For links and show notes, mouse over the player and click the 
.
Transcript
Bart De Muynck is chief industry officer at project44, where he supports customers with their strategies. A logistics industry thought leader with 30 years of experience, De Muynck previously served as vice president of research at Gartner. Earlier in his career, De Muynck held logistics roles with PepsiCo, Elemica, Penske Logistics, GE Capital, and EY.
David Maloney, Editorial Director, DC Velocity 00:01
Drought brings restrictions in a drying canal. What is the likelihood of a recession? And finding good workers gets even harder.
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 group editorial director at DC Velocity. Welcome.
Logistics Matters is sponsored by Travero Logistics. Travero Logistics is an experienced, Midwest-based freight brokerage firm. They have a national network of trusted carriers ready to meet your freight transportation needs. Visit Travero.com and let their experts find you a solution. That's T-R-A-V-E-R-O dot com.
As usual, our DC Velocity senior editors Ben Ames and Victoria Kickham will be along to provide their insights into the top stories of this week. But to begin today, the world continues to see the effects of climate change, and it's now affecting our transportation networks. Ongoing drought conditions in Central America ha[ve] caused lower water levels in the Panama Canal, restricting the vessels that can make the canal journey. How long would the restrictions possibly last, and what will be the effects on ocean shipping as we approach peak season? To find out more? Here's Ben with today's guest.
Ben.
Ben Ames, Senior News Editor, DC Velocity 01:28
Thanks, Dave. Your introduction was right on. There have been those severe droughts throughout Central America in recent months, and the Panama Canal is expected to reach an all-time low weather level in July. Rains come and go, it varies a little bit, but that's the track. Looking a little bit further out the El Niño global weather system hitting the region later this year on a forecast could even exacerbate that dry spell. As you said, those changes are already hitting freight carriers. I don't believe that they're yet restricting the size of the ships that can go through, but the amount of freight that can fit on each one. Either way, they would need more water to float, of course. But to talk about the possible impacts on shippers and carriers, we have this week's guest on our show, who's Bart De Muynck. He is chief industry officer for project44, which provides supply chain visibility platforms. Welcome Bart.
Bart De Muynck, Chief Industry Officer, project44 02:24
Hey, Ben, good talking to you.
Ben Ames, Senior News Editor, DC Velocity 02:26
Yeah, great to have you with us again. To begin with, we're talking about a very specific link in global supply chains this week. Maybe you could tell our listeners how that one little canal fits into the big variety of routes and lanes that project44 tracks
Bart De Muynck, Chief Industry Officer, project44 02:42
Yeah, very good Ben, and yes, it might be a small link, but it's a very important one, right? And Panama Canal is really one of those essential trade arteries that connects the Atlantic and the Pacific Ocean. If you look, overall, that canal is responsible for three and a half percent of all of global trade. So, if you want to kind of imagine what that means, it's about 15,000 vessels per year that go through the canal, so, on average, about 40 per day. Most of that is container and dry bulk. And so that drought has an immediate impact on the volume that can go through the canals. It's actually limiting the amount of transits today. Typically, you would do 36 to 34 transit a day; now, we're seeing that restricted to 32 to 30 transits a day. That's about 12 and a half percent less. At the same time, because of drought, the draft of the ships have to be lower, which means that you can, you know, transport less product, less weight on those assets as well. That means, you know, more movements that are needed to have that same capacity flowing through the canal, and obviously, that also means that there's an increase of cost, because the ship still costs the same, the transit costs of passing through the Panama Canal are still the same, and eventually that cost will be passed on to the consumer.
Ben Ames, Senior News Editor, DC Velocity 04:06
Yeah, fascinating. Those are great numbers to show us exactly what's going on down there. However, just to play devil's advocate, there are a lot of variables in global supply chains. I'm thinking, for example, a lot of importers spent the last few months trying to avoid the U.S. West Coast because of possible labor strikes out there that, fingers crossed, that looks to be getting eased at this point. That one's solved. But people — there are workarounds, right? Or is this a bigger problem than that?
Bart De Muynck, Chief Industry Officer, project44 04:34
I think it is a bigger problem, Ben, because at the one part you have to look at it, yes, we've seen some of the volumes going through the Panama Canal that used to go to the West Coast, and because of uncertainty and some of the issues that we've seen and still continue to see on the West Coast with some of the workers, we have seen some of that movement going to the East Coast. Florida has been one of the areas that have seen a huge increase the last few years from containers coming from the West Coast into Florida. But at the same time, you also have to look at it, there are, you know, shipments that originally were going into the East Coast that have to go through the Panama Canal. And secondly, there's also export, right? So if you look at, there's a lot of grain, for example, coming out of New Orleans that's going to China that has to go the other direction through the Panama Canal. So, you have to look at it from both sides. And then the other part is also the timing of it. You mentioned earlier that July, just you know, a few days away, we're going to probably see another restriction in the draft, because we see continuation of that weather, and July is kind of a peak season in shipping, because a lot of people have already ordered their stuff, maybe for Thanksgiving or for Christmas, and those products are actually on their way through the canal, on their way through all of the DCs. So, from a timing perspective, from all the flows, it does have a huge impact. And let's not forget, when we talk about trade — and I talked about some percentages earlier — we're talking about a total value of about $270 billion worth of goods on an annual basis. So that's a pretty big number.
Ben Ames, Senior News Editor, DC Velocity 06:12
Yeah, and great reminder, thank you, about the exports as well. Obviously, you can't so easily move the origin of exports there, of course. But your point about the timing is great, because that was really something that was critical for those West Coast port discussions that we all saw a few weeks ago, because it may seem like the middle of summer to most people, but this is really the critical time, isn't it, for the winter peak for those Christmas presents that are starting to come in.
Bart De Muynck, Chief Industry Officer, project44 06:41
Yeah, you're right. It's not just for that. Even for retailers, right, who are bringing in product, they're already shipping now. For example, in clothing and apparel, they're bringing in next year's spring collection, right? So, all of that has a six- to nine-month lead time. Sometimes people think, well, if I order something is that just gonna come from China a month beforehand? And then that's what we've seen in the past, because of a lot of the uncertainty people have ordered their inventory ahead of time, which also led last year to huge increases in inventory, and that's what we saw this year as well. We discussed last week with [Council of Logistics Management's] State of Logistics Report that we now have the highest logistics costs we've ever seen, and a big part of that is because we see inventory carrying costs go up. So, any disruption like the Panama Canal is also potentially impacting inventory. Either the inventory is going to arrive late, because there's a holdup, or the other side might be, while you're just ordering more inventory, hoping it's gonna get there, and now you're stuck with an inventory that's really too high, which again, is impacting your cost and overall is reducing profit margins.
Ben Ames, Senior News Editor, DC Velocity 07:51
Yeah, great points. So far, we've just been talking about weight limits, or the draft, so the sizes of the ships there, and you you've mentioned the slowdown in the freight volume passage. I'm not spreading rumors, not to give our listeners PTSD, but I mean, of course, when you look at the Suez Canal, it was even worse than that. That shut down completely, of course, in 2021, for almost a week when the Ever Given containership got stuck sideways there. Is that a fair comparison? How different would it be if the Panama Canal stopped running?
Bart De Muynck, Chief Industry Officer, project44 08:27
Yeah, that would be really bad, right? And it's, I would say the situation is different, because we still see flow going through the Panama Canal, although it's slower and at a lower level, and even with the less number of ships, we also see less container capacity on those ships. Now, that doesn't mean that, first of all, it wouldn't get worse, and as you mentioned, it's going to get worse throughout the end of the year, and they're expecting next year, 2024, the weather even to get worse than it is this year with the El Niño effects, and that might even more heavily impact the Panama Canal. But there could be similar things where there are issues in the Panama Canal that are caused by other things that could shut it down. Now, I will say, Suez Canal, although it had a huge impact and the Suez Canal is a little bit more volume— it's about 21,000 ships that go through it — so it's even more. It's about 30, 40% more than what we see going through the Panama Canal. I will say that that blockage of the Evergreen was kind of an exceptional event where so many different things went wrong at the same time. I think there's a lot of things that have been put in place to prevent things like that happening. The other side was, back then a lot of people knew, Oh, we've got containers on the ships, but again a few years ago, most people did not know, besides containers, what customer orders were on the ship, or even the SKU level. And now with visibility, we can go down to the individual customer order to the individual SKU, so we have the information also at hand that immediately we can see what of our customer orders are going to be impacted, which also helps companies to kind of say, Hey, what decisions do we make around shipping? Maybe thinks air if they have to be expedited and have to be, and are essential to the customers.
Ben Ames, Senior News Editor, DC Velocity 10:18
Got it, and that's a great segue to wrap up here. My last question today was going to be what sort of advice project44 is offering to its clients around this time, where we have these Panama problems. You mentioned, of course, visibility, and much better depth of awareness of exactly what's on the ship. Is that the kind of information that you're advising that your clients work, or what would I hear if I were in that room?
Bart De Muynck, Chief Industry Officer, project44 10:44
Yeah, you're absolutely right, Ben. So basically, what all these disruptions, right, have really shown that our supply chains are more vulnerable. Why? Because our supply chains have become so much more global. So, something that happens in Panama, happens in Ukraine, happens somewhere in China, or anywhere else has an immediate impact around the world — much more than at any time in history, and so it's very important for companies to continue building that resilient supply chain and also build in agility, meaning to be very dynamic and flexible, where they can make very quick decisions, but also accurately forecast and plan their supply chains. And to be able to do that, you really need to have that supply chain visibility. You need to have the data that allows you to proactively manage those risks and, as much as you can, anticipate some of these disruptions, but then be able to get from the data and the facts very quickly to, What are the decisions that I need to take? and execute those very quickly to make sure that you can maintain operational continuity. And that's really important. And as I said, with some of the El Niño's effects continuing to get worse this year, and also next year, companies really need to continue to invest in those technologies, and that's really going to help them with their risk-management strategies.
Ben Ames, Senior News Editor, DC Velocity 12:03
Got it. Great advice for everybody, I'm sure, Bart, we really appreciate your being with us today and sharing that.
Bart De Muynck, Chief Industry Officer, project44 12:09
Thanks for having me on, Ben.
Ben Ames, Senior News Editor, DC Velocity 12:11
Our guest today has been Bart De Munck from project44. Back to you, Dave.
David Maloney, Editorial Director, DC Velocity 12:17
Thank you, Bart and Ben. Now let's take a look at some of the other supply chain news from the week. And Victoria, you were a presenter at the SMC3 conference this past week in Florida, and you had some time to cover and write about what freight experts are saying about the current sluggish freight market. What insights can you share about it, and the overall economy as well?
Victoria Kickham, Senior Editor, DC Velocity 12:39
Yeah, that's right, Dave. I was at the SMC3 Connections conference this week. It's an event that brings together carriers, shippers, logistics services providers, and technology companies for three days of meetings and educational programming. Because this event is focused on trucking, there was much talk about the freight recession we're experiencing, as you mentioned. So, consensus is that the sluggish conditions in freight are going to continue and that relief isn't likely until next year. This issue came up in a couple of different presentations, with experts noting that the truckload sector has been hit the hardest, with one presenter saying he had never seen demand for service across truckload be this — and I'm quoting — "persistently quiet." Others indicated that these tough conditions will soon hit the less-than-truckload market as well, and that a recession in the broader U.S. economy is on the horizon. There's been a lot of chatter about that for the past year or so, of course, but I guess it looks like the ultimate overall slowdown in the economy may be on the way,
David Maloney, Editorial Director, DC Velocity 13:38
Victoria, were there any details they gave about how long or deep they feel a recession may be?
Victoria Kickham, Senior Editor, DC Velocity 13:44
Yes, yes. Economist Keith Prather — he's with a company called Armada Corporate Intelligence — he elaborated on the economic outlook agreeing that a U.S. recession is likely, but he said, you know, if we do feel it, it will probably be, quote "shallow and short." There are so many moving parts right now that it's difficult to say just how bad things may get. Those moving parts include high interest rates and whether or not pressures will ease there, and inventory levels, which have drawn down compared to a year ago, when there was a glut of inventory and many supply chains. But the restocking that usually starts to occur at this time of year for peak shipping season hasn't materialized as it usually does. So, the concern is that peak season may not be super strong, or it may be more drawn out than in years past. Some of the issues Ben and Bart discussed just a minute ago will have an effect on that as well. But the general outlook is that if we continue to hit these kind of low points in 2023, we're likely to see a sort of slow digging out from those conditions in both 2024 and 2025. So, a lot could still happen, of course, but these slower freight and transportation-industry conditions are likely to hang around for a while, based on what I heard this week.
David Maloney, Editorial Director, DC Velocity 14:56
Right, and it seems that there are no easy fixes. It will take some time. You just have to hope the downturn is short-lived. Thanks, Victoria.
Victoria Kickham, Senior Editor, DC Velocity 15:04
You're welcome.
David Maloney, Editorial Director, DC Velocity 15:06
And Ben, we all know that it's difficult to find good workers in the tight labor market, and you wrote this week about how employers are discovering a rising rate of positive drug tests among new applicants. Can you share some of the details?
Ben Ames, Senior News Editor, DC Velocity 15:20
Glad to. It seems as if everywhere you turn right now there are challenges, but staying fully staffed up is one of those foundational things you got to have to be able to run the business, and as you said, we learned that that's getting a little bit harder because of that rising rate of positive drug tests. The data comes from Quest Diagnostics; many people may have heard of them just from their local checkups, but they're a company that processes test samples that your doctor or that employers may collect from workers in the workplace. That's usually a urine test, Quest anonymizes those tests. They do millions of them, and they analyze them for trends. And they recently found that the overall workplace drug-test positivity rate in the U.S. has climbed to a two-decade high point. To be specific, that high point was four and a half percent in 2022, and that's greater than three and a half percent back in 2012. So, a clear trend. The numbers are not enormous, but still. One reason for the increase seems to be the obvious one, and that's the legalization of marijuana in many states. In 2012, that 10-years-ago reference point they made, that's when Colorado and Washington became the first states to legalize marijuana for recreational use, and since then 19 additional states and the District of Columbia have legalized that, and 38 states have also legalized medical use. So, Quest said that, in addition, the use of amphetamines is on the rise, of course, if you read the headlines. They count both prescribed and illicit uses; of course, their tests can't tell the difference. But those rates are just about a third as common as marijuana.
David Maloney, Editorial Director, DC Velocity 17:05
And those are definitely interesting trends, but did they say how these changes could affect companies hiring within the logistics sector?
Ben Ames, Senior News Editor, DC Velocity 17:13
Yes, actually, they gave some data about specific sectors. This was interesting. First, I want to point out that supply chain workforce in general probably gets tested more often than some other sectors. Quest's statistics cover both company-policy testing, that's by private employers, but there's also a whole range of workers who have federally mandated testing. They generally work in safety-sensitive areas. That includes transportation workers — you think of pilots, truck drivers, train conductors — but also on that federally mandated list are things like federal employees and like the nuclear power industry. But overall, Quest said that the top six industries for positive drug tests, the one where there were the most of them, is retail trade, and then accommodation and food services, and then transportation and warehousing. So that was, you don't want to be in the top three necessarily in this list. After that was construction, and then manufacturing, and then finance and insurance. So, you know, those rates obviously could have a variety of impacts on the workplace. One that caught my eye was the Quest report also tracked test results for employees who had been involved in accidents, because employers often test those workers specifically afterwards, and they found that in 2022, the post-accident, marijuana positivity of the urine drug tests in the entire U.S. workforce was 7.3%. Obviously, that's a lot higher than the overall rate that we mentioned before of four and a half. Still, you know, just doing the math, the flip side, if you have 7%, who had positive rates after accidents, that means that 93% of them did not, and were presumably sober, so it's hard to tie that together in terms of causality, but, you know, it's still it's one of those rates that you don't necessarily want to see climbing in your own business.
David Maloney, Editorial Director, DC Velocity 19:06
Right. And especially when our industry relies so heavily on human talent, it makes it very difficult to find the right workforce.
Ben Ames, Senior News Editor, DC Velocity 19:13
Sure does.
David Maloney, Editorial Director, DC Velocity 19:14
Thanks, Ben. We encourage listeners to go to DCVelocity.com for more on these and other supply chain stories. Also check out the podcast Notes section for some direct links on the topics that we discussed today.
And we'd like to thank, again, Bart De Muynck from project44 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.
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. We have a new eight-part series on transportation tech. Check out our Supply Chain in the Fast Lane podcast wherever you get your podcasts.
And a reminder that Logistics Matters is sponsored by Travero Logistics. Travero Logistics is an experienced, Midwest-based freight-brokerage firm. They have a national network of trusted carriers ready to meet your freight transportation needs. Visit Travero.com and let their experts find you a solution. That's T-R-A-V-E-R-O dot com.
Next week our nation celebrates its independence, and some new stats from Trucker Path shows that 55% of our nation's truck drivers will actually take July 4 off, with 27% of them reporting that they plan to take more than five days off next week. So the roads may be a little clearer for some of that travel. 78% of them say that they plan to be grilling steaks, hamburgers, and hotdogs next week, so we plan to join them by grilling on our own grills at home. So we'll not have an episode next week, but we'll return again with Logistics Matters on July 14. So, we hope to see you then, and in the meantime, have a great Independence holiday week.
Articles and resources mentioned in this episode:
- project44
- Slow times to continue, trucking industry experts say
- Positive drug tests in US workforce rise to 20-year high as marijuana is legalized
- Visit Supply Chain Quarterly
- Listen to CSCMP and Supply Chain Quarterly's Supply Chain in the Fast Lane podcast
- Listen to Supply Chain Quarterly's Top 10 Supply Chain Threats podcast
Go to main Logistics Matters archives page | 2022 archives | 2021 archives | 2020 archives
