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Steven Horwitz is the Distinguished Professor of Free Enterprise and director of the Institute for the Study of Political Economy in the Department of Economics in the Miller College of Business at Ball State University in Muncie, Ind. He is also an affiliated senior scholar at the Mercatus Center in Arlington, Va., a senior fellow at the Fraser Institute of Canada, and the economics editor at the Cato Institute’s libertarianism.org. He is the author of four books, including most recently Austrian Economics: An Introduction. He has written extensively on Hayek and Austrian economics, monetary theory and history, and American economic history, and is a frequent guest on radio and cable TV programs. He is also the 2020 recipient of the Julian L. Simon Memorial Award from the Competitive Enterprise Institute.
David Maloney, Editorial Director, DC Velocity 00:01
What's this year's holiday shopping season going to look like? Available warehouse space continues to tighten. And a logistics firm make a move into venture capital.
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 David Maloney. I'm the editorial director at DC Velocity. Welcome.
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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: We all know that the holiday shopping season is going to be different, but just how different this year? What can retailers expect, and what implications do hyper e-commerce holidays have on our supply chains? To answer that question, I spoke earlier this week to Steven Horwitz, an economics professor and director of the Institute for the [Study] of Political Economy at Ball State University. He is the author of four books, including, most recently, Austrian Economics, an Introduction. And he has written on topics such as monetary theory and history and American economic history. Here's our conversation, recorded earlier this week.
Welcome, Steve. Thanks for joining us.
Steven Horwitz, Director, Institute for the Study of Political Economy, Ball State University 01:42
David Maloney, Editorial Director, DC Velocity 01:44
I mentioned a moment ago in my introduction that you write about American economic history. You should have plenty to write about after this year, with the rollercoaster of economic emotions we've been on. How would you characterize this year?
Steven Horwitz, Director, Institute for the Study of Political Economy, Ball State University 01:57
Well, everyone wants to, you know, unprecedented times and all that I'm not sure they're totally unprecedented. But certainly rollercoasters. Probably a more apt metaphor we have, we were in, I think, very good shape before the pandemic, the combination of the pandemic itself, and then some of the policies that were adopted as part of it, which may or may not have been effective, have certainly had their, taken their toll economically. And interestingly, I think it's accelerated some trends that we were already seeing taking place in the economy—for example, the move to e-commerce and so on, which was happening anyway [has been] accelerated by that.
But also, I think the implications now for the holiday season will be interesting, too, as people really want to get back together with family and friends, but are going to have to think about how that's going to work and what they're, you know, what spending is going to be like, and what they're, how they're going to navigate all of this in a world in which, you know, still, no one's, nothing's back to normal in any sense of the term.
David Maloney, Editorial Director, DC Velocity 02:59
That's for certain. And I know we anticipate that Black Friday's going to probably look a little different this year as well. What do you anticipate there?
Steven Horwitz, Director, Institute for the Study of Political Economy, Ball State University 03:07
I think we're already seeing it look different. I think a number of places have already basically said they're going to start their holiday sale season now, and have it, sort of extend that back into time earlier. Certainly, the last thing anyone wants is for Black Friday to turn into the Black Plague by having all kinds of problems with with folks shopping in person. So certainly between the restrictions on capacity and people's just general concern about going out and being in crowds, I don't think we'll see the crowds on Black Friday that we have in the past. But what we are seeing is a way of sort of social distancing through time by having these sales spread out earlier, and I expect that many of those Black Friday prices will continue on into December. So, firms are trying to sort of make up those sales over time, as opposed to crunching them all into that one day or into that weekend.
David Maloney, Editorial Director, DC Velocity 03:56
Of course, Amazon had their Prime Day just a short time ago, and that was, in a way, a kind of jumping ahead of the Black Friday sales. You'd mentioned about them trying to space those sales out. Is that also designed in a way to be able to handle distribution a little bit better, and manage their inventories?
Steven Horwitz, Director, Institute for the Study of Political Economy, Ball State University 04:13
Yeah, I think so. And also delivery. I think one of the real challenges this year is going to be folks who are not going to get together in person for the holidays, but want to make sure gifts get to where they're going, and especially if they're shopping online. So, I think making sure that the gifts that people are buying get to where they need to go in time for the holidays is going to be really crucial. So I think spreading that out over time is one way to handle that. If you can give people the prices, the good Black Friday prices earlier, they might order some things earlier. That'll smooth out some of that supply chain stuff, but also the delivery as well. And I wouldn't be surprised to see firms either offering some kind of deal if you order early or some kind of additional shipping charge or something like that If you order too close to the holidays. We'll see how that works out. But certainly they want to avoid the congestion that might well happen as more and more people shop online this year and have them shipped.
David Maloney, Editorial Director, DC Velocity 04:16
One of the things we always think about with Christmas retailing is the mall. At least from the past 30 years, the mall has been the place where you do most of your Christmas shopping. Of course, that's gonna be very different. I know personally, although I've been to a lot of retail stores, I haven't actually stepped foot in a mall since last March. What's the future of the mall? And is there any way that they can make a comeback?
Steven Horwitz, Director, Institute for the Study of Political Economy, Ball State University 05:32
Yeah, I think this is one of those examples of a trend that's been already there that has been accelerated by the pandemic. Malls, I think, were in some trouble already—again, e-commerce being part of that—but also the degree to which, you know, the places like Target and Walmart, were already offering the beginnings of curbside delivery and home delivery, these sorts of things. And as people have gotten more comfortable shopping online, the mall is a challenge, right? And I think, you know, part of what was great about malls for so long was that they were a social experience, too, that you went hung out, you know, you could eat, you could do those other things, all of which now are, as you say, problematic, and not surprising that we would see malls in decline.
Can they save themselves? That's a good question. I suspect that in the long run, the ones that are going to survive are going to be the higher-end ones, where personal service and all that sort of thing becomes—the kind of stores where personal service becomes really, really important. I think maybe you, you know, we'll see the lower-end malls probably not make it, or survive as something like strip malls. So again, I think the higher-end malls have a better shot at making it, but the shopping mall is probably on its way out as a kind of cultural landmark in the way it probably was for—certainly for you and I, growing up.
David Maloney, Editorial Director, DC Velocity 06:49
What are you seeing as far as retailers' inventories. Will they have enough stock to get through the holiday season?
Steven Horwitz, Director, Institute for the Study of Political Economy, Ball State University 06:54
I think that they've had an enough time, anyway, to think about how to handle the logistics here. No one—did anyone know in March or April that we'd still be in the same world come October, November? I think there's enough people who thought "maybe so" to make sure that that was the case. And we do seem to have gotten by many, though not all, of the supply chain bottlenecks that were—you know, toilet paper doesn't seem to be the problem it was back a few months ago. So I don't anticipate that inventory is going to be a big problem here. As I said, I'm sort of more concerned that the demands on delivery mechanisms and processes will be the things that could be problematic.
David Maloney, Editorial Director, DC Velocity 07:39
Yeah. Are you advising people to shop early this season, just in case?
Steven Horwitz, Director, Institute for the Study of Political Economy, Ball State University 07:43
Well, you know, it can't hurt, right?, if you can do it early and get things shipped. And you know, we have a bunch of stuff for for our kids already. I think it's probably not a bad idea, but at the same time—again, it depends on what you're doing, right? If you're just having it, you know, shipped to the house, you can be patient, maybe not. But if you're trying to ship to people all over the world to get them gifts, perhaps acting sooner is better.
I suspect you won't see, I suspect you won't see too much of a price difference between now and after Thanksgiving, I suspect that many of these sales will continue. Again, a lot of places have seen—not so much Amazon, maybe, but other places have seen their businesses, you know, challenged over the last few months, and they'll be wanting to capture the holiday season if they can.
David Maloney, Editorial Director, DC Velocity 08:32
Sure. A new survey just came out today, in fact, that 42% of businesses expected their supply chains will be the biggest challenges of the holiday season. Do you see steps that companies are taking to help mitigate some of that risk?
Steven Horwitz, Director, Institute for the Study of Political Economy, Ball State University 08:46
Ah, I don't know if there's anything in particular, other than that, you know, there—I mean, the nature of a supply chain, to some extent, is they're dependent upon people upstream. I think if I were in charge of those decisions in a major firm, I would be contingency planning all over the place, right? "What if our normal routes don't work? What are our other options? And how can we be as flexible as possible in the face of what, of the sort of enormous uncertainty, both about how much people are going to spend and what they're going to want to spend on, and how they're going to want it delivered to them?" So I think this is—more so than ever before, having some flexibility and having multiple potential supply chains in place, I think, multiple sorts of supply in places is going to be the key.
David Maloney, Editorial Director, DC Velocity 09:35
Other than spreading out their orders over time, do you see any retailers taking any innovative approaches to their e-commerce sales and the large increases they're expecting this year?
Steven Horwitz, Director, Institute for the Study of Political Economy, Ball State University 09:45
I haven't—nothing that I can think of off the top of my head that's been, you know, been particularly innovative. I think one of the things we are seeing more of is the spread of curbside delivery, and I think that's going to outlive the pandemic, by the way. I think that's a permanent change in how a lot of firms are going to do business, especially restaurants. So, that is a, I don't think of that as a major innovation right now—we've had it before—but it's certainly one that's spreading quickly as retailers want to provide the convenience of that without without having to worry about people coming in the store. So whatever, I think whatever firms can do to keep foot traffic manageable—the last thing, again, they want is to be a source of a super-spreading event. And they also don't want to see people lined up to get in the store any more than necessary, right?, especially if they're lining up because of capacity constraints and so on, so. And again, we should note too, that a lot of this may vary by location. Some parts of the country are in better shape than others, some have different have different regulations, Covid-related regulations and others. So, you know, local experience, I think, for for buyers is going to vary.
David Maloney, Editorial Director, DC Velocity 10:51
We've been talking with Stephen Horwitz, an economics professor from Ball State University. Thank you, Steve, for being with us today.
Steven Horwitz, Director, Institute for the Study of Political Economy, Ball State University 10:58
My pleasure, sir. Thank you for having me.
David Maloney, Editorial Director, DC Velocity 11:00
Now, let's take a look at some of the other supply chain news from the week. Victoria, you reported on newly released data concerning warehouse utilization rates, and it looks like it's returning to pre-pandemic levels.
Victoria Kickham, Senior Editor, DC Velocity 11:12
Yes, Dave, that's right. It certainly is. Demand for warehouse space continues to grow, as we've seen from some reports this week, and some Industry watchers are actually saying there could be a critical shortage of space early in 2021. What I saw this week echoes what we've been seeing the last few months by covering the Logistics Managers' Index report, which is a report that gauges economic activity in this industry, and it's shown that space is tight, if you're looking for it, but if you're providing space, it's good news. If you're 3PL or someone like that, you're very busy.
So this week, I attended the Home Delivery World event, which is a retail logistics event that offers educational programming on a wide range of topics. And I sat in on one of the real-estate track events hosted by logistics real estate firm Prologis, and they talked about some findings that they they discovered by surveying their customer base in the U.S. about activity in the third quarter. So, among the key points, as we've seen, accelerating e-commerce and rising inventory levels are really creating strong demand and increased competition for warehouse space. They found vacancy rates remained really low—5% in the third quarter—and utilization was back to pre-pandemic levels, as you noted. They said their customer base, it's about 85%, which is to say is pretty much near full capacity.
This followed a really volatile second quarter, of course, so the rebound is coming from a low point, but nonetheless, it's growth, and they say they're expecting to see sustained rebound in terms of warehouse demand. And as I said at the outset, they also cautioned that companies looking for space could face very limited options in the new year. And that's because of a general contraction in the development pipeline.
David Maloney, Editorial Director, DC Velocity 13:00
Yeah, did they say whether or not any new construction would help to offset some of those future needs?
Victoria Kickham, Senior Editor, DC Velocity 13:06
Yeah. So they, as I said, they mentioned a slowdown in new construction, sort of at the height of the pandemic, especially when it comes to speculative construction—and that's when a developer builds a warehouse, but there's not a client. They're building it for, it's for prospective customers. So many of those projects were halted at the height of the pandemic, or a lot of them. They're now underway, but development is still pretty slow. And they say that that will cause available options to really narrow quickly in the new year. So, the bottom line: careful planning for logistics needs is a must. And they say that investing in space, whether you're building space yourself or securing it now, is really going to become a competitive advantage in the new year.
David Maloney, Editorial Director, DC Velocity 13:52
As always, good planning really is the key. Thank you, Victoria.
Victoria Kickham, Senior Editor, DC Velocity 13:55
David Maloney, Editorial Director, DC Velocity 13:56
And Ben, you reported on a major logistics firm launching a venture capital fund. Can you tell us what's behind it?
Ben Ames, Senior News Editor, DC Velocity 14:03
That's right, Dave. Just as Victoria was talking about, we've also been tracking other types of economic trends in the logistics sector. Just a month ago, we had heard some speakers and sessions at the CSCMP EDGE virtual trade show, talking about how the pandemic and the economic recession that's associated with it had put the brakes on some of the big investments in the supply chain sector, such as mergers and acquisitions.
But in recent weeks, we've seen that begin to turn around. On Monday, there was a private equity firm that bought Rand McNally, which a lot of people know for making roadmaps, but today they provide fleet-management and asset-tracking tools. And another, earlier this month, private equity firm called The Jordan Company sold its majority stake in the 3PL Capstone Logistics to another private equity firm. So you can see, there, some early bubbles of activity. And on Wednesday this week, we saw another sign of life when Ryder System, which provides logistics and transportation services—a lot of people know them for their rentals, truck rentals—they started their own venture capital arm. They say that they plan to invest $50 million—five oh—in startups over the next five years. The company says it plans to focus on startups in the sector. They're tackling disruptions in the supply chain driven by accelerating e-commerce, fulfillment demand, asset sharing next-generation vehicles, automation, and data analytics. So it'll be interesting to see what they do with their money.
David Maloney, Editorial Director, DC Velocity 15:35
Are there any other examples of logistics companies starting venture capital divisions so that they can invest in their own sector?
Ben Ames, Senior News Editor, DC Velocity 15:43
Great question, and the answer is yes. So Ryder is not unique here. Again, we haven't seen a whole lot of action in that area in recent months because of the coronavirus challenges, but over the last year or so, looking a little bit farther back, some examples are Zebra Technologies—of course, they make handheld scanners and things—Maersk Line, the container shipping line, and UPS—that's the big carrier.
So for some examples of what they have invested in, UPS Ventures, but a minority stake in a self-driving truck technology startup; also a blockchain-based e-commerce startup. Zebra Technologies had provided funding for an autonomous mobile robot vendor called Locus Robotics, also Plus One Robotics, which makes a picking arm for picking up eaches. And Maersk Growth had invested in digital freight-matching startup. So, you know, a lot of those areas are some of the real hot-button issues in the sector now, and you can see that some of the venture arms of these major logistics companies are participating in the growth of some of those. So it's been really interesting to watch, because those companies are not necessarily doing takeovers or combining those operations with their own platforms, but they do see a lot of growth there that it makes sense to invest in them as an economic venture, and try to make some profits off it.
David Maloney, Editorial Director, DC Velocity 17:16
Yeah, it definitely will be interesting to see if that's a trend moving forward. Thank you, Ben.
Ben Ames, Senior News Editor, DC Velocity 17:21
David Maloney, Editorial Director, DC Velocity 17:22
We encourage our listeners to go to DCVelocity.com for more on these and other supply chain stories. Go there to check it all out. Thank you, Ben and Victoria, for sharing highlights of the news this week.
Ben Ames, Senior News Editor, DC Velocity 17:33
It's always fun. Thanks, Dave.
Victoria Kickham, Senior Editor, DC Velocity 17:34
David Maloney, Editorial Director, DC Velocity 17:36
And again, our thanks to Steve Horwitz of Ball State University for being with us today. We encourage your feedback on this topic and our other stories. You can email us at email@example.com.
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