A forward-looking interview with industry experts at Energy Transportation Group
Trucking is North America’s lifeblood. The COVID-19 pandemic caused widespread logistics disruption from which trucking was not immune, but the industry is scrappy and resourceful, continually delivering through some of the worst environmental and economic disasters. During the pandemic, the trucking industry once again earned recognition as an essential service.
National freight markets have recovered from the initial surge and decline cycle, caused mostly by consumers stocking up on goods and retailers moving swiftly to replenish inventory. The industry now experiences record high truckload volumes and better capacity utilization, causing increased tender rejections and a renewed rise in per-mile rates as carriers regain pricing power. The realities of the past six months, however, continue to challenge the industry.
Trucking executives, armed with their recent experiences, are now looking forward and planning their post-COVID strategy. There are several potential factors that may impact the future of the industry, including the potential of a second wave of COVID-19, the November U.S. presidential election and reduced consumer confidence in the economy.
ENERGY Transportation Group CEO Shawn Girard and Jason Ickert, senior director of business development, recently shared with FreightWaves five hard-learned lessons during the pandemic that will reshape North American logistics. ENERGY Transportation Group is a Canadian-based 3PL with trucking assets on both sides of the Canada-U.S. border.
Lesson 1: Diversify your customer base
During the pandemic response, the automotive industry literally shuttered, taking dedicated trucking resources with it. Carriers that were highly leveraged in automotive assemblies and parts were immediately without loads to haul. Almost overnight their trucks and drivers were idled — and without a revenue source to cover their leases, permits, taxes, preventive maintenance and insurance.
“On a turn of a dime, they had to overhaul their entire network,” said Ickert. “Drivers that were previously routed on milk runs and home daily or every couple of days were now hauling cross-country loads. Carriers who were previously running dedicated routes under contract were forced to piece together broker loads, increasing deadhead miles and generally just trying to keep the wheels turning.”
Diversification with shippers in the food and beverage industry was key for ENERGY, said Girard. “Owning both refrigerated and dry van assets, we haul a good mix of fresh produce, meat, fish and other temperature-controlled and dry consumables. We’ve done a good job at diversifying our client list prior to the pandemic that allowed us to participate in the surge demand and restocking of retail inventories.”
Lesson 2: Add flexibility to create a more agile supply chain
During the panic-buying phase, some shippers engaged more in the institutional production of food, beverages and other consumables were having trouble crossing over to package and deliver goods into the retail supply chain.
“For example, toilet paper was quickly moved through the retail supply chain and flew off the shelves,” explained Ickert. “What most people didn’t understand is that even though the retail shelves were bare, there was still a fair amount of toilet paper available in the market, but it wasn’t packaged for retail. It was a commercial grade, made primarily from recycled fibers, sold institutionally and in bulk.”
Similarly, when restaurants, schools and hospitals stopped buying from food distributors, many institutional suppliers weren’t able to quickly transition into the retail supply chain by repackaging what were previously bulk quantities into consumer packaging and portions.
Farmers, for example, who sold to wholesalers and distributors had very little reaction time to develop retail sales relationships and supply chains before their food spoiled in the field. Fresh milk was no longer being sold into schools and cheese producers could not handle the additional milk intake, causing dairy farmers to dispose of milk that could not be used. Cold storage inventories spiked, causing space to be both scarce and expensive.
Lesson 3: Consider reshoring to shorten the length of your supply chain
The disruptions of COVID-19 caused severe supply chain bottlenecks, exposing just how overleveraged North American companies are in their off-continent sourcing relationships.
Historically, organizations saved money by focusing solely on unit cost, which reduces carrying costs and depletes inventories. They have focused on lean inventory practices and have allowed for just-in-time deliveries. To be better prepared for disruptions like we experienced with COVID-19, businesses must rebalance inventories somewhere between just in time and just in case, Ickert said.
“Manufacturers have recognized there is an overreliance on foreign vendors for production of critical components and assemblies in medical, pharmaceutical and high-tech and are considering reshoring these to maintain better control over supplies,” said Ickert. “While decoupling completely from an overseas supply chain may be impossible, reshoring what makes business sense, and removing additional links in the supply chain, is the new focus.”
Lesson 4: Post-pandemic logistics will have an omni-channel focus
As North American businesses dealt with emergency pandemic regulations, including full-scale shutdowns, many administrative roles transitioned to a work-from-home environment, causing consumer buying behavior to shift more toward e-commerce. With data taken from the United States Census Bureau, the SONAR chart below reveals e-commerce’s exponential growth in the first half of 2020.
“Consumers are buying more of their purchases online,” explained Girard. “Everything from groceries, furniture and even engine oil is being delivered in the last mile. Consumers are realizing they don’t need to mask up, jump in a car and go into a physical brick-and-mortar store. They have different e-commerce retailers competing for their purchases and offering to deliver them for free.”
The increase in demand for last-mile deliveries has begun to strain mail, parcel and LTL networks and significantly increased the truckload demand required to support the middle mile.
Lesson 5: Depend on technology to protect and scale your business
Organizations across the supply chain are implementing new technology to better compete in the logistics environment. ENERGY was able to apply its disaster recovery plan to create a network of team members who essentially transitioned immediately into a work-from-home environment when the pandemic struck.
“We had previously made a global investment in server redundancy, had implemented remote-enabled electronic devices on all of our assets and equipped our team members with laptops, mobile and softphones, additional monitors, etc. they could use at home,” said Girard. “Once we confirmed that our network could function remotely and without interruption, we quickly began to pivot focus on how we could use our technology to scale production using automated workflows and artificial intelligence.”
There’s an old saying that the only constant is change. Whether it’s in reaction to a pandemic or an environmental disaster or to better compete, past strategies may not deliver future success. “In an industry like ours that was built on sweat equity,” noted Girard, “we have to create and implement new technologies that will deliver better results.”