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.
To say that retailers are facing unprecedented challenges might be an understatement. After surviving the pandemic shutdowns, retailers met the challenge of surging consumer demand only to run up against a whole new set of obstacles: supply chain disruptions; runaway inflation; skyrocketing fuel and transportation costs; new, highly contagious strains of Covid; and a looming economic recession. All of this comes at a time when they are entering peak season. Many have stocked up on merchandise already, but are they the right products?
For some answers, we turned to Zac Rogers, an assistant professor of operations and supply chain management at Colorado State University. His primary research interests include the financial impact of supply chain sustainability, emerging logistics technologies, supply chain cybersecurity, and purchasing and logistics issues. He is also a researcher and co-author of the monthly Logistics Managers’ Index (LMI) report, which tracks trends and developments in the industry.
Rogers earned his B.S. and MBA degrees at the University of Nevada, Reno, and his Ph.D. in supply chain management from Arizona State University. He recently spoke with DC Velocity Group Editorial Director David Maloney.
Q: We have seen how even the smallest disruption can ripple throughout our supply chains, leading to shortages and delays. There are so many things that could potentially go wrong this peak season. What do you think is going to happen?
A: Yes, we are in a funny place going into peak season. We have seen inventories climb at an unprecedented rate over the last six months. What that really has to do with is the fact that supply chains are so long-tailed—longer tailed now than they really should be because of things like shutdowns at Shanghai, congestion at ports, and overcrowded warehouses. Everything is moving more slowly. What I keep hearing from folks is that whatever your normal leadtimes are, you can expect them to essentially triple—so that what would typically take 90 days to produce now takes 270 days. These are really long leadtimes, and the inventories that we see now reflect an economy that no longer exists. They reflect the economy of 2021, when we had really hot consumer spending.
Q: Prices are high, and we’re seeing record inflation. What are retailers’ expectations this holiday season with such high inventories? Will consumers see many pre-holiday sales as a result?
A: Yes, I think there will be some sales.
The other thing, ironically, is that we already have some holiday inventories, as some of the things that arrived here in February and March were supposed to get here last November in time for the 2021 holiday selling season. Some companies actually held onto winter coats or apparel. We are already seeing some pretty aggressive selldowns at some retailers.
Another thing that often gets lost in the discussion is that a lot of the inventory we have isn’t ready to go. It is “work in process” inventory. For instance, there was a Wall Street Journal article about GM in the first week of July that talked about 95,000 units that weren’t going to be delivered on time. There is a lot of inventory like that, and it represents a significant investment. We are seeing a similar bottleneck with lithium batteries and things like that that tend to come from Russia and Ukraine. So, we have a lot of inventory that is not even sellable.
Q: What kinds of goods will consumers look to purchase this holiday season? Are we looking at durable goods, consumables, or entertainment and escapism as we have in the past couple of years?
A: I think entertainment and escapism will be a big piece of it. If you look at spending on services relative to durable goods, it has really shifted toward services in the last few months, partially because the lockdown is over. People can go on vacations. They can go to sporting events, concerts, and movies.
I would also anticipate some demand for electronics. People had a really hard time getting laptops, phones, and videogame systems during the last few years because of the semiconductor shortage.
Q: Although we want to be done with Covid, Covid is not done with us, and we could see more surges and shutdowns in places like China. What effect would shutdowns have on peak season?
A: Well, it would be pretty tough if we had another shutdown in China. I don’t really think we’re going to see widescale shutdowns in the United States partly because of the midterm elections this fall—I just don’t think that anyone is going to want to be the “shutdown guy,” honestly. With China, we have already had huge disruptions, and, honestly, we haven’t really seen the tail end of the spring 2022 shutdowns yet. We were still feeling the aftereffects of the 2020 shutdowns at the end of 2021, and then we pivoted right into more shutdowns in early 2022 in China. It is going to take us a while to work through those.
One of the things that have become clear over the last year is that supply chains are not something you can just turn on and off quickly. They take a long time to get moving again. When I used to work in a warehouse, everyone would go to lunch for a half hour, and once everybody got back, it still took 20 to 30 minutes for things to get moving again because you need goods flowing through the process. It’s the same with supply chains. It takes a while for them to get turned back on, and the sort of “stop, start, stop, start” pattern we’ve seen is terrible for us. If we keep seeing that, then we are going to continue to have big disruptions.
Q: Speaking of warehouses, the industry is still struggling with a severe labor shortage as peak season gets underway and the amount of inventory that needs to be shipped out starts to grow. What do you foresee for the labor situation, and is that going to present problems with delivering goods on time?
A: You are absolutely right about inventories. In our Logistics Managers’ Index (LMI) “inventory level” metric, we were in the 70s for five of the first six months of 2022. Anything above 70 we would consider to be significant rates of growth because anything over 50 indicates expansion. Once you hit 70, you are really seeing a high level of growth. Before 2022, I think we were only in the 70s with inventory twice. It is moving really, really quickly.
That is also reflected in our “warehousing capacity” metric. With warehouse capacity, we have the same rules—anything over 50 indicates expansion and anything under 50 is contraction. We have been in the 30s or 40s now every single month since September of 2020. For almost two years, we have seen pretty significant rates of contraction in available space. That is due to the shift of warehouses, even though there are so many more warehouses now.
If you look at the warehouse absorption from 2021, a plurality of that was warehouses smaller than 100,000 square feet. Those tend to be urban warehouses. That is something that I think is often missed in discussions about warehouse labor issues. Yes, we have more warehouses than we’ve ever had, and there is more inventory moving through them, and it is more stressful than it has ever been, but they are also in a different place geographically. They are tending to go toward places where wages are higher.
Adding to that, the cost of living is rising at the fastest rate in 40 years. That is one of the things that are really driving the push toward automation in warehouses. We are seeing a huge boom in demand right now for fulfillment automation, any sort of robotic systems that can help supplement labor.
Q: Let’s take a moment to talk about trucking and the freight markets. CSCMP’s latest “State of Logistics Report” predicts a slowdown in these markets. We’ve even heard from some quarters that there may be a truck market collapse because of a buildup of capacity that now may not be needed. What is the near-term outlook for trucking and freight?
A: Well, peak season will be a godsend for some of the players—especially the smaller truckers. I know a lot of people are saying that 2022 might be like 2019, when we saw a virtual wipeout of the trucking industry. We had 3,000 carriers go out of business in 2019 and 2020. I don’t know that it’s going to be that severe, and there are a couple of reasons for that.
In 2017 and 2018, the economy was hot, and we had these huge orders for big Class 8 trucks. Plus, going into 2019, we essentially had an unlimited capacity to overbuild. We also had big orders for Class 8 trucks in 2020 and 2021. The difference is that because of the semiconductor bottleneck, we weren’t able to produce trucks nearly as fast as we wanted to. In some ways, the semiconductor shortage saved the trucking industry from itself.
As for transportation capacity, we tracked that metric in the Logistics Managers’ Index and again, any number over 50 indicates growth and anything under 50 indicates contraction. We had contraction in transportation capacity from July 2020 to March 2022, and then after March 2022, the diesel [price] shock happened and suddenly, capacity went positive. What is interesting, though, is that in June, capacity growth was lower than it was in May. So, the rate of growth was slowing down—to 61 in June. If you compare that to 2019, we are still not even close. In 2019, we saw the transportation capacity growth rate number go as high as 72, which indicated really significant rates of growth.
And then pivoting over to the metric of price for transportation: I think in June, we got down to 61.3 for transportation price, which is important because transportation rate growth is now lower than capacity, and when that happens, it usually means that something is going on economically.
As for what’s ahead, I do anticipate a lot of pain for smaller carriers. I think in the last week of June, the spread between wholesale and retail prices for diesel was about 73 cents per gallon. Smaller carriers don’t have the volume to buy diesel at wholesale prices. Their costs are much higher than big fleets’ costs. Also, the big fleets saved a ton of cash over the last two years because times were so good, they were able to put cash away. We are already seeing the big players start to absorb many of these smaller owner-operators. It is just not a level playing field.
Q: How do the higher fuel prices, capacity issues, and other factors affect shippers?
A: Every month we ask our respondents to do a future prediction: What do you think is going to happen across all of our different metrics? It is interesting. Over the next 12 months, our respondents predicted a growth rate of 59.6, so about 60 for transportation price, and that represents moderate, steady growth. This is the type of growth that we would consider sustainable. What that tells us is that prices are going to continue to go up, but at a mild and sustainable pace—one that won’t have us pulling our hair out the way we have for the last two years. In some ways, it could be sort of a relief.
Now, that growth rate probably reflects a move toward more contract carriers and less spot-market stuff, which again is harder for the little guys in the margins who are really relying on spot markets. But for the industry as a whole, what it seems like is that we are moving back toward equilibrium.
Q: How will rising interest rates affect our peak season?
A: I think some people have been hoping the Fed will ride in to save the day with inflation, but there is a great new tool out from the San Francisco Federal Reserve that individually tracks demand-driven and supply-driven inflation and helps to explain what’s going on. Supply-driven inflation is when price is going up really quickly, but supply is not going up quickly, like oil. Demand-driven inflation is when price goes up but then supply goes up, like apparel or footwear. If you look at the last three or four months, the vast majority of the inflation right now is coming from the supply side. It’s not that prices are just going up because consumers are spending money like crazy. Prices are going up because there is not enough supply to meet demand.
Now, back in March, April, and May of 2021, it was very much demand-driven. That was right when the stimulus checks came out, and the inflation we saw in early 2021 was really the result of consumers spending money on elastic goods.
The drivers that we’re seeing now are fuel and groceries. It is really the headline inflation that is supply-driven. People are not going to stop buying gas or food, so if the Fed raises interest rates, there will be some demand destruction, but it is going to be demand destruction of the things that weren’t really driving inflation anyway. That will make it even more difficult, I think, for companies to run down their inventories as quickly as they’d like because those goods sitting in inventory would be demand-driven goods that are being targeted by the Fed.
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
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.”