David Maloney, Editorial Director, DC Velocity 00:01
How do rising freight costs affect businesses? Tight capacity and higher prices are also driving logistics expansion. And the continuing effects on supply chains from Hurricane Ida.
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 Honeywell Intelligrated. From system design and simulation to integrated warehouse automation software and technologies to AS/RS shuttles and robotics, Honeywell Intelligrated's end-to-end solutions address the most pressing e-commerce and labor challenges facing our industry. Visit sps.honeywell.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: It's not always easy running a business these days. Following up on early pandemic store closures in retail and light store traffic, merchants now face rising freight costs. How will these increases impact their businesses in coming months? To find some answers, here is Ben with today's guest.
Ben.
Ben Ames, Senior News Editor, DC Velocity 01:24
Thanks, Dave. That's right. Supply chain challenges seem to be everywhere this year. The pandemic, of course, the Suez Canal blockage seems like yesterday, and more recently, we've got forest fires, hurricanes, port congestion. All those challenges are hard for any business, but particularly so for the small to medium sized merchants—retailers, drop shippers, manufacturers. Our guest today is Steve Denton, he's the CEO of Ware2Go. It's a UPS-backed company that offers 3PL services through warehouses and technology that supports one- and two-day delivery for companies of all sizes. Steve, thank you for being with us.
Steve Denton, CEO, Ware2Go 02:05
Hey, Ben, thank you for having me. I'm excited to talk to you today and unpack these a little bit more.
Ben Ames, Senior News Editor, DC Velocity 02:11
Great. Look forward to digging into it. Steve, I know you're in touch with with merchants and retailers every day, and I know also that Ware2Go recently completed a survey in the sector, and some of the top-line findings were concerns about three things: global supply chain shortages, international freight delays, and the rising cost of freight. Can you tell us more?
Steve Denton, CEO, Ware2Go 02:36
Yeah, it's challenging. And we did a survey. We surveyed, like you said in the intro, retailers and manufacturers and branded manufacturers across many different industries, right, whether it was mainstream fashion, or apparel, or consumer electronics, groceries, home and furniture—just across the gamut—to really dig in on what, how they were thinking about the peak season and what are they seeing now, and how are they thinking about planning for that? And certainly those concerns, right? Global supply chain shortages, international freight delays, and the rising cost of freight are top of mind. And if you think about where we are this year versus where we were last year, right, last year, big challenge was manufacturing was behind, right, and the challenge of getting goods into this country was based on airfreight, because manufacturing had been offline for some time. So, we're challenged getting goods into the country—just enough air cargo space to come in. Now this year, it's a little bit different. Manufacturing's been online, but through different challenges, you've just got all this port congestion, right? where they have 44 boats out in the Los Angeles or Long Beach harbor waiting to get in, or you get the train lines going into Chicago backed up two miles. I mean, it's just, it's tough getting goods into the country, but at the same time, Ben, there's a record level of inventory in this country right now, because you've had record levels of ordering, or manufacturers get orders—placed at manufacturers, because of stimulus checks and things like that. And if you were on the good side of what was in favor during the height of the pandemic buying then, then you're probably moving along pretty good, but if you're on the downside of that, you're probably sitting on a lot of inventory. So we've got four-and-a-half-percent-vacancy rates in warehouses right now in the West Coast and the Northeast, so that's causing challenges with with warehouse space. You've got record levels of inventory in this country right now and record levels of inventory coming in, and you got a labor shortage. So, you've got all of this just coming together as we move into the fourth quarter, and it's certainly creating a lot of concerns for a lot of retailers, manufacturers out there, and who are looking to have a great fourth quarter. So, we were keen to understand what it is that they were thinking about, and, certainly, as we provide solutions for that, being able to help them navigate these turbulent times.
Ben Ames, Senior News Editor, DC Velocity 04:59
Gotcha. And that four-and-a-half-percent vacancy rate, I assume that that's historically very low, right? Meaning that warehouses are really filled to the gills?
Steve Denton, CEO, Ware2Go 05:10
Warehouses are full to the gills, and especially the ones that are close to the ports, right? I mean, right, the ones close to the port. So, strategically, you know, what you're looking to do right now is, if you've got inventory that maybe is last year's inventory that hasn't moved, then it's strategically relocating that inventory to warehouse space, that is maybe not as much in an automated warehouse or a robotics-driven warehouse, but might be more of like a storage warehouse, and moving it to the inner parts of the country, where you can get a lower rate and not be paying high storage rates in premium locations close to ports.
Ben Ames, Senior News Editor, DC Velocity 05:50
So, looking more closely at the fulfillment and logistics concerns, that really is the bread and butter of how the companies in the survey make their businesses work, you found that retailers and merchants are concerned about similar things that we've talked about here. Specifically, running out of inventory in certain sectors, as you say, labor shortages, longer lead times, and those increased freight costs. But when you add it up, that makes it hard to run a business, right?
Steve Denton, CEO, Ware2Go 06:19
Yeah, really challenging to run a business, and challenging not only to run a business, but also challenging to meet the elevated expectations of today's connected consumer, right? I mean, think about you and I and how we like to buy, right? We want access to the world's inventory and we want price transparency. We'd like it delivered to us tomorrow or the next day at the latest. We don't want to pay for shipping, and we want a personalized experience with a seamless returns process, right? So, those are our expectations as a buyer, and I don't think it matters, candidly, Ben, if you're a consumer on a B2C [business-to-consumer] side, or you're a buyer on a B2B [business-to-business] side, we all shop very similarly. right? And so, you've got those challenges, which makes it really hard to run a business, but also, you know, the the elevated expectations of today's connected consumer, and being able to deliver on that promise. So, lots of lots of challenges. They're making it really difficult. And the other thing that you see right now is, you know, what you're competing for this time this year that you weren't competing for this time last year is dollars for the consumer that are now also being directed towards travel and hospitality, right? So, think about this time last year, many of us we weren't traveling, right? We weren't going on vacations. We weren't going to hotels and getting on planes. But now more and more of today's folks are, so those dollars that you're competing for have competition that you necessarily didn't have last year. So, really challenging, requires a lot of flexibility, and requires organizations to be able to execute flawlessly. I think the big thing that you're seeing right now is, as you're going into peak, is how early it's starting, right? So, when we talked to the folks in this, in the study, and we actually talk to them every day, you know, 28% of them are reporting that they're starting their holiday peak right now. For many of the things you outlined in the question, right? "I'm concerned that I'm not going to have enough inventory." I mean, good luck. Good luck, Ben, buying a medium-size shirt these days. That is tough. That's a tough buy. Because you got, you got—you can get all, you can—there's certain sizes you get plenty of, but there are certain sizes that are just tough, and it's because of inventory challenges, right? So, so starting your peak early, I don't think you're going to see—many of them are not purporting to be having as great discount deals this year, because the inventory is limited. So, they're going to pull the holiday shipping forward, offer free or second-day air shipping or second-day ground shipping at a very high level, and you're not going to see things deeply discounted, because you just got a lack of inventory, and I think the last thing around that that I'll close with is, you know, good luck asking somebody who didn't get a late holiday gift last year. They're hard to find, right? Whether you received one or you shipped one, it was delivered late, because you've still got the capacity issues within the major networks. The demand exceeds the capacity. And there's only so much. So, you know, getting early and often—and I think you're gonna see that shift in consumer behavior; we kind of learned our lesson last year, we were told to start early, but many of us didn't—I think with the experiences of last year and that narrative still coming through, you're going to see retailers start early, and you're going to see the consumers shop earlier. Because the deals aren't going to be there to be had. Yeah, gotcha. Gotcha. So, some adjustments and strategy on both sides of the equation there, for both on the consumers and the retailers. What else can retailers do to minimize the impact of some of these factors that are hitting them? Really difficult and challenging, right? So, visibility into your supply chain coming into the ports, so that you know when, you know, when your stuff is going to arrive here, so that you can make the warehouse space, the drayage, and all of the things around that available as the goods come in. Having a good handle on your pre-orders and drop times, so that you can execute against those orders and get them out on a timely basis. And candidly, just having the flexibility and being nimble enough to do the types of things that we talked about, like, you know, not being totally so sourced into one area of the country. Like leveraging flexible options like ours, here Ware2Go where, if you want to move old inventory into the center of the country, into long-term storage, while we free up capacity around the ports. And then the other part is labor, right? We got, with more and more of the commerce being B2C, or as I like to call it, "business to everyone". And you really see this shift in labor requirements based on the days of the week. So, I'll give an example, you are probably, as a retailer, going to see up to 60 to 70% of your sales for the week are going to get shipped on Monday or Tuesday. And when you think about the amount of labor that you have to carry, to handle that sort of peak on a Monday or Tuesday versus what you're going to need on a Friday or a Thursday, that's really difficult to manage. And it's just a function of you know, weekend shopping, and how things are bought online, and the timing around that. So, planning on the labor. And in today's labor market, like you just don't have the flexibility of saying, "Hey, I only need you to work three days a week." So, when you're in a model, like say ours here at Ware2Go where, you know, we use flexible warehousing and we use labor where we split it among, you know, hundreds and hundreds of different manufacturers and retailers in our warehouse network, it allows you to flex labor so that when you're competing for warehouse labor, you're promising them five days a week, and you have the ability to flex labor to Monday and Tuesday, and then you've got a different set of merchants that might be a little bit busier at the end of the week or they're off season. So, that labor thing is challenging, and it's it's exacerbated, Ben, by the high percentage of that volume that gets shipped out on Monday and Tuesday.
Ben Ames, Senior News Editor, DC Velocity 12:25
Boy, that sense of, as you said, agility and flexibility, you know, those are some great examples of really creative ways in which to apply that. Steve, we really appreciate your being here with us today. I learned a lot from our talk.
Steve Denton, CEO, Ware2Go 12:25
Thank you, appreciate it.
Ben Ames, Senior News Editor, DC Velocity 12:25
Our guest today has been Steve Denton, the CEO of Ware2Go. Back to you, Dave.
David Maloney, Editorial Director, DC Velocity 12:48
Thank you, Steve and Ben. Now let's take a look at some of the other supply chain news from the week. And Victoria, you wrote this week about how the latest LMI shows that tight capacity and high prices continue to drive the market. What more can you tell us?
Victoria Kickham, Senior Editor, DC Velocity 13:02
Yeah, that's right, Dave, and this is very much in line with what Ben and Steve were just discussing. So, business activity across the logistics industry continued its unprecedented growth stretch in August, marked, as you say, by tight capacity and high costs as companies worked to meet historic levels of demand. These are issues we've been seeing for months, of course, but we saw some new data this week with the release of the August Logistics Managers' Index report, or LMI. The LMI registered 73.8 during the month, which is down slightly from July's reading, but still the fifth-highest reading in the report's five-year history, according to the LMI researchers. And for those who may not be familiar with the report, the LMI gauges business activity across the warehousing and transportation industries. Researchers do this through a survey of industry managers and others each month. An LMI above 50 indicates growth and an LMI below 50 indicates contraction. So, a consistent reading in the 70s, as we've seen indicates strong growth and expansion across the entire logistics segment of the economy. The expansion we're experiencing is largely driven by rapid pricing, price growth and considerable tightening of capacity, as you mentioned, and I mentioned at the outset. Both transportation and warehousing capacity have been declining for months, and prices have risen sharply since the spring of 2020, especially in transportation. You know, this is no surprise to the shippers, carriers, 3PLs, and others in our audience, who are living this every day, of course, but this week's report really highlighted what continues to challenge companies throughout the supply chain, and many in the industry are wondering just how long the situation can continue. Yeah. Well, Victoria, what's the outlook, especially given the peak shipping season that Ben and Steve just talked about? That's right around the corner. Yeah, so the outlook calls for much of the same. The LMI measures what it calls the Future conditions Index, which asks survey respondents to weigh in on what they expect to see over the next 12 months. And in August, most of those respondents said they expect high costs to continue and that there's been sort of a move away from the spiky growth that they've seen earlier in the pandemic and toward a higher plateau that they're seeing for cost throughout the supply chain. I spoke to LMI researcher Zac Rogers of Colorado State University about this, and he agreed, and, you know, said the current conditions we're seeing are likely to continue well into 2022.
David Maloney, Editorial Director, DC Velocity 15:35
Yeah. So, I guess the new normal. We'lll continue to track it. Thanks, Victoria.
Victoria Kickham, Senior Editor, DC Velocity 15:40
You're welcome.
David Maloney, Editorial Director, DC Velocity 15:41
And Ben, you wrote this week about the continuing disruption caused by Hurricane Ida. What are some of those lasting impacts we're seeing?
Ben Ames, Senior News Editor, DC Velocity 15:50
Yeah, it's exactly right, and it's what Steve was talking about, it's what Victoria was talking about, some of these sort of major long term trends that everybody's tracking. But, really, looking at some of the specific hits, such as a big hurricane, you know, can throw a wrench even to some of those megatrends. So, Hurricane Ida had made landfall on the Louisiana coast on August 29 — that's almost two weeks ago now — but the power outages, particularly, and also flooding damage that it caused are far from being repaired, and several reports this week, said that that disruption could continue for more weeks. Among other things, the wreckage of Ida has triggered double-digit percentage price increases for paper-related packaging materials — chipboards, bags, dunnage. They're some of the specialized materials that go into making the parcels. There are also fuel cost increases due to some of the oil refineries shutting down temporarily, and less than truckload — LTL— trucking patterns could be disrupted for weeks to come because of the flooding and the road closures. That's all according to a North Carolina-based 3PL called Transportation Insight. So, Transportation Insight said that those effects could actually increase some of the freight congestion nationwide that was pre-existing. And again, as we keep referring to in this episode, that's because peak season is practically here, so volumes were already way up, as shippers are working to move freight faster in preparation. So the 3PL said to expect rates to increase from now through the end of the year, possibly tailing off or just flattening in December. One specific example of those trucking delays was with Averitt Express. They're a Tennessee-based freight transportation provider. As of Wednesday, Averitt had restored service to its offices in places like Jackson, Mississippi, and Mobile, Alabama, but its Baton Rouge office remained open just with limited service, and the company wasn't picking up pickups for shipments destined for dozens of different ZIP codes in New Orleans, for sure.
David Maloney, Editorial Director, DC Velocity 18:00
Ben, those are some very serious impacts from the storm. What's being done to help with the recovery?
Ben Ames, Senior News Editor, DC Velocity 18:06
There are several recovery efforts going on. One group leading the charge, as usual in these situations, is the American Logistics Aid Network, or ALAN, which coordinates the donation of logistics products and services for disaster recovery operations. So, among many other steps, specifically in the Ida response, ALAN has directed support such as borrowed forklifts, overflow warehouse space, bottled water donations, the LTL trucking transport capacity we just mentioned, and of course, personal protective equipment, PPE that's always necessary during the pandemic. And another group, a second group is helping is the Customized Logistics and Delivery Association, CLDA, which said this week that it had set up a fund to help its member associations and companies who were victims of Hurricane Ida. The group set a goal to raise $30,000, and that sounds like a lot, but it actually follows its track record. It had raised $20,000 after another storm, Hurricane Harvey, caused widespread havoc in the same area just four years ago in 2017. So, those are two specific efforts that are underway. They've been, of course, in addition to FEMA and other state and government efforts, so it looks like there's some help on the way, but it'll still be several weeks till full recovery.
David Maloney, Editorial Director, DC Velocity 19:30
Yeah, well, all good efforts, and let's hope it makes an impact. Thanks, Ben.
Ben Ames, Senior News Editor, DC Velocity 19:35
Glad to.
David Maloney, Editorial Director, DC Velocity 19:37
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. Thanks, Ben and Victoria, for sharing highlights from the news this week.
Ben Ames, Senior News Editor, DC Velocity 19:51
Thanks, Dave.
Victoria Kickham, Senior Editor, DC Velocity 19:53
Yeah, thank you.
David Maloney, Editorial Director, DC Velocity 19:53
And again, our thanks to Steve Denton of Ware2Go for being our guest. We encourage your comments on this topic and our other stories. You can email us at podcast@dcvelocity com.
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We'll be back again next week with another edition of Logistics Matters, when we will look at the growth of microfulfillment. Be sure to join us. Until then, please stay safe and have a great week.