David Maloney has been a journalist for more than 35 years and is currently the group editorial director for DC Velocity and Supply Chain Quarterly magazines. In this role, he is responsible for the editorial content of both brands of Agile Business Media. Dave joined DC Velocity in April of 2004. Prior to that, he was a senior editor for Modern Materials Handling magazine. Dave also has extensive experience as a broadcast journalist. Before writing for supply chain publications, he was a journalist, television producer and director in Pittsburgh. Dave combines a background of reporting on logistics with his video production experience to bring new opportunities to DC Velocity readers, including web videos highlighting top distribution and logistics facilities, webcasts and other cross-media projects. He continues to live and work in the Pittsburgh area.
To say that retailers are facing unprecedented challenges might be an understatement. After surviving the pandemic shutdowns, retailers met the challenge of surging consumer demand only to run up against a whole new set of obstacles: supply chain disruptions; runaway inflation; skyrocketing fuel and transportation costs; new, highly contagious strains of Covid; and a looming economic recession. All of this comes at a time when they are entering peak season. Many have stocked up on merchandise already, but are they the right products?
For some answers, we turned to Zac Rogers, an assistant professor of operations and supply chain management at Colorado State University. His primary research interests include the financial impact of supply chain sustainability, emerging logistics technologies, supply chain cybersecurity, and purchasing and logistics issues. He is also a researcher and co-author of the monthly Logistics Managers’ Index (LMI) report, which tracks trends and developments in the industry.
Rogers earned his B.S. and MBA degrees at the University of Nevada, Reno, and his Ph.D. in supply chain management from Arizona State University. He recently spoke with DC Velocity Group Editorial Director David Maloney.
Q: We have seen how even the smallest disruption can ripple throughout our supply chains, leading to shortages and delays. There are so many things that could potentially go wrong this peak season. What do you think is going to happen?
A: Yes, we are in a funny place going into peak season. We have seen inventories climb at an unprecedented rate over the last six months. What that really has to do with is the fact that supply chains are so long-tailed—longer tailed now than they really should be because of things like shutdowns at Shanghai, congestion at ports, and overcrowded warehouses. Everything is moving more slowly. What I keep hearing from folks is that whatever your normal leadtimes are, you can expect them to essentially triple—so that what would typically take 90 days to produce now takes 270 days. These are really long leadtimes, and the inventories that we see now reflect an economy that no longer exists. They reflect the economy of 2021, when we had really hot consumer spending.
Q: Prices are high, and we’re seeing record inflation. What are retailers’ expectations this holiday season with such high inventories? Will consumers see many pre-holiday sales as a result?
A: Yes, I think there will be some sales.
The other thing, ironically, is that we already have some holiday inventories, as some of the things that arrived here in February and March were supposed to get here last November in time for the 2021 holiday selling season. Some companies actually held onto winter coats or apparel. We are already seeing some pretty aggressive selldowns at some retailers.
Another thing that often gets lost in the discussion is that a lot of the inventory we have isn’t ready to go. It is “work in process” inventory. For instance, there was a Wall Street Journal article about GM in the first week of July that talked about 95,000 units that weren’t going to be delivered on time. There is a lot of inventory like that, and it represents a significant investment. We are seeing a similar bottleneck with lithium batteries and things like that that tend to come from Russia and Ukraine. So, we have a lot of inventory that is not even sellable.
Q: What kinds of goods will consumers look to purchase this holiday season? Are we looking at durable goods, consumables, or entertainment and escapism as we have in the past couple of years?
A: I think entertainment and escapism will be a big piece of it. If you look at spending on services relative to durable goods, it has really shifted toward services in the last few months, partially because the lockdown is over. People can go on vacations. They can go to sporting events, concerts, and movies.
I would also anticipate some demand for electronics. People had a really hard time getting laptops, phones, and videogame systems during the last few years because of the semiconductor shortage.
Q: Although we want to be done with Covid, Covid is not done with us, and we could see more surges and shutdowns in places like China. What effect would shutdowns have on peak season?
A: Well, it would be pretty tough if we had another shutdown in China. I don’t really think we’re going to see widescale shutdowns in the United States partly because of the midterm elections this fall—I just don’t think that anyone is going to want to be the “shutdown guy,” honestly. With China, we have already had huge disruptions, and, honestly, we haven’t really seen the tail end of the spring 2022 shutdowns yet. We were still feeling the aftereffects of the 2020 shutdowns at the end of 2021, and then we pivoted right into more shutdowns in early 2022 in China. It is going to take us a while to work through those.
One of the things that have become clear over the last year is that supply chains are not something you can just turn on and off quickly. They take a long time to get moving again. When I used to work in a warehouse, everyone would go to lunch for a half hour, and once everybody got back, it still took 20 to 30 minutes for things to get moving again because you need goods flowing through the process. It’s the same with supply chains. It takes a while for them to get turned back on, and the sort of “stop, start, stop, start” pattern we’ve seen is terrible for us. If we keep seeing that, then we are going to continue to have big disruptions.
Q: Speaking of warehouses, the industry is still struggling with a severe labor shortage as peak season gets underway and the amount of inventory that needs to be shipped out starts to grow. What do you foresee for the labor situation, and is that going to present problems with delivering goods on time?
A: You are absolutely right about inventories. In our Logistics Managers’ Index (LMI) “inventory level” metric, we were in the 70s for five of the first six months of 2022. Anything above 70 we would consider to be significant rates of growth because anything over 50 indicates expansion. Once you hit 70, you are really seeing a high level of growth. Before 2022, I think we were only in the 70s with inventory twice. It is moving really, really quickly.
That is also reflected in our “warehousing capacity” metric. With warehouse capacity, we have the same rules—anything over 50 indicates expansion and anything under 50 is contraction. We have been in the 30s or 40s now every single month since September of 2020. For almost two years, we have seen pretty significant rates of contraction in available space. That is due to the shift of warehouses, even though there are so many more warehouses now.
If you look at the warehouse absorption from 2021, a plurality of that was warehouses smaller than 100,000 square feet. Those tend to be urban warehouses. That is something that I think is often missed in discussions about warehouse labor issues. Yes, we have more warehouses than we’ve ever had, and there is more inventory moving through them, and it is more stressful than it has ever been, but they are also in a different place geographically. They are tending to go toward places where wages are higher.
Adding to that, the cost of living is rising at the fastest rate in 40 years. That is one of the things that are really driving the push toward automation in warehouses. We are seeing a huge boom in demand right now for fulfillment automation, any sort of robotic systems that can help supplement labor.
Q: Let’s take a moment to talk about trucking and the freight markets. CSCMP’s latest “State of Logistics Report” predicts a slowdown in these markets. We’ve even heard from some quarters that there may be a truck market collapse because of a buildup of capacity that now may not be needed. What is the near-term outlook for trucking and freight?
A: Well, peak season will be a godsend for some of the players—especially the smaller truckers. I know a lot of people are saying that 2022 might be like 2019, when we saw a virtual wipeout of the trucking industry. We had 3,000 carriers go out of business in 2019 and 2020. I don’t know that it’s going to be that severe, and there are a couple of reasons for that.
In 2017 and 2018, the economy was hot, and we had these huge orders for big Class 8 trucks. Plus, going into 2019, we essentially had an unlimited capacity to overbuild. We also had big orders for Class 8 trucks in 2020 and 2021. The difference is that because of the semiconductor bottleneck, we weren’t able to produce trucks nearly as fast as we wanted to. In some ways, the semiconductor shortage saved the trucking industry from itself.
As for transportation capacity, we tracked that metric in the Logistics Managers’ Index and again, any number over 50 indicates growth and anything under 50 indicates contraction. We had contraction in transportation capacity from July 2020 to March 2022, and then after March 2022, the diesel [price] shock happened and suddenly, capacity went positive. What is interesting, though, is that in June, capacity growth was lower than it was in May. So, the rate of growth was slowing down—to 61 in June. If you compare that to 2019, we are still not even close. In 2019, we saw the transportation capacity growth rate number go as high as 72, which indicated really significant rates of growth.
And then pivoting over to the metric of price for transportation: I think in June, we got down to 61.3 for transportation price, which is important because transportation rate growth is now lower than capacity, and when that happens, it usually means that something is going on economically.
As for what’s ahead, I do anticipate a lot of pain for smaller carriers. I think in the last week of June, the spread between wholesale and retail prices for diesel was about 73 cents per gallon. Smaller carriers don’t have the volume to buy diesel at wholesale prices. Their costs are much higher than big fleets’ costs. Also, the big fleets saved a ton of cash over the last two years because times were so good, they were able to put cash away. We are already seeing the big players start to absorb many of these smaller owner-operators. It is just not a level playing field.
Q: How do the higher fuel prices, capacity issues, and other factors affect shippers?
A: Every month we ask our respondents to do a future prediction: What do you think is going to happen across all of our different metrics? It is interesting. Over the next 12 months, our respondents predicted a growth rate of 59.6, so about 60 for transportation price, and that represents moderate, steady growth. This is the type of growth that we would consider sustainable. What that tells us is that prices are going to continue to go up, but at a mild and sustainable pace—one that won’t have us pulling our hair out the way we have for the last two years. In some ways, it could be sort of a relief.
Now, that growth rate probably reflects a move toward more contract carriers and less spot-market stuff, which again is harder for the little guys in the margins who are really relying on spot markets. But for the industry as a whole, what it seems like is that we are moving back toward equilibrium.
Q: How will rising interest rates affect our peak season?
A: I think some people have been hoping the Fed will ride in to save the day with inflation, but there is a great new tool out from the San Francisco Federal Reserve that individually tracks demand-driven and supply-driven inflation and helps to explain what’s going on. Supply-driven inflation is when price is going up really quickly, but supply is not going up quickly, like oil. Demand-driven inflation is when price goes up but then supply goes up, like apparel or footwear. If you look at the last three or four months, the vast majority of the inflation right now is coming from the supply side. It’s not that prices are just going up because consumers are spending money like crazy. Prices are going up because there is not enough supply to meet demand.
Now, back in March, April, and May of 2021, it was very much demand-driven. That was right when the stimulus checks came out, and the inflation we saw in early 2021 was really the result of consumers spending money on elastic goods.
The drivers that we’re seeing now are fuel and groceries. It is really the headline inflation that is supply-driven. People are not going to stop buying gas or food, so if the Fed raises interest rates, there will be some demand destruction, but it is going to be demand destruction of the things that weren’t really driving inflation anyway. That will make it even more difficult, I think, for companies to run down their inventories as quickly as they’d like because those goods sitting in inventory would be demand-driven goods that are being targeted by the Fed.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.