Pre-COVID, the world spent enormous resources figuring out the most optimal way to move things – before the supply chain was fodder for dinner and cocktail conversation. We used advanced planning and manufacturing systems, data analysis and historical information to fine tune logistics network. There was the occasional natural disaster or labor issue, but it was short lived.
Then we got greedy, stretching JIT processes to the limit, reducing safety stocks to the bare minimum, pushing inventory carrying costs (ICC) to untold lows. Years of wonderful supply chain improvements, historical data and limited disruptions seemed to presage only continued improvement. The trouble is, we weren’t prepared for trouble. We stretched that supply chain “rubber band” to the limit and all it took was some real disruptions to break it.
I’m pretty certain there’s no going back to what we were before. Future generations will likely forget the lessons of the early 2020’s and make the same mistakes, but for now we have a “new normal” to contend with.
People and systems are smart so they’ll adjust. Yet we still have personalities overriding systems and we can’t account for that. For example, let’s look at the stockpiling issue. While there are true shortages, we see runs on product even if there is no shortage. Think toilet paper in 2020. We really did not have a supply chain problem for paper products as most is made domestically, but then panic took over. We’ve seen the same behavior with canned goods, pet foods and pool chemicals. Yes, manufacturing processes contribute to the issue, but like bank runs a lot of it is fear driven.
Fear also takes over in the business world. Let’s say a tire manufacturer has ~100 or so components that go into a tire. If they even suspect a component shortage, they’ll likely stock up, fearing production shutdowns. Buying extra keeps their lines running, but perhaps causes a shortage for other manufactures. It also means more warehousing/storage needs, and more transportation to move it around. Topping it all off, they won’t have to buy that component for a long period of time. The spikes and lulls of order volume is not something we can forecast.
Fear, spikes, and lulls are the opposite of the pre-COVID supply chain. We now have a much more dynamic supply chain that’s costlier and less efficient. This manifests itself in other problems. For example, at a macro level it’s easy for me to see the direct correlation between shortages and less product and the need for more transportation and warehousing. The old world supply chain was finely tuned to get the correct amount of product into the region as needed, not before. Now we have product that changes ownership but is in the wrong region. We need more drivers, more trucks and more packages to get the same amount of product to the consumer. It’s not that we lost capacity; we’re using much more of it as the overall supply chain is less efficient.
How does this all unwind? In my opinion, it doesn’t in the short term, at least the next 2-3 years. This dynamic state of affairs is going be with us for the foreseeable future. We need to look out to the next 10 years.
In that span, here are five trends to watch for:
The Rise of the Private Fleet and Self-Brokerage
Shippers will increasingly turn to their own small private fleets to ensure they’re serving priority customers. If you’re a shipper or even a 3PL and you’re constantly managing coverage issues, why not go out and lease 40-50 trucks and hire drivers to ensure you’re satisfying those best customers?
Private fleets have a much easier time recruiting and retaining drivers than for-hire fleets, offering better pay and benefits and a less grueling schedule. This lets shippers add stability in a tumultuous market.
The same is true for running their own brokerages. With the available software, it’s simple to be your own broker. Apply the same principle as starting a private fleet: Locking in available capacity and relying less on the whims of the for-hire market and spot pricing pressures.
A Booming Brokerage and 3PL Market
The coming decade will present a fantastic environment for freight brokers and 3PLs. Multi-year contracts between shippers and truckload vendors are basically dead right now. No one can forecast the next 6-8 months, let alone the next few years for pricing, capacity, freight volumes and lanes.
Shippers don’t know what their needs are, and carriers struggle to honor contract commitments anyway. To handle this more reactionary, dynamic world, shippers will lean more heavily on 3PLs to help manage transportation and warehousing.
The Small Trucking Fleet Soars
A record number of motor carriers have entered the market over the past year or so, nearly all owner-operators with one truck or just a handful. With the rise of digital tools to find loads and brokers to manage capacity, it’s easier than ever for the right carrier to get the loads they want. This means owner-operators can run profitable businesses.
With modern load boards and capacity management systems, and shippers’ heavier reliance on brokerages to find capacity, drivers are simply saying they’d rather buy or lease a truck and work for themselves than for a commercial carrier. They choose the loads they want, the lanes they want, the rates they want, and the home time they want.
Shippers and brokers need to make sure they’re tapping into this increasing capacity, and do so digitally with modern tools that allow real-time quotes, tender, tracking and automated bill payment thru their ERP.
“Pantry Stuffing” on a Grander Scale
Supply chain managers are smart people. They’re going to heed the lessons of stretching the supply chain to the state it was in prior to the pandemic and the over-reliance on just-in-time inventory. Yet people and fear override systems, so this is going to take a lot of time to unwind.
Again, expanding out the toilet paper scare as an analogy but at scale, that type of stocking and holding will take place as companies buy in bulk, warehousing much more than they did before. ICCs will rise, becoming the cost of doing business and protecting yourself against supply chain disruptions.
The Logistics Tech Revolution
The number of tools available today compared to the 1980s and 1990s is almost unfathomable. The rise of AI and the ability to perform inventory analysis by capturing and analyzing data will create supply chains that are more dynamic and resilient by design.
Platforms that solve transportation operational pain points for shippers and brokerages can be up and running almost immediately. They can build integrated tech stacks in a few weeks, and new platforms will connect into existing supply chain, ERP and other internal/external legacy systems. Connectivity, operational and analytical sharing, not just internally but among all trading partners is the next tech revolution.
Technology that is available now will help us plan dynamically, and we’ll learn to cope. Eventually things will settle down, companies and consumers will reduce the level of fear, accept, and plan for shortages. That will become the real “new normal.”
JP Wiggins is Co-Founder and VP of Logistics for 3Gtms