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David Maloney, Editorial Director, DC Velocity: 0:02
Shoppers find more product shortages on supermarket shelves. We'll tell you why. The new postmaster general for the U.S. comes with supply chain experience. And new data reflects the new normal of business activity in the logistics sector. 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 of DC Velocity. Welcome. Logistics Matters is sponsored by Fortna. Fortna partners with the world's leading brands to transform their distribution operations to keep pace with digital disruption and growth objectives. Known worldwide as the distribution experts, Fortna designs and delivers intelligent solutions powered by their proprietary software to optimize fast, accurate and cost effective order fulfillment. For more information, visit Fortna.com. As usual, senior news editor Ben Ames and senior editor Victoria Kickham will be along to provide their insight into the top stories of this week. But before we get to them, I would first like to share an interview that I did yesterday with Jayson Lusk of Purdue University's Agricultural Economics Department. Here is our conversation.
David Maloney, Editorial Director, DC Velocity: 1:20
Anyone who has been going to their local grocery stores recently has begun to see shortages, especially in the meat departments of the stores. We've also heard about the many cases of Covid-19 that have affected the nation's meat packing facilities. So joining us today to talk about the difficulties in getting products from farms to the nation's tables is Jayson Lusk, a distinguished professor and head of the Agricultural Economics department at Purdue University. Welcome, Jayson.
Jayson Lusk, Distinguished Professor and Head, Agricultural Economics Department, Purdue University: 1:46
Happy to chat.
David Maloney, Editorial Director, DC Velocity: 1:47
Jayson, if our nation's farms air continuing to produce our food products, as they normally do, why are we seeing such shortages?
Jayson Lusk, Distinguished Professor and Head, Agricultural Economics Department, Purdue University: 1:55
Well, I think the it does seem a bit of a paradox, right that you read stories that farmers are dumping milk on the one hand, and then, on the other hand, we have a hard time finding gallons of milk in the grocery store and the resolution to that seeming paradox is that there are people in the middle: The processing sector that transforms those agricultural products into the food that we eat. I think you know, one of challenges we're seeing, particularly at the moment in the meat processing sector, is that even though we have a large number of farmers and a large number of consumers, that there's a bit of an hourglass shape in that all that product has to flow through a handful of large processors. So you know, in the meat industry, for example, the 10 largest beef producers processed more than 60% of all cattle. So all those cattle have to go through just a handful of really large plants, and so that can serve, sometimes, as a bit of a bottleneck.
David Maloney, Editorial Director, DC Velocity: 2:48
And of course, we've heard on the news the major problems that a number of those meat-packing facilities have had with the rage of Covid-19 through their facilities. Do you think steps are being taken to be able to correct that at this point?
Jayson Lusk, Distinguished Professor and Head, Agricultural Economics Department, Purdue University: 3:02
There's certainly a lot of effort at the moment. You know, I think plant have been temperature-testing workers. They've been spacing out workers within the plant and installing partitions and dividers between workers. And, you know, they're doing the best they can, but it's a challenging situation, and these are very labor-intensive facilities, working in cold and refrigerated environments. So, you know a large beef- or pork-processing plant as at least a couple of thousand, and in some cases 4,000 workers under that one roof. So I think that's that's the challenge there. And given the president's order to try to get these plants back online, they're working hard at it. But, you know, even if you turn on the lights, you've got to still get the workers to show up and make sure they feel safe in their environment and their community feels safe with the workers going back to work. So it's a complicated situation. We've been processing about 40% fewer cattle and hogs over the last few days. That sort of seems to have leveled off in the past couple of days. So hopefully we're making some progress and we'll get back up to fuller speed,
David Maloney, Editorial Director, DC Velocity: 4:09
Right. And it's not something that someone could redesign their plant and their operations to be able to space people out easily. I mean, they have set facilities, they have set equipment, set working platforms and tables, so it would be very difficult, I would, think to re-imagine that overnight to change the way the facility operates..
Jayson Lusk, Distinguished Professor and Head, Agricultural Economics Department, Purdue University: 4:26
That's right. And the question is, as in so many cases in the food processing sector, is it worth it making millions of dollars of investment if we're only gonna be in the situation for the next few weeks? That's the challenge. We actually are seeing, at the retail level, some of the implications of reduced availability of labour in these packing plants. Most of that labor is involved in what you might call disassembly--further breaking down the side of an animal, for example. And when you can put as many workers in the place, the plant, you're not going to disassemble as much. And so one of the things I'm noticing, even in my own local grocery stores, is much more vacuum-packaged products, many more whole muscle cuts. And that's a direct consequence of the fact that there's less labor in these plants. Even if they're open, they're not running at 100%, and they're packaging in different ways.
David Maloney, Editorial Director, DC Velocity: 5:18
I also understand, too, that a lot of the food goes to restaurants, and with restaurants not operating a full capacity, too, that's allowed there to be products that aren't packaged or designed for consumer use on the kitchen table.
Jayson Lusk, Distinguished Professor and Head, Agricultural Economics Department, Purdue University: 5:33
That's exactly right. Some that vacuum packaging of meat that I mentioned, that's a direct consequence of the fact that that's how we often package for sending to restaurants. So some of it we're just repurposing. In other cases, it's actually been a lot more challenging. Take dairy, for example. You know, you may have a production facility that's packaging milk in little small cartons for schools that are no longer open at the moment. So they can't just, if they don't have the capital, the equipment to do it, they can't just suddenly start repackaging in gallon jugs for the grocery store. Or even cheese manufacturing plants. They may be designed to deliver large boxes--hundreds of pounds, maybe even--of cheese to restaurants, to pizza joints, that sort of thing. And again, they may not have the equipment on hand to be packaging into little one-pound bags that we buy in a grocery store. So that's really the challenge there, is that the way we buy foods--the way food gets delivered to restaurants and cafeterias is very different, in many ways, than the way food gets delivered to us in the grocery store.
David Maloney, Editorial Director, DC Velocity: 6:36
Is that the same reason why this food, excess food, just can't be donated to local food banks, because it's not packaged the way they can use it?
Jayson Lusk, Distinguished Professor and Head, Agricultural Economics Department, Purdue University: 6:42
That's exactly right. So, you know, if you're a local food bank, what you gonna do with raw milk. I mean, you still need a homogenized, pasteurized package. But, and that's true to a lesser extent for even other things. Fruits, fresh fruits and vegetables it's both the issue of, chopping, getting them there. The other issue, of course, too is, it's costly to transport and move food products. So I think on the one hand, you know it's devastating and disheartening to see when a farmer has to plow under a field, but you also have to keep in mind, it costs money to harvest that. It takes labor to harvest that. It costs money to transport that produce to market. Who's gonna pay for that? Are we expecting the farmer to pay for that when they're also having to plow under their profit? It seems hard to believe. So I think you gotta--we want the food system to distribute these things. But you also have to think about people's economic incentives to get that produce from the farm to wherever people need it.
David Maloney, Editorial Director, DC Velocity: 7:39
We've also seen animals being euthanized as well. And is there a reason why the animals are being killed at the farm level, rather than just being kept around until the market improves?
Jayson Lusk, Distinguished Professor and Head, Agricultural Economics Department, Purdue University: 7:51
Well, you know, it depends really on animal species here, so that's less likely to happen with beef cattle, because you can hold the younger beef cattle out at pasture a little while longer before moving him into a feed lot. This is mainly a problem in hogs, in particular, in poultry production, where it's much more of a just-in-time production system. So, just to give you a sense of this, they are sows that were bred three months ago, or having babies today based on decisions that were made three months ago. Those babies need somewhere to go. And where they normally go is into barns, into farrowing houses, into nurseries, into finishing houses. But when those pigs aren't leaving those finishing houses to go to the slaughter plant, there's no extra room for them. So you know, what's a farmer to do? You can change rations and diet, change some barring conditions to try to slow down growth. And many of them are doing that. You can try to reduce stocking density, put more animals in the same space, but at some point you don't want to do that. That's not good for animal welfare. So you do that a little bit. But then, at some point you get a run there. These are confined feeding operations. They're confined to protect the animals from the weather, but also from other animal diseases, to protect us as consumers from foreign diseases. And so, it's not like we want to turn all these animals out to pasture. Even if we could, there's not the equipment there to do it. The point: That constraint, really, here, is space. You have piglets entering the system and nowhere to go. And so, yes, there is some flex in the system, but it's gotta give at some point if we can't move these animals through the process. And maybe just add on that a little bit more: I think some folks don't really understand the scale of the problem here. A big pork-processing plant might process 20,000 hogs a day, every day. Every working day, at least. So you might think, "Well, let's just send them to our local butcher." Let's suppose you have a local butcher that's even of any scale at all. It does 200 head a day. That butcher would have to run 100 extra days to make up for one lost a day of one of these big plants that's gone down. And so I think that gives you a sense of the scale of the problem. There's no, there aren't really good, easy fixes. And you're right, the worst, last-case option that no producer wants to do is potential euthanization. And I think, you know, I've heard--I don't have any personal firsthand experience of that going on, but I have read some of the news accounts, and I think it's a dire situation at the moment, again, not one that I don't think anybody really wants in the food system.
David Maloney, Editorial Director, DC Velocity: 10:22
So do you have any predictions on when things will get better and when we'll be back to normal operations and supply?
Jayson Lusk, Distinguished Professor and Head, Agricultural Economics Department, Purdue University: 10:30
Well, I think it depends on which part of the food system we're talking about. I think we had sort of the peak stocking-out period that happened in mid -to late March, and a lot of that was the disruption that happened from the closure of food away from home and a big increase and spike in demand in grocery stores. And that did cause some problems. But we largely responded and worked through that. The situation we're in now is really the bottleneck that's happening and meat packing, the fact that those meat-packing plants are down, which is a slightly different issue. How much longer? You know, it's really a day-by-day touch-and-go situation, and it'll depend on how quickly we can get these processing plants back online. And hopefully we can get the ones that are closed down open, and we can get 'em back to full capacity. But I think we have to be realistic and know that even some of ones that are running closer to full capacity, you know, they could have a worker outbreak tomorrow. I don't be pessimistic, but also don't want to just be fanciful and think that everything perfect and you're going to return back to normal. So it it's a day-by-day. It's one of the reasons were tracking the statistics closely, is to see what's happening, whether we're making improvements.
David Maloney, Editorial Director, DC Velocity: 11:42
Again, that was my conversation from yesterday with Jayson Lusk, a distinguished professor and head of the Agricultural Economics department at Purdue University. My thanks to Jayson for taking time out of his very busy schedule to join us. Ben and Victoria, I was amazed at just how complex the situation is within the agricultural supply chain. Normally, everything just seems to happen like clockwork until something like Covid-19 strikes. And it's something we really just take for granted.
Victoria Kickham, Senior Editor, DC Velocity: 12:09
Yeah, I agree, Dave. While the food supply chain is certainly something that everyone's focused on, whether it's, you know, you're in the course of ordering things or what you're seeing in the grocery stores. And your report actually ties in nicely with the Logistics Manager's Index report, which we reported on this week. It showed, in relation to that, it showed that there was a surge in March, and April really dropped, in terms of growth. On the surge in March, what they realized, it was due to panic buying in the pandemic. And it's specifically groceries, essentials, all those kinds of things. And what we saw in April was a down swing. And it actually, the LMI--which is a gauge of business activity in the logistics industry, I should say--hit its lowest level in the three-and-a-half year index history. 51.3, I think it was. And although that's low, it still signifies that the industry is in growth mode, and that's largely because people are ordering food and essentials and medical supplies and health care. That's really keeping things going. So, the level that we're seeing now, like I said, it's still growing. It's returning to sort of a slow and steady pace that researchers have been tracking over the last couple of years. Bad news is that things are down, and actually down compared to a year ago, too. But good news is that the industry is still moving.
David Maloney, Editorial Director, DC Velocity: 13:36
Thanks, Victoria. And Ben, you wrote about the man appointed as the new postmaster general of United States, and he comes with a logistics management background.
Ben Ames, Senior News Editor, DC Velocity: 13:45
He does, and he's gonna need all the experience that he can get. He's not taking on an easy job here. Looking at some of Victoria's comments there, about recent months, the Postal Service--just today, actually--reported its most recent quarter of earnings, in which its revenues ticked up just slightly. But that was not enough to compensate for a lot of the troubles that the service is happening. Its net loss for the quarter was [$]4.5 billion, which was a little more than double what it was for the same quarter last year. Now, that quarter ran from January through the end of March. So the Postal Service says that the Covid-19 pandemic had only just begun to affect those numbers. And as a matter of fact, the census, which happens every 10 years, had supported some of those numbers, in fact. going into it. So the USPS says that we may be up for some even worse numbers when the next quarter comes around. So the man taking on the challenge of that very difficult job is named Louis DeJoy. He was confirmed just two days ago. He will replace Megan Brennan, who was a postal worker from Pennsylvania who'd come up through the ranks. As opposed to that sort of background, DeJoy comes at it as a logistics management background. He had founded and run a company in North Carolina called New Breed Logistics that was acquired for a little more than $600 million by XPO, the very fast-growing 3PL that has bought up trucking lines and other logistics providers and built itself into a real colossus. Hr served as an executive at XPO for a couple of years and then has been on the board of that company since then. He now is gonna come into quite a challenging affair, because the Postal Service is seen, with--as all of us use email every day, a lot fewer people send paper letters anymore. And at the same time when we all buy things from Amazon, the postal service has had to carry an enormous number of parcels. So their job is really, has been changing incredibly quickly, as we've all sort of noticed in our private lives in recent years. So it's really gonna be interesting to see how DeJoy handles that.
David Maloney, Editorial Director, DC Velocity: 16:07
And it's the parcel service that is really the most profitable part of the postal system, and I know that a lot of parcel shippers right now are concerned that, because it's profitable, they're probably in for increases that are going to come up as a way of trying to balance the budget for the losses from the regular mail delivery service. So it'll be interesting to follow.
Ben Ames, Senior News Editor, DC Velocity: 16:27
That's exactly right. And actually, some of the analysts in the space have pointed out that the Trump administration, which is ultimately responsible for nominating the postmaster general, that the president has long been in favor of having the Postal Service have much higher parcel rates, but particularly in terms of trying to even the ledger for delivering that flood of Amazon packages and boxes that come through. The Postal Service's point of view is that it's trying to maximize its asset utilization and fill its volumes and price it, price their product parcels, that way. But the administration has been pushing them to try to make it more profitable. So we'll have to see which direction DeJoy goes.
David Maloney, Editorial Director, DC Velocity: 17:14
And just like everything, the Postal Service is affected by the Covid-19 Crisis. And we also want to remind you of our continuing Covid-19 coverage that we have, and our growing list of resources that are available on DCVelocity.com. So go there to check them out. Thank you, Ben and Victoria, for sharing the highlights of the news this week.
Ben Ames, Senior News Editor, DC Velocity: 17:32
Thank you today.
Victoria Kickham, Senior Editor, DC Velocity: 17:33
Thank you. Good to be here.
David Maloney, Editorial Director, DC Velocity: 17:35
If you would like more information on the stories we discussed on Logistics Matters, be sure to check out DCVelocity.com for more details. And please provide any comments or feedback that you'd like to give us on our new podcast by emailing us at email@example.com. And a reminder that Logistics Matters is sponsored by Fortna. Fortna partners with the world's top brands to transform distribution operations into competitive advantage. Expertise includes distribution strategy, DC operations, micro fulfillment, automation, and intelligent software. Distribution solutions designed today for tomorrow's challenges. Learn more about the distribution experts at Fortna.com. We'll be back again next week with another edition of Logistics Matters. Please stay safe, and we'll see you then.