. So Michael, a lot of what the report does is kind of look back at the past year. But was there anything interesting that came out of the report, or that came after it, that was surprising to you, or would be surprising, maybe, to the casual observer of the industry?
Michael Zimmerman, Partner, Kearney :
Well, yes, I mean, what we've seen is, for example, a strong growth in the e-commerce space, but then, you know, when the the pandemic hit us, there were a lot of expectations that the parcel carriers would be disrupted because they lost a lot of the B2B volumes. And then FedEx, after the report came out, has surprised the analysts by higher-than-expected profits. And that was because, although they had lost some of the B2B volumes that are more profitable for them because it's more deliveries per drop, the sudden growth in e-commerce, which for them is domestic deliveries and historically less profitable, the profitability improved because their density of deliveries in the residential deliveries increased. So they were able to take a less-profitable business segment and do better than expected in it. And so that was perhaps a slightly unexpected shot in the arm for one of our largest logistics companies.
Susan Lacefield, Executive Editor, Supply Chain Quarterly :
So Michael, when you put together the report, how are you imagining or hoping that shippers are going to be using it? Can they help use it to form their strategy going forward?
Michael Zimmerman, Partner, Kearney :
Well, definitely. So what they get in the report is, they get a snapshot of all of the major modes, but also of technology trends—whether it's automation, 5G, software—and they learn about this from both the shipper and the carrier and the provider perspective. And by having a deeper understanding of the trends and the technologies that are going to affect them, it's going to position them better to have better conversations—well, in the case of shippers, better conversations with their carriers and their 3PLs about how they are going to help make them more flexible, and what they think about the application of technology to improve productivity in their supply chain. So at a minimum, it's both informative and a conversation stimulator, as shippers and carriers try to get better in the logistics space.
Susan Lacefield, Executive Editor, Supply Chain Quarterly :
Great. Well, Michael, thank you for sharing your insights with us today. It was a pleasure speaking with you.
Michael Zimmerman, Partner, Kearney :
Susan, always great talking with you.
Susan Lacefield, Executive Editor, Supply Chain Quarterly :
Thank you. Dave.
David Maloney, Editorial Director, DC Velocity :
Thank you, Susan and Michael.
Now let's turn to some other supply chain news from the week with Victoria Kickham. Victoria, some of the major U.S. ports disclosed their recent volumes this week. What did they report?
Victoria Kickham, Senior Editor, DC Velocity :
Yes. I reported on some data out of Los Angeles, South Carolina, and Virginia, and this week, the data from all three of those reveals slowing cargo volume through many of the U.S. ports. And essentially, officials are dealing with the ongoing global trade disruptions, primarily from Covid-19.
And Los Angeles, compared to 2019, they saw overall cargo volume decline nearly 10% in June and 17% for the first six months of this year. They also reported that loaded imports were down 7% and exports fell 21%.
Then we saw in Virginia that total volume was down 12% in June and down 6% for its fiscal year 2020, which ended June 30. Officials there also said that the bulk of the decline came in the first half of the year.
We also saw in South Carolina that officials said the port was on track for another record-setting year until the pandemic hit, and their volume was down overall as well.
So all of this kind of followed a year, in 2019, of largely positive results from many ports. Some saw record-setting volume, while others only reported a slight dip in volume. So it looks like more evidence of the global supply disruptions from the pandemic, and then also from the ongoing trade wars, which many ports have said had been affecting business even before the pandemic hit.
David Maloney, Editorial Director, DC Velocity :
Was there any positive news at all to report?
Victoria Kickham, Senior Editor, DC Velocity :
Yes, actually. So, most ports chose to focus on their ability to remain open and keep supply lines running during the pandemic, which is important, and many pointed to ongoing projects aimed at improving efficiency.
But we also saw that the numbers were good in a few places. I mentioned South Carolina. Although their cargo volume was down, it was only slightly. It was less than 3%. And officials pointed to pretty solid performance at the inland ports.
We also saw, last week, the Port of Oakland reported what they referred to as a surprising gain for inbound cargo in June. It was up nearly 2% for imports, and they said it was unexpected, given that shipping lines had canceled about 10% of their scheduled Oakland visits, you know, due to pandemic-related disruption. When they talked about what they attributed the uptick to, they said it was likely due to retailers accelerating shipments to the U.S. due to dwindling cargo capacity and an expected rise in freight rates.
David Maloney, Editorial Director, DC Velocity :
You also reported on a new autonomous vehicle research facility being built at Auburn University. What are they looking to do there?
Victoria Kickham, Senior Editor, DC Velocity :
Yes, this is really interesting, I thought. So, researchers at Auburn University said they will soon have a new home for their autonomous vehicle development projects. And obviously, autonomous vehicle technology is a big issue in logistics, so this is a pretty cool development, I think. The university said this week it will build, in addition to its National Center for Asphalt Technology test track—they call that the NCAT test track, which is where researchers from the school's department of engineering currently do most of their work on autonomous vehicles. So, they're largely outside on the test track doing a lot of their research out in the elements. So this new facility will essentially bring much of their work indoors, and the plans call for a garage with multiple bays and lifts for commercial trucks and passenger vehicles, office space for the researchers, a conference room, and then—this is really key—an observation area that overlooks the test track, which is a 1.7-mile oval track.
David Maloney, Editorial Director, DC Velocity :
So this isn't a new area of research for Auburn. They've been doing this for some time?
Victoria Kickham, Senior Editor, DC Velocity :
Yes, they've been doing this for quite a while. They have a long history developing autonomous vehicle projects. And as I said a minute ago, researchers work on both commercial truck and car automation. So they've worked with local, state, and federal governments on projects and with private industry. The key here, really, is that they'll now have a dedicated area to work on projects, and also to bring in potential partners to observe their work. And another interesting point, I thought: They say this will be one of the few autonomous vehicle facilities in the country attached to a test track, another aspect they say they hope will attract people to to the work.
David Maloney, Editorial Director, DC Velocity :
It'll be interesting to see how that develops over the next few years. Thanks for sharing highlights of our news this week.
Victoria Kickham, Senior Editor, DC Velocity :
You're welcome.
David Maloney, Editorial Director, DC Velocity :
We encourage listeners to go to DCVelocity.com for more on these and other supply chain stories, as well as our continuing Covid-19 coverage and a list of resources. That's all available on DCVelocity.com. Go there to check it all out.
And again, our thanks to our guest today, Michael Zimmerman, for his insights into the State of Logistics. We encourage your feedback on this topic and our other stories. You can email us at podcast@dcvelocity.com.
And a reminder that Logistics Matters is sponsored by Fortna. Fortna partners with the world's top brands to transform distribution operations into competitive advantage. Expertise includes distribution strategy, DC operations, micro-fulfillment, automation, and intelligent software. Distribution solutions designed today for tomorrow's challenges. Learn more about the distribution experts at Fortna.com.
We encourage you to subscribe to Logistics Matters on Apple, Google, Spotify, Stitcher, or wherever you get your podcasts. Just search for "logistics matters" to find us. Our new episodes are uploaded each Friday. We'll be back again next week with another edition of Logistics Matters, when we will look at why states are working to put zero-emission trucks and other vehicles on our nation's roads. Be sure to join us. Until then, please stay safe and have a great week.
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