How has the pandemic affected businesses in general and supply chains in particular? Dr. Yossi Sheffi, a professor at MIT, offers some answers in his latest book.
David Maloney has been a journalist for more than 35 years and is currently the group editorial director for DC Velocity and Supply Chain Quarterly magazines. In this role, he is responsible for the editorial content of both brands of Agile Business Media. Dave joined DC Velocity in April of 2004. Prior to that, he was a senior editor for Modern Materials Handling magazine. Dave also has extensive experience as a broadcast journalist. Before writing for supply chain publications, he was a journalist, television producer and director in Pittsburgh. Dave combines a background of reporting on logistics with his video production experience to bring new opportunities to DC Velocity readers, including web videos highlighting top distribution and logistics facilities, webcasts and other cross-media projects. He continues to live and work in the Pittsburgh area.
It's been nearly 10 months since Covid-19 slammed into the global economy like a wrecking ball. And while businesses have learned to manage, many will endure lasting effects that may take years to resolve. In the meantime, all of us—businesses and consumers alike—are yearning for things to get back to normal.
But what does that even mean? Is it possible that we may someday return to some semblance of our old lives? Or will we enter a "new normal"? And if so, what will that look like?
These are some of the questions Dr. Yossi Sheffi takes on in his latest book, The New (Ab)Normal: Reshaping Business and Supply Chain Strategy Beyond Covid-19. In the book, Sheffi, a professor of engineering at the Massachusetts Institute of Technology (MIT) and director of the school's Center for Transportation and Logistics, explains how the Covid-19 pandemic has affected businesses and society, and talks about the critical role that supply chains have played in helping people, governments, and companies manage the crisis. He also examines what our post-pandemic world might look like.
Sheffi recently talked to DC Velocity Editorial Director David Maloney about the book and his thoughts on how the pandemic will reshape our supply chains.
Q: Your new book takes a look at the pandemic's effects on the economy in general and supply chains in particular. What did your research reveal? A: I found that both good and bad things are happening. For some companies, business is up, and for others, it has virtually disappeared. The whole tourism industry and the airlines are in bad shape, for example.
But let's talk about supply chain in particular. Some of the "good" things that have come out of it can be summed up with the question that everybody asks my wife, which is "What does your husband do?" Until January of this year, when she told them "My husband is in supply chain," they just gave her that baffled, "deer in the headlights" look. Now, everybody nods and says "Oh, I know about that. So he is working on important things."
So, almost overnight, the whole profession became a household name. The importance of supply chain has been elevated. People and CEOs understand that this is the stuff that connects supply and demand. This is what makes the world work. That is something, I think, that will have profound consequences going forward.
Q: The pandemic has disrupted every business. How have successful companies managed their operations during these very difficult times? A: There are several things that successful businesses are doing. For instance, they've established emergency management centers where all of the information comes through a set group of people who are the decision-makers. It used to be a room, but now it is, of course, virtual.
They also have reviewed their suppliers to make sure that they're still around and are open. And they've reviewed products and customers. You may not have enough parts or raw material to build all of the product you need to build. You may not have enough to serve all of your customers. Which supplier and which customer should you focus on?
They also think about finance. Of course, we are going through a recession and cash is king, but businesses need to be very careful about extending terms of payment to suppliers. Companies have also been reducing SKUs (stock-keeping units). General Mills, for example, cut its Progresso soup lineup from 90 varieties to 50. This was initially done in order to assure supply. Now, it's being done to hold down costs because fewer varieties mean fewer changeovers in manufacturing.
Then the good companies never let a good crisis go to waste. They are planning for recovery. They are strategically looking at all their customers, all their employees, and all their business lines. What works and what doesn't, and what will be working in the future?
Finally, something that is really unique to this crisis is that a lot of companies are significantly accelerating their adoption of advanced tech. Whether it is connectivity or visibility or going through the cloud, companies are adopting optimization systems at a much higher rate than before.
Q: Did you find that the pandemic had accelerated the adoption of automated equipment and other advanced technologies in warehouse and distribution facilities? A: Absolutely. Warehouse automation is accelerating rapidly, though the trend lines can be hard to decipher because, at the same time, companies like Amazon or Walmart.com are hiring a lot of people in response to the e-commerce boom. It is not only them; it is Target and Lowe's and JD.com and Alibaba—everybody is seeing online sales explode. But at the same time, they are certainly building a lot of new automated warehouses.
Of course, we're also reading about developments in transportation automation, like autonomous trucks, autonomous last-mile delivery. Many companies are developing these capabilities. There is even a company that is now seeking FAA approval to deliver human parts between hospitals via drones. And these are not small packages; they are 150-pound packages and the drones are actually small airplanes. People are moving all over the place when it comes to automation.
Q: Can you share some examples of companies that have successfully adapted to the new business environment? A: We've seen a number of big companies adjusting, but I also have some examples of small, family-owned companies that have adapted to the times. One of those is a husband-and-wife company with 20 trucks that, prior to the pandemic, supplied food to institutions—universities, restaurants, and industrial parks—in the Boston area.
In March 2020, their business dropped 96%. So they turned on a dime and began marketing to consumers. Now, keep in mind that we're talking about people who never had a website, never took an order online, so this required a big adjustment on their part. But they quickly began stepping up their marketing and ordering capabilities. At first, they would just send out a PDF listing what they had available for sale. Then it became a website, though you still had to call if you wanted to order something you saw online. Then they put pictures on the website that customers could click to order. Then they added tracking and tracing capabilities. All of this happened in only about three to four weeks. They moved from being strictly a wholesaler to what was essentially a modern online retail operation. Now, of course, small companies can move on a dime. Still, many of their competitors failed, while they moved forward very quickly. So it was interesting to see.
Q: What are some of the attributes of companies that will make it through the crisis versus those that won't? A: Well, think about the people who are most at risk of becoming seriously ill or dying. It is the weak, the people with pre-existing conditions or co-morbidities, people whose health was already compromised.
It's the same thing with companies. The ones most at risk are the weak, the ones that were already in trouble before the pandemic. An example would be U.S. department stores. Department store revenues had slipped from something like $30 billion in 1999 to $11 billion by 2019, so they had lost two-thirds of their revenue in 20 years' time. When the pandemic hit, a number of major department stores went bankrupt. It is the companies that were weak before who have not made it.
It is not the fast who survive, it is the people who can adapt. But in order to be able to adapt, you need some financial muscle, some reserve of money and talent, and the companies that were in trouble before didn't have that. It is the companies who had the talent, who were in reasonably good shape, and who could pivot that survived.
Q: So, what is our "new abnormal" and what are some of the key supply chain lessons we've learned during these pandemic times? A: When we talk about the new abnormal, people are talking about the recovery being a V-, a U-, an L-, or a W-shaped recovery. But no, it will be none of the above. The recovery is going to be like a game of Whack-a-Mole, where a rodent pops up randomly on the play board and you have to hit it quickly. Think about the globe as your play board, where the pandemic flares up randomly in different locations, causing business shutdowns and halting your suppliers' operations. That is what we are facing, which is very difficult for supply chain managers.
By the way, the media are talking about the end of China and the end of just-in-time. All of this is just not going to happen, because moving back to the United States or to Europe goes against resilience. In order to be resilient in a world like this, you need to be global. You cannot consolidate your supply base in a single part of the world—even if it's the United States or somewhere in Europe—because that region could close with no warning. You need to be spread all over the world. You need to have factories and suppliers in more than one place.
This is only one aspect of what the world is going to look like over the next year or maybe a little longer, depending on the efficacy of the vaccines that are developed. We just don't know if these vaccines are going to be like the flu shot, which is only 60% to 70% effective, or if they will be high 90s, because a lot of the vaccines are based on new technology that we've never tried before. So, we just don't know. Clearly, for the next year at least, if not more, it will be a Whack-a-Mole recovery.
Q: To close, you suggest in your book that there may be a new "Roaring '20s." What do you see for the future, and what opportunities will there be for supply chain managers? A: Supply chain management is becoming the new finance, the new marketing—a sexy profession that people are going to flock to. At MIT, we're seeing applications for our supply chain management program go through the roof, and other schools report the same thing. The word is out, so to speak.
We had the Roaring '20s after World War I. And we had some of the best growth the U.S. has ever seen after World War II. This is almost like a war. This is something that affects the entire world, and I think people will come out of this with a realization that the world is a lot more vulnerable than they thought. I hope so.
Most of the apparel sold in North America is manufactured in Asia, meaning the finished goods travel long distances to reach end markets, with all the associated greenhouse gas emissions. On top of that, apparel manufacturing itself requires a significant amount of energy, water, and raw materials like cotton. Overall, the production of apparel is responsible for about 2% of the world’s total greenhouse gas emissions, according to a report titled
Taking Stock of Progress Against the Roadmap to Net Zeroby the Apparel Impact Institute. Founded in 2017, the Apparel Impact Institute is an organization dedicated to identifying, funding, and then scaling solutions aimed at reducing the carbon emissions and other environmental impacts of the apparel and textile industries.
The author of this annual study is researcher and consultant Michael Sadowski. He wrote the first report in 2021 as well as the latest edition, which was released earlier this year. Sadowski, who is also executive director of the environmental nonprofit
The Circulate Initiative, recently joined DC Velocity Group Editorial Director David Maloney on an episode of the “Logistics Matters” podcast to discuss the key findings of the research, what companies are doing to reduce emissions, and the progress they’ve made since the first report was issued.
A: While companies in the apparel industry can set their own sustainability targets, we realized there was a need to give them a blueprint for actually reducing emissions. And so, we produced the first report back in 2021, where we laid out the emissions from the sector, based on the best estimates [we could make using] data from various sources. It gives companies and the sector a blueprint for what we collectively need to do to drive toward the ambitious reduction [target] of staying within a 1.5 degrees Celsius pathway. That was the first report, and then we committed to refresh the analysis on an annual basis. The second report was published last year, and the third report came out in May of this year.
Q: What were some of the key findings of your research?
A: We found that about half of the emissions in the sector come from Tier Two, which is essentially textile production. That includes the knitting, weaving, dyeing, and finishing of fabric, which together account for over half of the total emissions. That was a really important finding, and it allows us to focus our attention on the interventions that can drive those emissions down.
Raw material production accounts for another quarter of emissions. That includes cotton farming, extracting gas and oil from the ground to make synthetics, and things like that. So we now have a really keen understanding of the source of our industry’s emissions.
Q: Your report mentions that the apparel industry is responsible for about 2% of global emissions. Is that an accurate statistic?
A: That’s our best estimate of the total emissions [generated by] the apparel sector. Some other reports on the industry have apparel at up to 8% of global emissions. And there is a commonly misquoted number in the media that it’s 10%. From my perspective, I think the best estimate is somewhere under 2%.
We know that globally, humankind needs to reduce emissions by roughly half by 2030 and reach net zero by 2050 to hit international goals. [Reaching that target will require the involvement of] every facet of the global economy and every aspect of the apparel sector—transportation, material production, manufacturing, cotton farming. Through our work and that of others, I think the apparel sector understands what has to happen. We have highlighted examples of how companies are taking action to reduce emissions in the roadmap reports.
Q: What are some of those actions the industry can take to reduce emissions?
A: I think one of the positive developments since we wrote the first report is that we’re seeing companies really focus on the most impactful areas. We see companies diving deep on thermal energy, for example. With respect to Tier Two, we [focus] a lot of attention on things like ocean freight versus air. There’s a rule of thumb I’ve heard that indicates air freight is about 10 times the cost [of ocean] and also produces 10 times more greenhouse gas emissions.
There is money available to invest in sustainability efforts. It’s really exciting to see the funding that’s coming through for AI [artificial intelligence] and to see that individual companies, such as H&M and Lululemon, are investing in real solutions in their supply chains. I think a lot of concrete actions are being taken.
And yet we know that reducing emissions by half on an absolute basis by 2030 is a monumental undertaking. So I don’t want to be overly optimistic, because I think we have a lot of work to do. But I do think we’ve got some amazing progress happening.
Q: You mentioned several companies that are starting to address their emissions. Is that a result of their being more aware of the emissions they generate? Have you seen progress made since the first report came out in 2021?
A: Yes. When we published the first roadmap back in 2021, our statistics showed that only about 12 companies had met the criteria [for setting] science-based targets. In 2024, the number of apparel, textile, and footwear companies that have set targets or have commitments to set targets is close to 500. It’s an enormous increase. I think they see the urgency more than other sectors do.
We have companies that have been working at sustainability for quite a long time. I think the apparel sector has developed a keen understanding of the impacts of climate change. You can see the impacts of flooding, drought, heat, and other things happening in places like Bangladesh and Pakistan and India. If you’re a brand or a manufacturer and you have operations and supply chains in these places, I think you understand what the future will look like if we don’t significantly reduce emissions.
Q: There are different categories of emission levels, depending on the role within the supply chain. Scope 1 are “direct” emissions under the reporting company’s control. For apparel, this might be the production of raw materials or the manufacturing of the finished product. Scope 2 covers “indirect” emissions from purchased energy, such as electricity used in these processes. Scope 3 emissions are harder to track, as they include emissions from supply chain partners both upstream and downstream.
Now companies are finding there are legislative efforts around the world that could soon require them to track and report on all these emissions, including emissions produced by their partners’ supply chains. Does this mean that companies now need to be more aware of not only what greenhouse gas emissions they produce, but also what their partners produce?
A: That’s right. Just to put this into context, if you’re a brand like an Adidas or a Gap, you still have to consider the Scope 3 emissions. In particular, there are the so-called “purchased goods and services,” which refers to all of the embedded emissions in your products, from farming cotton to knitting yarn to making fabric. Those “purchased goods and services” generally account for well above 80% of the total emissions associated with a product. It’s by far the most significant portion of your emissions.
Leading companies have begun measuring and taking action on Scope 3 emissions because of regulatory developments in Europe and, to some extent now, in California. I do think this is just a further tailwind for the work that the industry is doing.
I also think it will definitely ratchet up the quality requirements of Scope 3 data, which is not yet where we’d all like it to be. Companies are working to improve that data, but I think the regulatory push will make the quality side increasingly important.
Q: Overall, do you think the work being done by the Apparel Impact Institute will help reduce greenhouse gas emissions within the industry?
A: When we started this back in 2020, we were at a place where companies were setting targets and knew their intended destination, but what they needed was a blueprint for how to get there. And so, the roadmap [provided] this blueprint and identified six key things that the sector needed to do—from using more sustainable materials to deploying renewable electricity in the supply chain.
Decarbonizing any sector, whether it’s transportation, chemicals, or automotive, requires investment. The Apparel Impact Institute is bringing collective investment, which is so critical. I’m really optimistic about what they’re doing. They have taken a data-driven, evidence-based approach, so they know where the emissions are and they know what the needed interventions are. And they’ve got the industry behind them in doing that.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”
That result showed that driver wages across the industry continue to increase post-pandemic, despite a challenging freight market for motor carriers. The data comes from ATA’s “Driver Compensation Study,” which asked 120 fleets, more than 150,000 employee drivers, and 14,000 independent contractors about their wage and benefit information.
Drilling into specific categories, linehaul less-than-truckload (LTL) drivers earned a median annual amount of $94,525 in 2023, while local LTL drivers earned a median of $80,680. The median annual compensation for drivers at private carriers has risen 12% since 2021, reaching $95,114 in 2023. And leased-on independent contractors for truckload carriers were paid an annual median amount of $186,016 in 2023.
The results also showed how the demographics of the industry are changing, as carriers offered smaller referral and fewer sign-on bonuses for new drivers in 2023 compared to 2021 but more frequently offered tenure bonuses to their current drivers and with a greater median value.
"While our last study, conducted in 2021, illustrated how drivers benefitted from the strongest freight environment in a generation, this latest report shows professional drivers' earnings are still rising—even in a weaker freight economy," ATA Chief Economist Bob Costello said in a release. "By offering greater tenure bonuses to their current driver force, many fleets appear to be shifting their workforce priorities from recruitment to retention."