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Zachary S. Rogers is 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 cyber security and various other emerging purchasing and logistics issues. He is also a researcher and co-author of the monthly Logistics Managers’ Index (LMI) report. Dr. Rogers’ work has appeared in multiple academic journals, corporate white papers, trade publications, and conference proceedings. He is also a frequent speaker at both academic and practitioner-oriented conferences. Dr. Rogers earned his B.S. and M.B.A. degrees at the University of Nevada, Reno and his PhD in supply chain management from Arizona State University. Prior to returning to academia Dr. Rogers worked as a purchasing agent for a large hotel-resort and as an operations manager for Quidsi, a subsidiary of Amazon.
David Maloney, Editorial Director, DC Velocity 00:00
Is the freight industry ready for a collapse? New efforts to turn containers faster. And challenges continue for the ocean freight market.
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 Yale Materials Handling. This isn't yesterday's warehouse. Today's challenges require smart, connected lift trucks and solutions like robotics, advanced power options, and Yale Reliant, an industry-leading suite of operator-assist technologies. For more information, visit Yale.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: We keep hearing mixed reports about freight markets, and some carriers are struggling, while others reach record profits. What's the real story? And are we on the verge of a freight market collapse, as some predict? To find out, here's Victoria with today's guest.
Victoria.
Victoria Kickham, Senior Editor, DC Velocity 01:16
Thank you, Dave. Our guest today is Zac Rogers, assistant professor of supply chain management at Colorado State University, and he is also a researcher for the monthly Logistics Managers Index report. Welcome, Zac.
Zac Rogers, Assistant Professor of Supply Chain Management, Colorado State University 01:30
Hi, thanks for having me.
Victoria Kickham, Senior Editor, DC Velocity 01:32
Our pleasure. So, as Dave said, we've been hearing a lot of reports about you know, a potential, you know, a pending freight recession, ydriven by a variety of market factors and challenges. What's your take on this? Should the industry expect to crash anytime soon?
Zac Rogers, Assistant Professor of Supply Chain Management, Colorado State University 01:47
I don't know if "crash" is the right word for it. It's certainly a slowdown, which I don't know that it's necessarily a bad thing, by the way. You know, we've been going a million miles an hour for the last year and a half, and in some ways, it's a little bit of a relief. Now, some of the bigger carriers, I think, are actually going to come out pretty strong from some of this, because if you look at our data, transportation prices are still up. They're still growing month over month, just at a much slower rate. Now, when you look at certain lanes, and and maybe other pieces of it, you do see, you know, like spot prices, we do see some some dips, but overall, it's still relatively okay. Now, it's not the robust growth we've been used to over the last year and a half, but it's but, you know, it's it's not a full-on recession yet. Now, I do think where we're gonna see a lot of pain is with the smaller carriers, and as I'm sure most of people listening to this podcast know, a big percentage—the majority of fleets out there — are, you know, 5, 10, or less trucks. And so those smaller carriers, you know, there's a good chance — some of them are new. You know, a lot of them may have gotten in a, you know, owner-operator who bought their rig six months ago, maybe spent too much money on it, and has just been used to, you know, loads coming to them., that's not the way it's working anymore. Plus, we have diesel, I think, sitting at $5.60 a gallon or some crazy number like that, and the smaller carriers can't get the wholesale prices that the bigger carriers can. And so really, what we're going to see is, the larger carriers are going to be able to get wholesale on diesel, and they're going to start taking loads that they may have considered undesirable six months ago—you know, picking things up that had been kind of left for the smaller guys—and so I think a lot of the smaller carriers are going to see things dissolve. But really what we're seeing, I believe, is more of a return to equilibrium, and possibly a rightsizing in the freight market. I don't think this is going to be like 2018 and 2019, where we saw, you know, huge, huge demand in 2018, then we got to 2019 and 3,000 carriers disappeared, essentially, between '19 and '20. I think that we're starting in a much stronger place now. Going into this dip than where we were then, so I don't think "recession" is the right word. I think we're returning towards sort of our natural state of equilibrium. It might just feel like a recession, because we've been at such high highs. Yeah, and you mentioned, you know, our data. I think you're referring to the monthly Logistics Managers Index report, which would you work on and sort of tracks the trends we're talking about. What are some of the other factors that might, you know, contribute to the slowdown or recession, and are you seeing any signs of those now? I know you mentioned a few. but what other things are we looking at? So, I mean, the other issues are, you know, the slowdown coming in from China is obviously an issue, and we're really starting to see that now. You know, there's there's a six-week delay, usually, when you see a shutdown there, before you start to see real slowdowns in the ports. And, you know, I was speaking with a friend who is involved in the Port of Los Angeles, and, you know, they only had 40 ships yesterday, which, you know, it isn't really not a lot, you know, but it's way less than when we had 100, for most of for most of the last year. So, I do think we're seeing a bit of a slowdown on on that side. Now, in terms of logistics index data, it's interesting, because all of the transportation numbers are sort of going towards equilibrium, but our warehousing and inventory numbers—so, we track, you know, inventory levels, and costs and warehousing utilization, capacity. and costs—all of those look exactly like they did for the last 18 months. We have huge growth in terms of warehouse costs, and really low rates, really low rates of warehousing capacity. One of the issues that we're gonna have is, even if we do have more loosening in the freight market, there's not anywhere to put all of this stuff we have. We still have a whole bunch of inventory that got here late—it was supposed to be here, you know, in December, and it showed up in February—and that's all still sitting in warehouses somewhere. And it's funny, because warehousing capacity and warehousing prices, they look similar to how they did last year; the difference is, is that last year, we had really high rates of turnover coming through warehousing facilities, and so it was sort of dynamic usage. Now, it's really static usage, because stuff is getting to warehouses and just sitting there, and we're running out of new places to put inventory.
Victoria Kickham, Senior Editor, DC Velocity 07:02
What about some of the larger economic trends you're seeing? You mentioned earlier, you know, higher prices. What about inflation, things like that — sort of their effects on freight markets and logistics, in general?
Zac Rogers, Assistant Professor of Supply Chain Management, Colorado State University 07:13
Inflation is absolutely playing a role. You know, I saw people were excited: "Oh, it was, inflation was lower in April than March," and you look, there's like, oh, only 8.3%, uh, great. And so, what's happening is a natural pullback of consumers, where we're not spending as much money, especially on durable goods, things that need to be moved, as we had in the past. You know, when gas is 45% more expensive than it was in January, you know, that's going to eat into your disposable income. Plus, we see, you know, we've worked through our stimulus checks. And we have other alternatives. So, consumers are really moving towards spending on services. Now you can go to a concert or a basketball game or take a vacation and go see family or something. And so, in terms of big economic trends, there's just not as much need, I think, for trucks on the road as there was before. Plus, people are going back to stores, I think at a higher rate than we were expecting. You know, there are some things I think we're going to never change [from the] pandemic, but something has been really interesting is, you know, e-commerce as a percentage of retail, it had gotten up to as high as, I think, 14% in 2020, and now it's back down to about 10% of all retail is e-commerce, and you know, e-commerce means you need more trucks and more warehousing. And that 10% is still higher than where we were pre-pandemic, but it's not like what we needed a year ago. People are realizing, I think, that it's nice to go back to stores, and so we don't need quite as much freight capacity.
Victoria Kickham, Senior Editor, DC Velocity 09:01
There are other supply chain concerns at issue, of course. You mentioned West Coast ports earlier. There's a possible dockworkers' strike there that may be a problem down the road. How will this affect the larger industry, and freight markets in particular, you know, in the context that we're we're talking about things here?
Zac Rogers, Assistant Professor of Supply Chain Management, Colorado State University 09:20
Negatively! So, you're right, you're right, there's a potential strike. The contract, I believe, is up on July 1, so about six weeks, and if you remember 2015, the last time that we had a contract dispute, the throughput through the ports slowed way down, sort of, as sort of a negotiation tactic. And I would think, if I was a dock worker, that the last few years have showed me, you know, I'm really important to the economy, and even though they are very well paid, maybe, you know, I think I should be a little more highly paid. And maybe, you know, what other considerations and benefits they're looking for. And so I think that the dockworkers are going to be in a very strong position, especially because you could see a situation where right as that's slowing down, China's opening back up. I mean, they're already, many of the factories are operating in bubbles, like what the NBA did a few years ago, so that they can get goods out, and so you might see the sort of catchup wave, you know, the wave of, alright, we're catching up to all the goods that we missed out on over the last few months, which we also saw the same exact pattern in 2020, but we're mainly going to be undermanned at the same time at the ports. But here's the thing to keep in mind: Even if we are at full strength at the port[s] of of L.A. and Long Beach, we're still going to see congestion again. Whenever China opens back up, we're going to see congestion. And that's because even if we're moving at full efficiency through the ports, which I think is a really big if, we're not going to have the warehouses to put all these goods, and we're going to run into the same issues we had before with trucks being out of position, and the lack of containers, and a lack of chassis, and really importantly, a lack of warehousing space. So, yeah, maybe we can get it through the docks, but then it's just going to sit there waiting to be, you know, stored somewhere else. And so, it's going to be bottlenecks all the way down the line once again, and so the dockworkers' strike is a big problem—or the dockworker labor dispute, I should say. It could be a big problem, but it's not going to be our only problem.
Victoria Kickham, Senior Editor, DC Velocity 11:33
What would you advise industry professionals to plan for in the months ahead, then, you know, sort of given these challenges we've been discussing here today?
Zac Rogers, Assistant Professor of Supply Chain Management, Colorado State University 11:40
Well, I think, being somewhat opportunistic, you know, this is a good time in some ways. You know, at the same time, yes, okay, well, the cost of freight is going down and capacity is opening back up, and that's maybe hard for shippers [sic]. That's good for everybody else, though. Everyone who has had, you know, been spending a ton of money to ship loads or hasn't been able to get trucks because they're all at the Port of Los Angeles, this would be an excellent time to sort of take advantage of what's going on in the freight industry and move inventory to wherever you need to do it. You know, right now, a lot of networks are sort of imbalanced, because we haven't been able to have the free flow of goods that we normally have. This would be a great sort of window, I think, for retailers and wholesalers and manufacturers to rebalance their networks. Now, at the same time, I think it's also a good opportunity to really look into diversifying. And this is particularly for manufacturers. You know, China has not been a really reliable partner, I don't think, over the last couple of years — and in fairness to them, we did start trade wars — so, but but they have not been a really reliable partner for the last couple of years, and so you do see, increasingly, companies like Mattel moving production to Mexico or South and Central America. I think Mattel just moved all of their Mega Bloks, for instance, from from Asia to Mexico. And so it's, you know, necessity is the mother of invention, and I do think that in some ways, the sort of constant disruptions we're seeing right now could be a good opportunity for firms to really rethink their supply chains, and maybe think about prioritizing resilience over cost in some ways, because as we're seeing right now, if it's not resilient, eventually your supply chain costs a lot of money anyway, so you might as well plan the resilience.
Victoria Kickham, Senior Editor, DC Velocity 12:10
Absolutely. Point well taken. Zac, thank you so much for talking with us today. We appreciate your insight.
Zac Rogers, Assistant Professor of Supply Chain Management, Colorado State University 13:54
Oh, thank you so much for for inviting me on, and as I told you pre-show, this is always great lawn-mowing material for me, so I look forward to listening to this this weekend.
Victoria Kickham, Senior Editor, DC Velocity 14:04
Excellent. We have been talking with Zac Rogers of Colorado State University. Back to you, Dave.
David Maloney, Editorial Director, DC Velocity 14:10
Thank you, Zac and Victoria. Now let's take a look at some of the other supply chain news from the week. And Ben, you wrote this week about new efforts to speed up the turn of containers. What does that initiative do?
Ben Ames, Senior News Editor, DC Velocity 14:24
That's right, and this really dovetails into what our guest was just talking about. Zac Rogers had mentioned the surge of stuff that's sitting in warehouses, the bottlenecks all the way down the line that's affecting the movement of those containers. That stuff that we've been reporting about a lot, that shippers have experienced at maritime ports and throughout the supply chain in recent months. As he also touched on, you know, we've seen dozens of container ships anchored off both the West Coast and the East Coast ports; delays in unloading them once they do arrive. So, I think our listeners are familiar with a lot of those headaches there. It's also particularly been a trouble for U.S. exporters — for example, in the U.S. agricultural sector — because they've been having trouble getting their hands on containers to fill with the goods to ship abroad. We've seen a number of efforts to tackle the problem, some that have seen some traction include popup container yards to get more storage space; some information-sharing efforts led by the White House; and even a law in Congress that would give federal regulators more leverage to make sure those container ship companies don't charge very high freight rates or detention and demurrage fees. Previously, there were also even some threats by ports to fine shippers who left their containers on the dock too long. So, the newest effort that we're talking about today comes from CMA CGM, which is of course, the French container-shipping giant, and they launched what's called an "early return incentive program." So, that encourages shippers to bring back those empty shipping containers, once they're done with them, to the port facilities more quickly, saying that that concept, that move will support the U.S. exporters we were talking about and expedite the flow of goods. So, it's sort of more of a carrot than a stick approach.
David Maloney, Editorial Director, DC Velocity 16:26
Yeah, well, Ben, I'm sure that your company would prefer to get incentive payments instead of paying fines, but what does the industry really think of this?
Ben Ames, Senior News Editor, DC Velocity 16:35
Great question. I haven't talked to any shippers about it yet, but port officials seem to like the idea. So, Gene Seroka — he's a familiar name; he's the executive director of the Port of Los Angeles — said that, with this incentive program, the CMA CGM Group is facilitating a more robust flow of goods through the Port of Los Angeles and helping U.S. exporters get their products to destinations around the globe more quickly. So, it seems like he's really on board with the approach. How it's going to work is, it's a 60-day program, starting May 16 — so it'll run for two months. It's going to take effect at certain, specific terminals that are in Chicago, Dallas, Memphis, and Kansas City. That's where they'll collect those empty containers and get them back into circulation for the ships, eventually. During that time, CMA CGM will pay $300 per dry container returned to those eligible locations, and the company estimates it could result in about 43,000 dry containers being put back into circulation within four days that they each were picked up. So, CMA CGM said this is an industry-first concept for the sector, and again, that the goal is just to accelerate the return of empty containers and ensure that exporters can get their hands on [them].
David Maloney, Editorial Director, DC Velocity 17:57
Yeah, anything will help. So, hope this helps to resolve some of those container backlogs. Thanks, Ben.
Ben Ames, Senior News Editor, DC Velocity 18:03
Yep.
David Maloney, Editorial Director, DC Velocity 18:05
And Victoria, you reported this week on the growing challenges of the ocean freight market. Can you share some more details?
Victoria Kickham, Senior Editor, DC Velocity 18:12
Absolutely. Yeah, so we saw some interesting statistics, actually, about safety on the seas came out this week. The ocean shipping industry continued its long-term positive safety trend over the past year, but as we've been talking about, global economic and political forces are posing challenges. And that's according to a Safety & Shipping Review 2022 report from insurance provider and asset management firm Allianz Global, which is a worldwide company headquartered in Germany. As I said, they released a report this week, and it found that shipping losses are down considerably in the past decade, and are actually less than half of what they were in the late 19 — in the 1990s. And just to explain that a bit, a shipping "loss" means that a vessel is completely lost — it's either sunk or destroyed, or the cost of repairing is just too expensive to undertake, and that's different from what the industry deems an "incident," which is when a vessel, you know, something happens, but it's likely to be able to be used again after it's been repaired. I'll talk about some of the possible incidents in just a minute, but back to the losses, there were 54 total losses of vessels reported globally last year, and that's down from 65 a year earlier, and it's about a 57 — five seven — 57% decline over 10 years, according to this report. And it's interesting, that seems especially impressive when you consider the huge increase in the number of ships in use today. The global fleet of vessels has increased from about 80,000 ships 30 years ago to 130,000 today, and that reflects an increased focus on safety and training, as well as better ship design, new technology, and regulation, according to the report authors. But it's not all great news. Although total losses are down, the number of reported shipping incidents, which I mentioned earlier, rose last year. This can be a lot of different things that can happen, but machinery damage accounted for more than one in three incidents globally, and that was followed by collisions and fires. And actually the number of fires on ships increased by almost 10% last year.
David Maloney, Editorial Director, DC Velocity 20:27
Victoria, what are some of the emerging risks that the report mentioned?
Victoria Kickham, Senior Editor, DC Velocity 20:31
Yeah, well, they mentioned a few things. And, as I sort of intimated at the beginning, it's mostly economic and political issues that have really exacerbated some of the effects the industry had been feeling since the Covid 19 pandemic, particularly, you know, the delays and disruptions that have hampered global trade over the past two years. So, the first thing that's adding to all of that is the Russian invasion of Ukraine, which has caused shipping problems in the Black Sea region, of course, but also, you know, sanctions and other economic issues have contributed to the rising prices we were already seeing for fuel and other necessities. There's also the risk to personnel and crews in the region and elsewhere, as well as the potential for cyber crimes and similar risks. Another rising challenge is, really, the industry's attempts to deal with increased shipping demands. You know, we've been talking about, [on] this podcast and at other times, you know, just the increased demand for logistic services. Ships have obviously are one of them. But in some cases, companies are changing the use of vessels or extending their working life to address these rising costs and capacity issues, and that can lead to safety problems. The report's authors noted that these pressures, in their words, are "tempting some operators to use bulk carriers or consider converting tankers to use to transport containers." And they say the use of noncontainer vessels to carry containers raises a lot of questions when it comes to the vessel stability, firefighting capabilities, and securing cargo. These bulk carriers aren't designed to carry containers, and the report's authors say this could really impact the maneuvering characteristics in bad weather, for instance, or the crew may not be able to respond appropriately to an incident, so. So, that's a big issue. The geopolitical issues that we're dealing with are, is another one, and these are just some of the factors that are contributing to the increased risks and challenges that we're seeing in the ocean shipping market.
David Maloney, Editorial Director, DC Velocity 22:35
Very interesting. Things we don't always think about. Thanks, Victoria.
Victoria Kickham, Senior Editor, DC Velocity 22:39
You're welcome.
David Maloney, Editorial Director, DC Velocity 22:41
We encourage listeners to go to DCVelocity.com for more on these and other supply chain stories. And check out the podcast Notes section for some direct links on the topics that we discussed today.
And our thanks, again, to Zac Rogers of Colorado State University for being our guest today. 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 each Friday.
And speaking of subscribing, check out our sister podcast, Supply Chain in the Fast Lane. It's coproduced by the Council of Supply Chain Management Professionals and Supply Chain Quarterly. Subscribe to Supply Chain in the Fast Lane wherever you get your podcasts.
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We'll be back again next week with another edition of Logistics Matters, when we'll look at efforts to encourage robotics education. Be sure to join us. Until then, have a great week.
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