US shippers are divided into two camps — those experiencing growth during the COVID-19 crisis, which consist mostly of companies producing goods deemed essential during the pandemic — and those experiencing slowdowns, the Council of Supply Chain Management Professionals (CSCMP) stressed in its latest annual State of Logistics Report.
The split was evident early in the pandemic caused by the coronavirus disease 2019 (COVID-19), as producers of paper products and even snack foods saw orders and shipments soar, while makers of furniture, automotive components, and apparel saw demand slump as consumers stayed home and put spending on hold amid lockdown orders and many businesses deemed non-essential shut down.
There's a danger in this split: Companies struggling with short-term issues, such as falling volumes and revenue, could undercut future truck capacity if they place too much emphasis on knocking down pricing.
The CSCMP report, released Tuesday, suggests both shipper camps need to focus their supply-chain strategies on longer term objectives, rather than short-term gain, to ensure they are positioned to survive the next cycle of tight trucking capacity and higher rates that will eventually follow the recovery from the deepest recession the United States has experienced since the Great Depression.
Each shipper camp is following distinct strategies as they navigate the recession and pandemic, the CSCMP said. Those still growing are more likely to be “future-proofing for sustainability,” while those seeing business shrink are interested in rapidly reducing short-term logistics costs. There is common ground: fear of an eventual capacity crunch once the recession ends.
“The longer the post-COVID-19 recession, the tighter the ensuing capacity crunch,” the organization said in its report. The best preparation for that crunch, CSCMP suggests, is to remember the lessons of 2018, the last point of tight capacity, and to partner more closely with transportation and logistics suppliers. In other words, to be a “shipper of choice.”
“Becoming a shipper of choice by investing in your yards and docks and improving your loading hygiene can also help you in today’s climate,” the report said. “If you can help carriers reduce last-minute orders and improve delivery velocity, they can plan and deploy their assets more effectively, thus producing more profitable loads and ultimately providing better service.”
That may be a hard call for businesses that are seeing sales plummet and profit margins vanish. The temptation will be to press trucking partners for lower rates or to at least keep rates flat. “We’re getting more bids, customers are rebidding freight,” Chuck Hammel, CEO and founder of less-than-truckload (LTL) operator Pitt Ohio, told JOC.com earlier this month.
That’s more true in Pitt Ohio’s truckload operations than its regional LTL business, Hammel said, but it’s a trend “we’re coming up against.”
The risk of being too aggressive
Short-term rate pressure may benefit some shippers, but the CSCMP report outlines the risks of being too aggressive, especially after a year in which shippers held significant pricing power. “First, any given carrier could go bankrupt,” the report warns. Some of the larger carrier bankruptcies of 2019 were in part attributed to carriers accepting rates that were too low.
The CSCMP report, produced by A.T. Kearney and sponsored by Penske Logistics, pointed to strategic ways to reduce costs beyond winning a rate rebate. “For example, by launching sourcing programs to diversify your supply base, reevaluating your carrier and mode strategy, and optimizing your routing capabilities to get the most out of your resources,” it said.
CSCMP also urged shippers with private or dedicated fleets to consider shared-use networks, “partnerships that match your assets with other shippers’ networks to identify backhaul opportunities.” Those types of networks depend on greater adoption of technology and the use of technology platforms being developed by third-party logistics providers and motor carriers.
“Tech companies have developed platforms to support customer and driver connectivity, enabling better planning for shippers and making it easier to do business with carriers,” the report noted. But shippers will also need to automate and digitize internal processes through transportation management systems (TMSs), which many companies still lack.
Technology, however, requires capital and a vision that imagines returns beyond the current economic horizon. Both may be in short supply and limited by economic uncertainty.