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July 6 2020

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July 6 2020 | The Journal of Commerce 41 Surface Transportation HIGHER CORPORATE VISIBILITY for logistics during the COVID-19 pan- demic will accelerate a supply chain transformation already under way as businesses rethink sourcing options, inventory, and transportation choices and invest more in technol- ogy, according to the latest State of Logistics Report from the Council of Supply Chain Management Profes- sionals (CSCMP). There will be greater need and demand for warehousing and logistics real estate thanks to higher inventory levels, reshoring or nearshoring of manufacturing, and the diversifica- tion of international supply lines and inland distribution routes from var- ious US ports, the report said. There will also be opportunities for change in the use of transportation modes. US inventory to sales ratios, which had stabilized at high levels in early 2020, jumped to record highs in April as business closings amid the COVID-19 pandemic locked inventory in place. The total US business inventory to sales ratio jumped from 1.45 in March to 1.67 in April, meaning it would take 67 days to clear one unit of inventory. In April 2019 the ratio was 1.39. "The shift away from single- source, cost-focused supply functions may pose new challenges to logistics, which itself is having its resilience tested in this crisis," the CSCMP said in its 31st annual report, released June 23. It expects that focus on lowest-cost options to be replaced by a new bias based on managing risk and greater supply chain resilience. "The pandemic starkly brought risks to life," the organization said in its report, prepared by A.T. Kearney and sponsored by Penske Logistics. "The pendulum that once swung toward ultra-efficient, single-source, just-in- time, and heavily cost-focused supply chains will swing back in favor of flexi- bility and reserve capacity to cope with uncertainty and risk," CSCMP said. But the group also acknowledged logistics managers can't "reconfigure all their capabilities and relationships on the fly." There is bound to be dislo - cation, disruption, and what CSCMP called "inefficient resource deploy- ment" as businesses change import and distribution strategies in the wake of the coronavirus disease 2019 (COVID-19). 'A shot of adrenaline' The biggest change agent on the logistics landscape is e-commerce. That's truer in the COVID-19 era than ever before. "COVID-19 is a shot of adrenaline," CSCMP said. The pandemic "will increase e-commerce adoption across growing categories such as grocery and essential household items, expedite the growth of the last-mile delivery market, and improve scale and route density to reduce last-mile delivery cost struc- tures," the CSCMP report said. Carriers will be forced to think about "up-front investment in modular networks." In effect, brick-and-mortar retail- ers that once saw e-commerce as an auxiliary arm of sales are being forced to flip their vision and see physical stores supplementing e-commerce. The growing number of retailers offering buy-online-ship-from-store programs or curbside pickup pro- grams since the pandemic began is evidence of that. When it comes to shipping, the 2020s will be a faster decade. "The era of shipping in three to five business days is over," the CSCMP report said. That will be a challenge to less- than-truckload (LTL) and truckload carriers alike, as more freight flows in short-haul lanes and in smaller ship- ments and new types of fleets arise to try to capture that freight. "People are buying larger things online, and they're willing to pay to have them delivered within a cou- ple of hours," John Conte, CEO and founder of Conte Logistics Consult- ing and former director of logistics and operations for Holman Enter- prises, told The Journal of Commerce in late June. He believes companies such as Dispatch and Roadie are going to expand in this niche. "This is where the gig economy connects to traditional logistics," Conte said. "I think you'll see most LTL carriers trying to break into this area. They are all working on last-mile strategies." The underlying assump - tion is that online shopping will continue to increase, rather than sub- side as the US pulls out of the recession and more retailers reopen stores. For trucking providers, the COVID-19 e-commerce expansion means fewer warehouse-to-store deliveries and more shipments to and from fulfillment centers and to stores, CSCMP said. That's an opportunity for LTL carriers but also for small, highly localized fleets competing for freight that is often not just less than a truck - load, but less than a pallet in size. Growing e-commerce shipping will put more pressure on warehous- ing and distribution capacity, which already was tight coming into 2020. Logistics real estate is one area where capacity hasn't expanded during the recession. That's due not just to e-commerce, but to an increase in inventories during the US trade wars with China and other countries. To be sure they can get products to store shelves or factory floors, businesses will have to carry more inventory, the report said, and that will create more demand for stor- age space. "Forecasts from CBRE Research indicate that a 5 percent increase in business inventories would require an additional 700 mil- lion to 1 billion of occupied square feet," CSCMP said. JOC email: twitter: @willbcassidy Learning curve COVID-19 pushes US shippers to rethink sourcing, tech spend By William B. Cassidy

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