roughly 25%, and railroads face high fixed costs to maintain theirnetworks in their core carload business. To generate more revenue,the major freight railroads are looking again at intermodal, whichthey had treated like the proverbial red-headed stepchild duringtheir rush to embrace PSR.
Given intermodal’s cost and carbon-footprint benefits, shippersare keen for better prices and reliability. According to the researchers, the railroads have taken notice of this, and say they are working on ways to improve their intermodal networks.
On the other side of the intermodal equation, ocean shippingsaw volumes soar in 2018 in anticipation of U.S. tariffs, but both in2019 and this year the industry has managed to find new sources ofpain. Shippers found they had entered 2019 with excess inventorythat reduced their ocean shipping needs, and ocean carriers werehit with new and expensive environmental regulations.
In the wake of COVID- 19, additional financial strain is likely tocontinue well into the future. “Ship and container imbalances andcapacity uncertainty have driven up spot-market prices and suspended normal contracted rate negotiations as the demand pictureremains clouded,” the researchers explain.
U.S. ports began 2020 by enjoying growing shipment volumesand improving efficiencies, but the pandemic soon left them reeling as they had to deal with dropping volumes, congestion andhundreds of thousands of boxes stranded at terminals.
EXPECT WAREHOUSING GROWTH
Last year, warehouse rents continued rising and vacancy ratesstayed near historic lows. E-commerce continued to drive growth,especially in regard to smaller, high-amenity urban warehousesoperating closer to the customer base, the report notes.
Inventory storage costs grew 6.6% in 2019 because warehousing capacity remained tight, which in fact has been the case formany years, although the pace of construction also increased.“Warehouses delivered the highest square footage completed ina single quarter on record—and the market quickly swallowed itup,” the Kearney researchers report.
In 2020, the researchers expect that disruption of consumersupply chains stemming from the Coronavirus pandemic willdrive a new surge in warehousing demand, especially for tempera-ture-controlled warehouse space as more consumers order foodonline. But that won’t be the only driver.
The researchers estimate that a 5% bump in safety-stock inventory will require about 750 million square feet of additionalindustrial space as companies soften their former lean-inventorystrategies, such as Just-in-Time and Quick Response.
“The rise in stock levels should spur industrial activity, given theexpectation that the warehouse construction pipeline will remainfull and warehouse availability will remain tight,” they predict.
These trends demand greater attention to efficient managementof both private warehouses and companies providing third-partylogistics (3PL) warehouse services, which help customers manageother supply chain needs by providing trucking, freight brokerage,freight forwarding, packaging and materials handling, along withother specialized services.
Technology is also being deployed to boost efficiencies in bothwarehouses and distribution center operations. “Pandemic e-commerce is leading to an expected increase in adoption of warehouseautomation solutions to keep costs and operational complexity incheck even further,” the researchers explain.
Sales of autonomous mobile robots are estimated to double to$27 billion by 2025, they point out. This and other tech solutionsput the industry in a good position to support a vigorous recovery.
The pandemic tested 3PL service providers without warning,confronting them with sudden stops and surges, depending onwhich industries they served, and this is expected to have lastingeffect. Most heavy manufacturing, the automotive industry andimportant segments of basic chemicals came to a stop when factories closed because demand had evaporated.
“The 3PLs and supply chains serving the hospitality and
restaurant industries were mostly stopped cold,” the report says.
“On the other hand, high-tech products such as microprocessors
continued to fly across the globe, still needed for providing in-
puts to crucial computers, servers and military products.” In ad-
dition, consumer packaged goods and grocery demand surged
as people hoarded and then shopped while adhering to shelter-
The report remarks that a number of 3PLs were able to redeploy some of their people and assets from the halted and slowedindustries to the ones that experienced surges. “Most shipperswe spoke with reported that their 3PLs had a ‘we’re in this together’ attitude rather than invoking force majeure clauses,” theresearchers reveal.
However, the report’s authors warn that 3PLs need to keep
investing in technology and sharpening their expertise. “Some
shippers told us that advances in technologies (warehouse man-
agement systems, transportation management systems, track and
trace) make the insourcing decision easier to take.”
They add, “Those shippers committed to buying talent and in-
novation from 3PLs reported that they were seeing incremental
improvements in creativity, such as the campus model for 3PLs
where multiple shippers are served from the same group of fa-
cilities, or the buildup of 3PL last-mile networks and extra cross-
dock capacity that can help shippers with surges.”
The impacts of the COVID- 19 crisis have opened the eyes
of customers and providers alike to the value of technology in
supply chain management, the researchers stress. “Even provid-
ers previously hesitant to invest in shipment location tracking or
electronic signatures, claiming such digital technologies were
unnecessary, are now embracing them as table stakes.”
With rising labor costs, and despite the COVID-19-induced
recession, shippers and 3PLs look to automation and robotics
to make logistics more efficient—not just by achieving control
over complex and unpredictable product flow, but also by help-
ing gain greater control over labor costs.
While the Kearney researchers believe that serious growthand application of autonomous trucking is still five to 15 yearsaway, they note that legions of mobile robots are already workingalongside humans in many warehouses and DCs.
The logistics industry had exhibited very good fundamentals
before the pandemic devastated the economy, and those will help
it weather the current storm, the researchers claim. “Although
almost nobody saw the COVID- 19 crisis coming, the state of the
industry in 2019 suggests that it could recover quickly.”
They contend that the rapid deployment of professional skill
and quick actions taken to find creative solutions by logistics
professionals on display from the early stages of the pandemic
should bode well for the future of the industry.
“Logisticians rolled up their sleeves instead of hiding behind
David Sparkman is founding editor of ACWI Advance (www.
their contracts. People across the industry—indeed, across the
world—are coming together to face this dramatic crash and re-
build from it. Players in the logistics industry are seeing the re-
wards of collaboration, which now motivate them to go further
with bold new solutions.”
The researchers summarize their view: “In general, winners
will emerge from this crisis with more digitally savvy logistics
operations, especially in the areas of creating transparency and
interfaces while reducing needs for physical labor across modes
and nodes.” MH&L
acwi.org), the newsletter of the American Chain of Warehouses
Inc., as well as a member of the MH&L Editorial Advisory Board.
TRANSPORTATION COSTS (IN BILLIONS)
Motor Carriers $680
INVENTORY CARRYING COSTS
Financial Cost $169
Other (obsolescence, shrinkage, insurance, etc.) $136
Carriers’ Support Activities $60
Shipper’s Administrative Costs $56
TOTAL LOGISTICS COSTS $1,630
Source: CSCMP’s 31st Annual State of Logistics Report; A. T. Kearney analysis
THE STATE OF THE U.S. LOGISTICS MARKET, 2020