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Transcript
Jenny Vander Zanden is Breakthrough’s chief operating officer. She started as an intern and became COO. She has a passion for mathematics, quantitative measures, and analytics.
Vander Zanden has more than 15 years of experience strategically advising shippers in the transportation industry. She has been recognized for her leadership and accomplishments, as the recipient of the Supply & Demand Chain Executive Pros to Know award in 2016, and her thought leadership has been featured in Forbes, The Wall Street Journal, CNBC, MarketWatch, and Barron’s.
Vander Zanden earned a Bachelor of Business Administration and Mathematics from St. Norbert College and later went on to achieve a Master of Business Administration degree from University of Wisconsin—Oshkosh.
David Maloney, Editorial Director, DC Velocity 00:01
Shippers face a challenging market. More turbulence for air freight. And meeting sustainability goals.
Pull up a chair and join us as the editors of DC Velocity to 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 group editorial director at DC Velocity. Welcome.
Logistics Matters is sponsored by TGW. TGW is a leading global systems integrator for automated warehouse solutions. They're a one-stop provider, designing, manufacturing, implementing, and maintaining end-to-end fulfillment solutions for URBN, Gap, Jasco, TVH, and more. Distribution network management is becoming all the more challenging. Master the unpredictable with TGW, a leading global systems integrator. Visit tgw-group.com for more information.
As usual, our DC Velocity senior editors Ben Ames and Victoria Kickham will be along to provide their insight into the top stories of this week. But to begin today: shippers are facing many challenges today. There's the world's political situation for one; another is inflation; and the need to diversify. Our guest today offers some insights into the challenges of shippers. Here's Victoria with today's guest. Victoria.
Victoria Kickham, Senior Editor, DC Velocity 01:23
Thank you, Dave. Our guest today is Jenny Vander Zanden. She's chief operating officer for Breakthrough, a transportation management technology firm based in Wisconsin. Welcome, Jenny.
Jenny Vander Zanden, Chief Operating Officer, Breakthrough 01:34
Thank you, Victoria. Excited to be here today.
Victoria Kickham, Senior Editor, DC Velocity 01:36
Yeah, we're glad to have you. So, I'm gonna start just by saying, you know, industry conditions have really shifted and sort of slowed from the record-breaking demand for logistics services that we saw during the pandemic. From your perspective, you know, what are some of the main challenges shippers are facing in early 2023, as markets kind of change?
Jenny Vander Zanden, Chief Operating Officer, Breakthrough 01:53
Yeah, great question. You know, we have seen the freight demand is softening and our forecasts are showing that the demand will slow 6% year over year. However, we're still above pre-pandemic conditions in 2019, and we don't expect to get close to those until the end of 2023. And if you think about a decline happening throughout the year, there's still a lot of change in a network. And that change in one network, and the total number of networks, both for shippers and carriers, presents another period of volatility in a market in flux. And so certainly, as networks are moving, a lot of change creates a need for better information to make decisions. We talked about change in freight demand, but this, this market has seen, you know, some of the greatest amounts of volatility in fuel, and with fuel being one of the highest costs in moving product to market, it is a bit unprecedented for the amount of volatility we've experienced. Just to give you a frame of reference for this volatility: before 2022, we had 12 times, in the past 10 years, with price movements in diesel—which is the commodity most often used in transportation—12 times, that we have that in 10 years, moving over 10 cents a gallon. In 2022, we experienced that 79 times alone, and just in the month of January, 6 times. So I think this topic of fuel volatility is a really important one that people are going to continue to see, you know, and on top of everyone's mind is what is fuel going to do this year? How does that impact my forecast, and how does that compare to my budget? So, I think between the freight change and the fuel change, there's a lot happening that requires information to make decisions.
Victoria Kickham, Senior Editor, DC Velocity 03:38
That's for sure. And we hear a lot about, you know, sort of diversifying sourcing, and that comes into play here as well. Do you agree that that's happening, and what are some strategies shippers should consider when looking to diversify their sourcing in light of all these challenges?
Jenny Vander Zanden, Chief Operating Officer, Breakthrough 03:55
Yeah, I think the challenges we felt over the last three years, they're not new challenges, you know: The need for capacity, the need for providers, you know, the ever changing networks of shippers. You know, I think what it really did was amplify the challenges that were already experienced in transportation. So, I do agree that need to diversify is important, but I think it's also important to say, why are you diversifying? What are the network priorities of a shipper? Is it to manage cost, capacity, service, or a combination of the three? And what we're really seeing emerge as kind of a fourth decision-making in diversifying sourcing is sustainability—you know, how is this aligning up to my sustainability goals? What type of sourcing do I need in the future in order to obtain my objectives? You know, whether that be from increasing intermodal, looking at different carrier partners that may have more efficient operations, or exploring alternative energies. So, I think we're seeing that need for diversification. You know, I think we're first seeing it from a "how do we secure long term capacity and service [perspective]," but then also from a longer term. You know, how do we think of cost stability? How do we think about our carbon-reduction goals? And what partners do we need for the future? And so, I do think we're seeing a lot of that, and I think the challenge is, those partners don't just show up on your front door. I think there's a lot of phone calls being made. But what do you truly need? How do you assess them? And how do you use data to be able to leverage and find those partners? And I think the shippers that find the data where they can be the one seeking out and really knowing what they're looking for in a partner, and then being able to find it, where there's great fit, will be those that have the most success.
Victoria Kickham, Senior Editor, DC Velocity 05:38
Well, that's, I wanted to ask you about that as well, and follow up, just—so how, what are some strategies for shippers in selecting, fostering, sort of strengthening partnerships, you know, as you were just talking about, you know, both globally and domestically, to deal with the challenges, and also to deal with supply disruptions that are always a challenge?
Jenny Vander Zanden, Chief Operating Officer, Breakthrough 05:58
Yeah, we've actually done a lot of research in this space. You know, I think everybody always wants to find the carrier that's a natural backhaul to their freight, but it's hard to find those carriers. So, we've actually developed some tools where we can actually help identify a best-fit carrier search looking at an entire ecosystem. Often, a shipper sees what's in their network and can make those natural backhauls within their network, but how do you optimize to the general flows of carrier bases to be able to find where those fits occur? What we found in studies is that when moving to a carrier with a really good fit score in your network—not necessarily that it's a match within your network, but it's a match to their network—can generate up to a 14% cost savings. And so there's a lot of value in leveraging that database approach to find the carriers of strategic fit, and being able, as we talked [about] in the previous question, diversifying for fit can create an opportunity here. And with that cost, savings often comes you know, more frequent turns on that lane, better service. So, that's really the first way, is to really take a data-based approach to how you're finding those carriers of good fit. Shippers and carriers are in a growth relationship, and when we really define growth relationship, it's kind of year-over-year growth consistently, those contracted rates are typically about 3% lower than other carriers in their network. So, I do think, you know, thinking, how do I not just seek out new carriers in my network of good fit, but how do I also use that growth-relationship mindset to be able to find the right partners, grow with them ,and do that where there's an advantage?
Victoria Kickham, Senior Editor, DC Velocity 07:45
Thank you. Yeah, that all makes sense. You know, geopolitical issues are a concern as well in talking about all of this. How—you mentioned fuel, and the volatility there, earlier. How will the EU's ban on Russian oil imports, which I believe started just this past week, how will that affect shippers' energy and freight market strategies going forward?
Jenny Vander Zanden, Chief Operating Officer, Breakthrough 08:08
Yeah. First, a couple of things. You know, I think well, the this ban has just started here earlier this week, it hasn't yet had a material impact. So, sometimes you see an immediate reaction from the market. There was actually a good job of creating kind of a good amount of inventory prior to this happening. And so I do think there was anticipation and an acknowledgement that this was coming, some inventories that have been built, and a little bit lighter, warmer of a winter that hasn't seen the same amount of depletion of inventory. However, over time, based on supply and demand, these inventories will deplete. And so it's not going to have an immediate impact, but there will be upward price pressure in this market, in Europe specifically. But because diesel and the energy used in moving products to market is really a global commodity, we are going to experience that in the U.S. as well. You're first going to see it a little bit more in the Northeast, because that's where a lot of that inventory is going to come from, and from the Gulf Coast, so you'll see a little more volatility as that supply is being driven to other markets. And I think the one thing that's a challenge for shippers is that that represents another element of volatility. It's not just those day-to-day movements we talked about in an earlier segment, it's volatility by geography. And a lot of fuel programs that shippers have, through common fuel surcharges, really aren't set up to handle that type of volatility and really keep a fair and accurate reimbursement. So, we do think kind of looking at, how does your fuel program operate? Does it meet the geographical volatility, the day-to-day volatility in energy markets? Because this is another kind of force creating pressure on those markets as demand—supply and demand—balances and market fundamentals come into play.
Victoria Kickham, Senior Editor, DC Velocity 09:57
What about the easing of zero-Covid policies in China? What effects might that have on energy and freight markets, if any?
Jenny Vander Zanden, Chief Operating Officer, Breakthrough 10:08
Yeah. So, I think what we've seen is really two impacts. Almost right after, with the easing of the Covid policies was the Lunar New Year as well, and we saw a pretty significant spike in jet-fuel demand. So, a lot of kind of anticipated travel buildup starting to occur. You know, we've seen some forward guidance in the market that they don't expect those jet-fuel [prices] to just come back down to normal levels, and so I think that increased demand of jet fuel is something that will put pressure. I mean, there's, when you're thinking about distillates, there's some competing priorities here, so I think you'll start to see that more and more travel will put a little more pressure—on top of some of the impacts of that EU ban on some of these refined products that all compete for the same part of the barrel and refined capacity. So, I think it's another impact of some increased pressure on the market. It'll add to that volatility that has been experienced.
Victoria Kickham, Senior Editor, DC Velocity 11:08
You mentioned earlier a lot of the research that you do into all of these issues. I just wanted to, you know, sort of wrap up by asking you for any, you know, advice or insight you give to shippers when it comes to navigating today's challenges that we've been talking about. Any sort of general insider advice, or things people should just be paying attention to?
Jenny Vander Zanden, Chief Operating Officer, Breakthrough 11:26
Yeah, you know, I think our perspective is, you know, how does this not become a market-to-market strategy? How do you focus on building a resilient strategy? And that's a short-term strategy. I think often we're looking for, you know, what do we need now in order to, to maximize or optimize in this market. How do you think long term in building a resilient strategy for your transportation network? And then how do you have the right tools for visibility into your network data, and the right partners to be able to support it from a data-driven perspective that allow you to make those long term decisions? You know, I think it's a challenge that shippers will face is, do I have the right information and the right partners to make those decisions and to be able to navigate the volatility in fuel, freight, and the ever-changing sustainability goals to be able to accomplish those two?
Victoria Kickham, Senior Editor, DC Velocity 12:13
All good advice. Jenny, thank you so much for being here today, and for talking to us about this. We appreciate having you.
Jenny Vander Zanden, Chief Operating Officer, Breakthrough 12:21
Oh, thank you so much for having me. It's been a pleasure.
Victoria Kickham, Senior Editor, DC Velocity 12:24
We've been talking with Jenny Vander Zanden of Breakthrough. Back to you, Dave.
David Maloney, Editorial Director, DC Velocity 12:29
Thank you, Jenny, and Victoria. Now let's take a look at some of the other supply chain news from the week, and, Ben, you reported this week on the continuing turbulence in air freight. Can you share some details?
Ben Ames, Senior News Editor, DC Velocity 12:42
Yeah, exactly. As we move into the new year, we continue to get fresh statistics, of course, that show exactly how global supply chains have been disrupted by the pandemic in the last couple years, and then by other economic turbulence in recent months—of course, the war in Ukraine, inflation, interest rates, all sorts of troubles, but we've also seen how they're recovering. So, I'm talking today about the air cargo sector specifically. That was one of the supply chain transport modes that was really the most disturbed by the pandemic, and by the health policies around it, more specifically. Of course, early in the pandemic, that's because, throughout 2020, we saw travel bans, as nations tried to slow the spread of the virus. And that hit airlines really hard, because suddenly they were flying empty planes. So, for business reasons, of course, they grounded a lot of those, and that hits them not only in that passenger revenue, but also in cargo revenue, because most planes fly cargo loads mixed, down in the belly space of the plane, along with our suitcases. There are pure freight planes as well, of course, but there's a lot of mixing and matching there. But then, during the pandemic, e-commerce demand boomed when everybody was ordering goods at home, and that helped give airlines a boost for that remaining space, and the bottom line, we now know, is that global air cargo demand in 2022 was down 8% compared to the extraordinary demand of 2021, when all that e-commerce booming was happening. So, that left air cargo demand at the end of this past year just 1.6% below its pre-pandemic levels. So, those numbers all come from the International Air Transport Association, IATA. So that, you know, that's an impressive improvement and recovery there. It's unclear, however, how smoothly that recovery will continue in 2023, because IATA forecasts a stall in those growing cargo demands in the coming year. [They] use a measure to track that that's called new export orders and that's been flat since October, largely because a lot of the major economies around the world are shrinking slightly, with the notable exceptions of Germany, the U.S., and Japan
David Maloney, Editorial Director, DC Velocity 15:03
Ben, but most of the pandemic-era restrictions have been lifted by now, so did the report explain why we're seeing sort of those shrinking numbers?
Ben Ames, Senior News Editor, DC Velocity 15:13
Yes, and in fact, it's kind of funny, but the shrinking is actually on purpose, because governments around the world are fighting inflation, each by cooling off their economies. It's the same sort of playbook. And it seems to be working, although working slowly. Everybody knows we still have inflation. It seems to drift a little bit. I think it's eggs that are very expensive nowadays. The Consumer Price Index—the CPI—for the G7 countries—that's the top industrialized nations—that showed inflation of 6.8% in December. That was down from 7.4% in November. So, improvement, but it's, you know, slow, and the pain is still there. Fortunately for airlines, those pandemic restrictions are lifted and passengers are getting back in the air. IATA said that global airlines saw their passenger demand rebound in this past year. It jumped 64% compared to the previous year, which is a huge jump, of course, but it still brings the 2022 passenger air traffic to just under 70% of its pre-pandemic levels. So, again, improvement, but still a ways to go. It's gonna take a little while on this one, I think measured in years and not months, so we'll keep on tracking it.
David Maloney, Editorial Director, DC Velocity 16:34
We certainly will. Thanks, Ben.
Ben Ames, Senior News Editor, DC Velocity 16:36
Glad to.
David Maloney, Editorial Director, DC Velocity 16:38
And Victoria, meeting sustainability goals continues to be important to most companies, and you've reported this week on how many managers are feeling about their environmental commitments, in spite of the uncertain economy. Can you share some details?
Victoria Kickham, Senior Editor, DC Velocity 16:52
Absolutely, Dave. Happy to. A recent survey found that most companies remain committed to investing in their environmental sustainability goals despite economic challenges like inflation and a potential recession in 2023. Manufacturing and technology conglomerate Honeywell released its first-quarter Environmental Sustainability Index on January 31, and it showed that most organizations plan to increase their investments in climate-related initiatives and energy transition solutions over the next 12 months. That may be because most of those surveyed said they've had some success in pursuing their green goals over the past 12 months. 98% of the business leaders surveyed said they had been either somewhat successful or extremely successful in achieving one or more sustainability goals in the last year. Honeywell surveyed 750 professionals for the report, and they included business technology and sustainability professionals, and I'm quoting her,, that are directly involved in the planning, strategic development, implementation, or oversight of environmental sustainability goals and initiatives.
David Maloney, Editorial Director, DC Velocity 17:57
Victoria, did the report get any more specific on the types of goals where companies are doing their investments?
Victoria Kickham, Senior Editor, DC Velocity 18:03
Yes. They specified energy efficiency and evolution, emissions reduction, pollution prevention, and recycling. To fine tune that a bit more: half of those surveyed said their organizations plan to increase budgets related to emissions reduction by more than 20% over the next 12 months. And I also found a couple of other overall findings pretty interesting. The first was that sustainability goals continued to be perceived as a top corporate priority. According to the report, 71% of organizations listed that as one of their top five priorities overall. And secondly, although organizations expect to keep investing in sustainability, as we've talked about, they're also paying very close attention to economic and geopolitical issues that could affect those strategies. This is a quarterly report, so it compares results to the previous quarter, which was the end of 2022, and at that time, pandemic-related concerns were cited as the top barrier to success, but this time, this quarter, economic concerns and their impact are now cited as the top anticipated barrier over the coming 12 months. So, still a lot of investment to come, but, you know, as everyone is kind of keeping a sharp eye on on the macro economy and other issues.
David Maloney, Editorial Director, DC Velocity 19:16
Right. Definitely those could affect those commitments towards sustainability. Thanks, Victoria.
Victoria Kickham, Senior Editor, DC Velocity 19:22
You're welcome.
David Maloney, Editorial Director, DC Velocity 19:24
We encourage listeners to go to DCVelocity.com for more on these and other supply chain stories. And also check out the podcast Notes section for some direct links on the topics that we discussed today.
And our thanks to Jenny Vander Zanden of Breakthrough for being our guest. We welcome your comments on this topic and our other stories. You can email us at podcast@dcvelocity.com.
We also encourage you to subscribe to Logistics Matters at your favorite podcast platform. Our new episodes are uploaded on Fridays.
Speaking of subscribing, check out our sister podcast series Supply Chain in the Fast Lane. It's coproduced by the Council of Supply Chain Management Professionals and Supply Chain Quarterly. Subscribe wherever you get your podcasts.
And a reminder that Logistics Matters is sponsored by TGW. TGW is a leading global systems integrator for automated warehouse solutions. They're a one-stop provider, designing, manufacturing, implementing, and maintaining end-to-end fulfillment solutions for URBN, Gap, Jasco, TVH, and more. Learn more about how to improve your supply chain operations by visiting them at ProMat this March in Booth #S1503. Again, that's TGW.
We'll be back again next week with another edition of Logistics Matters. Be sure to join us. Until then, have a great week.
Articles and resources mentioned in this episode:
- Breakthrough
- Air cargo demand slumped in 2022 after extraordinary levels in 2021
- Companies to grow investments in energy-transition solutions and emissions reduction
- Visit Supply Chain Quarterly
- Listen to CSCMP and Supply Chain Quarterly's Supply Chain in the Fast Lane podcast
