The Logistics Matters podcast: Matt Castle of C.H. Robinson on tight air capacity | Season 2 Episode 17

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Transcript

David Maloney, Editorial Director, DC Velocity  00:00

Shippers continue to face a tight air market. The industry reacts to the infrastructure proposals coming out of Washington. And is it the end of contract drivers in California?

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 editorial director at DC Velocity. Welcome.

Logistics Matters is sponsored by Honeywell Intelligrated. From system design and emulation 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. To learn more, visit sps.honeywell.com.

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: Companies that rely on air shipments have not had an easy during the pandemic. The loss of passengers meant that airlines were flying fewer flights and had less cargo capacity in the belly of those passenger planes. Now that more commercial flights are taking off, will the air freight market improve? Or will it continue to be unfriendly skies for shippers? To address that topic, here is Ben with today's guest. Ben?

Ben Ames, Senior News Editor, DC Velocity  01:32

Thanks, Dave. That's right, with us on the show today we have Matt Castle. He's vice president, air services, at C.H. Robinson. Matt, thank you for joining us.

Matt Castle, Vice President, Air Services, C.H. Robinson  01:44

Thanks, Ben. Glad to be here this morning.

Ben Ames, Senior News Editor, DC Velocity  01:47

Matt joined C.H. Robinson in 1996 and has more than 25 years of experience in the transportation industry, so, you've seen a lot of history in this sector, Matt. But this year is looking like it's building up to being one it's not quite any other. On the one hand, vaccine campaigns are getting more popular and leading to rollbacks of pandemic restrictions and recovery of economic conditions, but on the other hand, airfreight has been in nonstop peak-season mode for months. And that's gotten even tighter thanks to disruptions like the Suez Canal blockage. Matt, I understand you can help us understand what some of those various forces mean for shippers who are trying to brave that confusing air freight market right now. First of all, I wonder if you could help our listeners get a sense of how bad is it out there for shippers that are trying to move freight by air?

Matt Castle, Vice President, Air Services, C.H. Robinson  02:40

Yeah. Ben, I've seen, in my 25 years of being in the industry, I just have not seen this level of disruption in¢¢ the supply chain. I think part of what makes this so much different from you know, previous years or historically is just the duration of what we've been going through. It has been to your point, it's been a nonstop peak season here since the pandemic set in. And I think the other challenge that goes with this, it is truly, truly global. I think in the past, you would have perhaps, you know, constraints or challenges within a region or something event-based, and the rest of the world could somewhat compensate. And in the current environment today, that's just not the case. Everybody is stretched thin for resources across the globe here.

Ben Ames, Senior News Editor, DC Velocity  03:31

Yeah, interesting. And to your point it, it's, you know, it's the worst conditions, the most challenging ones that we've seen in a long time. But CHR, obviously has been in this game for a long time, and I understand that you do have some some tips or advice for folks that are trying to navigate those. Leading up to our talk today, we had talked about four different tips for helping shippers to navigate these constraints. First of all, I understand that the increase in passenger travel is not all that it might seem.

Matt Castle, Vice President, Air Services, C.H. Robinson  04:07

Yeah, it's interesting. I had a coworker share his surprise at the number of people at the airport on a recent trip, and had made a comment that it seemed as though things were recovering. And there's no doubt, you know, people are getting comfortable to go back into airports and travel here a little bit, but it still remains, you know, people are still remaining close to home. We're just not seeing the level of international travel that, you know, we had historically seen, with respect to the pandemic here. So, while there's, you know, air travel is picking up and it's a good sign for the airline industry, it's not bringing a tremendous amount of relief from a cargo perspective at this point in time. We still see a lot of optimism out there in the airline industry. Within that space airlines will publish routings and schedules well in advance, and they're really trying to test to see what demand looks like. As we get closer to those flights becoming active, we are seeing a large number of cancellations, so it's, it's providing some challenges there in terms of just whether or not that capacity may or may not be there.

Ben Ames, Senior News Editor, DC Velocity  05:28

So another point that that you'd been making is that shippers might anticipate that some of these changes might be permanent out of the pandemic, is that right?

Matt Castle, Vice President, Air Services, C.H. Robinson  05:37

Yeah, I think there's, you know, we're, we're writing history as we speak here, for sure, on on a multitude of fronts. It's gonna be some time for the airline industry to recover. There's no doubt that there's a lot that's been learned over the course of the last year,  but on all accounts, it will be reshaping the industry here for a time to come.

Ben Ames, Senior News Editor, DC Velocity  06:07

Well, we'll be continuing to follow that closely, for sure. So, another point that we had talked about coming in is that shippers can get creative, then, as we're looking forward to an unknown period of future here where some of these challenges and hurdles might be present, but they can, as you put it, flex their creative muscles.

Matt Castle, Vice President, Air Services, C.H. Robinson  06:27

Yeah, absolutely. I mean, I really, you know, I take a step back and kind of think of some of those value points from a shipper perspective, and, you know, it really starts with planning. I mean, that is so important and so critical in today's environment, just making sure that you have as strong of a relationship or connectivity with your suppliers as you can. You know, as we've talked here, it's just not as simple as making a booking and expecting that freight to be on a plane the next day. Planning has become paramount here. And then, you know, I think going back to the creativity, you're just really making sure you've got strong collaborative relationships, and you're sharing what information you have with your providers. That's where solution design and optimization starts, is in those relationships that you're building. You know, it's absolutely being flexible and thinking a bit outside the box. I think of it in really three different components. I think in the past, you know, maybe you bought Shanghai to Chicago on a direct flight, and there was ample capacity and lots of options. As markets have gotten more and more constrained, it's "Hey, maybe I need to think about trucking it down to Hong Kong," and utilizing capacity from a different airport at origin. And likewise, maybe I'm flying into Los Angeles, and perhaps I can do West Coast distribution, as opposed to moving that into the Midwest into my distribution centers. So, there's a lot of different options, different solutions that are out there, and it's just a matter of really getting into that discovery and coming forward with a variety of different solutions. And then the last thing I would just really add, is just making sure that your teams are empowered to make quick decisions. You know, space is here today, and it's gone tomorrow, and so, you know, we're seeing those from an industry perspective that are having success and keeping things moving through their supply chain, have the ability to make some of those very quick decisions.

Ben Ames, Senior News Editor, DC Velocity  08:42

And it sounds like, you know, it's we've talked for years about the importance of shipper and carrier relationships and about sharing data. But the fourth tip that we were talking about, is that shippers should really consider using a mix of modes, and you were touching on that just now in terms of maybe using some different approaches to change the point of origin or distribution on the other end. But it sounds like, you know, air isn't necessarily the standalone solution.

Matt Castle, Vice President, Air Services, C.H. Robinson  09:12

Yeah, you know, that is really, in today's environment, the ability to shift from one service to the other—and again, whether that's, you know, trucking on an origin or destination—it's even, for us it's been, how do we insert expedited LCL products into the mix here? Maybe it hasn't held up too well here with some of the ocean congestion and some of the challenges here that had been faced there, but it is really just taking a step back and making sure you understand what your needs are, and applying the right products and services to meet what it is that you're looking to accomplish here. And again, modal conversion is just absolutely important to continue to look at, because the cost of transportation today has really escalated, given just the amount of disruption and the limits to capacity that we're wrestling with today.

Ben Ames, Senior News Editor, DC Velocity  10:20

Got it. Really interesting. This has been fascinating stuff, Matt. I really appreciate your your coming on the show and sharing some of your learnings with us.

Matt Castle, Vice President, Air Services, C.H. Robinson  10:29

Wonderful. Thanks, Ben. Appreciate the time this morning.

Ben Ames, Senior News Editor, DC Velocity  10:31

Great. And and again, we've had, joining us on the episode today, Matt Castle, vice president for air services at C.H. Robinson. Back to you, Dave.

David Maloney, Editorial Director, DC Velocity  10:40

Thank you, Matt and Ben. Now let's take a look at some of the other supply chain news from the week. Victoria, we all realize the need for improving our nation's crumbling infrastructure. The problem is, how much should be done and how to pay for it. You wrote this week about what supply chain leaders want to see in infrastructure improvements. What did they say?

Victoria Kickham, Senior Editor, DC Velocity  11:02

Yeah, that's right, Dave. So, there has been considerable talk about a potential infrastructure bill this year, as our readers know, I'm sure, and the conversation is really heating up in Congress following the GOP's release of a Republican alternative to the administration's $2 trillion infrastructure plan. A group of Republican senators released a $586 billion proposal last week that more narrowly addresses infrastructure compared to the President's proposal. So what I wanted to do is talk to some industry professionals to just get their take on what's most important in a potential bill, and the gist of it is that a plan that addresses, as you say, the crumbling infrastructure and our long overdue investment in our roads, bridges, airports, transit systems, will be welcomed by pretty much everyone. The industry pros I spoke to also said that technology is an important part of any proposal as well—specifically, expanding broadband access and 5G wireless networks, things like that. Both proposals put forward so far address all of those issues, in different ways, of course, and now it's just a matter of hammering out the details. Looking at the infrastructure issue, in general, though, it's interesting to note that we have a new infrastructure report card out this year, and that is a report published every four years by the American Society of Civil Engineers. And essentially, it gauges the condition of the nation's roads, bridges, railways, transit systems, and so forth. This year, the group gave U.S. infrastructure, an overall grade of C-minus, and that marks the first time in 20 years the country has received a grade in the C range; it's usually higher. And of course, it indicates kind of mediocre conditions. Grades ranged from a B for rail to a D-minus for transit, with roads scoring in the D range. So with these kinds of grades, it's easy to see why so many in logistics and transportation are just anxious for action on the issue. At some point.

David Maloney, Editorial Director, DC Velocity  13:01

Yeah, definitely needed. So who did you talk to, and what were their primary concerns?

Victoria Kickham, Senior Editor, DC Velocity  13:07

Yeah, well, one of them was David Powell, of Montway Auto Transport, and that's a company that uses trucking services to move automobiles across the country. And he talked about, among many things, the need to alleviate congestion on the nation's highways as a way to make transportation more efficient, of course, but also because delays and disruptions for companies like his create added costs for businesses. Powell gave a couple of examples, and the first was in the form of rental car charges, if his company has failed to deliver on time to a customer. So delays can cause that. In another way, higher insurance costs add up when crumbling roads contribute to cargo damage. They're moving some pretty expensive cargo. I also spoke to Chris Wolfe of PowerFleet, and that's a company that provides asset-management solutions to logistics and industrial customers, and he talked about the importance of addressing technology by expanding broadband coverage to rural areas and implementing 5G, as I mentioned earlier. And it was interesting, Chris's comments echoed the concerns of others I talked to who said, you know, those kinds of solutions are not only good for business, but society as a whole. We've seen with the pandemic, in the last year, of course, that internet service has become vital for communities everywhere, especially as more of a shop online, you know, go to school and work remotely. So, that's important from that perspective. But from the business side, you know, some argue that government tech investments can work to, boost automation, which is something, a big trend we've talked about here on the podcast many times. And it can also improve communication in the four walls of a facility, on interstate highways, and sort of everywhere in between. So, those were some of the big issues that were mentioned, and again, why industry is so hopeful for action on this, finally,

David Maloney, Editorial Director, DC Velocity  14:57

Yeah. Thanks Victoria. Hopefully, something can be done this time, when other attempts at significant infrastructure bills have failed in the past.

Victoria Kickham, Senior Editor, DC Velocity  15:05

Yeah, absolutely. 

David Maloney, Editorial Director, DC Velocity  15:07

And Ben, you wrote about Wednesday's court decision in California that could affect how truck drivers are classified within the workforce. What can you tell us?

Ben Ames, Senior News Editor, DC Velocity  15:16

That's right, and it really sort of fits in with a theme that sort of has developed here, just in this episode. I know, Victoria, she was talking about about how to pay for infrastructure improvements, and earlier in the show Matt was talking about how to pay for an increasingly restricted air freight, and this was more about the roads, about how to pay for for trucking, and more specifically, the labor there. So, there's a legal decision this week by an appeals court in California that could have really far-reaching implications on that front, in terms of how the trucking industry pays its drivers. So, this has to do with a state law called Assembly Bill 5—people call it AB-5—that would compel fleets to treat their drivers as full-time employees, as opposed to independent contractors, which people also know as gig workers. And that distinction means the employers would have to provide job benefits like sick leave, health insurance, workers comp. From the beginning, industry groups, such as the California Trucking Association, have argued that that law would drive their costs up too high, and it would also hurt independent owner-operators. But at the same time, labor groups—and on this side, the Teamsters union was a prominent voice—have argued the drivers should be entitled to the same rights and protections as any other employee on their job and get sufficient personal protective equipment, unemployment insurance, paid sick leave. So the fleet owners had actually won the first round at that match in court, when a judge in 2000 put a temporary restraining order on AB-5 so it would not apply to the trucking sector, while the bigger issues got hashed out, such as whether it conflicts with federal law. But this week, what happened is that a higher court struck down that restraining order, saying that AB-5 should actually apply to trucking firms in California,

David Maloney, Editorial Director, DC Velocity  17:05

So, do we know what sort of changes would happen and when they would take effect?

Ben Ames, Senior News Editor, DC Velocity  17:10

Yeah, great question. It remains to be seen. As with many legal issues, it can take a long time to work its way through the courts. A transportation law firm called Scopelitis said that the injunction could be lifted now as early as May 19, which is three weeks from now, but that's only if the California Trucking Association does not file an appeal, either within the state or eventually to the U.S. Supreme Court. And the association has said that it does plan to appeal. Another law firm called West Coast Employment Lawyers said that the ruling could affect thousands of truckers in California who don't cross state lines, although that conflict that we mentioned with federal law could apply to the portion of drivers who cross the state boundaries. But whatever happens, transportation industry experts around the country are watching this one closely, because it could set a standard for other states to adopt. We've often seen that, such as with California emission standards for their cars, or sometimes textbook contents in Texas, so what the big states do matters. And that would come as we see really tight capacity in the trucking sector as the economy rebounds from pandemic restrictions, while there's an ongoing shortage of drivers. So, we might soon learn whether offering better working terms attracts more drivers to fill in that shortage, or whether it really is too expensive for fleets to afford.

David Maloney, Editorial Director, DC Velocity  18:35

We definitely will keep an eye on those developments in the Golden State. Thanks, Ben.

Ben Ames, Senior News Editor, DC Velocity  18:40

Glad to. 

David Maloney, Editorial Director, DC Velocity  18:41

And 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 topic that we discussed today. Thanks, Ben and Victoria, for sharing highlights of the news this week.

Ben Ames, Senior News Editor, DC Velocity  18:55

Thank you, Dave.

Victoria Kickham, Senior Editor, DC Velocity  18:56

Yeah, thank you. Good to be here.

David Maloney, Editorial Director, DC Velocity  18:58

And again, our thanks to Matt Castle of C.H Robinson for being with us today. We encourage your comments on this topic and our other stories. You can email us at podcast@dcvelocity.com.

We also encourage you to subscribe to Logistics Matters at your favorite podcast platform and to give us a rating. We appreciate your feedback, and it really does help people to find us. The new episodes of Logistics Matters are uploaded each Friday.

And speaking of podcasts, Logistics Matters is sponsored by Honeywell Intelligrated. Be sure to check out the Honeywell intelligrated On the Move podcast on Apple, Spotify, or Google. All episodes of their podcast series are also posted at sps.honeywell.com/onthemovepodcasts. And you can find Honeywell Intelligrated on LinkedIn and Twitter using the hashtag @Intelligrated.

We'll be back again next week with another edition of Logistics Matters when we will look at whether the touchless and paperless transactions used this past year because of Covid-19 will continue post-pandemic, so be sure to join us. Until then, please stay safe and have a great week.

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