Table of Experts: Distribution & Logistics
Our COO Chrissy Geibel speaks to supply chain takeaways and trends in the Memphis Business Journal’s Table of Experts.
MBJ: How has the landscape of the supply chain industry changed over the past year?
Scott Hothem (Barrett Distribution Centers): Over the past two years, COVID has had a dramatic impact on the global supply chain. In the early days of the pandemic, the economy and customer demand all but stopped. Inventory built up in warehouses due to slow consumer demand.
In response, manufacturers cut back on production. Brick-and-mortar retailers were forced to temporarily close locations, while others were forced into bankruptcy. The pandemic accelerated the consumers shift toward e-commerce such that global supply chains had to adapt to meet this new reality, which has been a boon for third-party logistics companies and the Memphis economy.
Chrissy Geibel (Dunavant): Across our industry, whether in ground, ocean, or air transport, the imbalance between supply and demand has exposed the fragility, weaknesses, and opportunities within the supply chain.
For industry professionals over the years, these challenges and opportunities have been with us for quite some time. Port congestion, driver shortages, insufficient infrastructure, and extended supply chains are not new issues, but they have become increasingly prevalent today.
The significant demand created by e-commerce over the past decade — and the global pandemic more recently — has exposed the inherent weaknesses of the supply chain. These shortcomings have prompted a national dialogue — just watch the evening news — which will serve the industry well, as we focus on opportunities to make the supply chain work better, smarter, and faster in the future, with a focus on the need for better data and analytics around that data.
How long do you predict these challenges to continue?
Geibel: The immediate challenges with pricing, capacity, workforce, and congestion will continue through the balance of this year. Given the ongoing inflation, fuel prices, interest rate hikes, and war in Ukraine, it’s difficult at best to predict the consumer sentiment and the impact this will have on demand going forward.
We do know that manufacturing inventories are increasing back to pre-pandemic times, but customer inventories still remain low with a significant focus on bringing these back to acceptable levels.
Hothem: Now that COVID restrictions appear to be coming to an end, life and the economy are starting to return to normal. The consumer demand and the consumption of goods through e-commerce channels was pushed forward by two to three years, so we anticipate consumer demand slowing in the second half of 2022, while the demand for services will increase in 2022 and 2023.
There will continue to be some supply chain challenges with manufacturing backlogs, increased input costs and disruptions related to international and domestic freight capacity that will continue for the remainder of 2022.
Talk about workforce — what are the areas of opportunity or obstacles?
Hothem: The unemployment rate continues to decrease with more and more companies looking to hire qualified labor from a shrinking pool of candidates, which is driving up wages and salaries. Labor wage and salary costs have continued to rise, and competition for qualified labor is intense nationwide. Increases in direct-to-consumer volumes have only exacerbated the issue of staffing and recruiting challenges in the warehouse.
Wage inflation is a major concern for companies of all sizes. Early in the pandemic, those costs were being absorbed by businesses. However, going into 2022, those rising costs are now being passed on to consumers, which is driving inflation higher. For this reason, warehouse automation technology is gaining more acceptance to reduce the reliance on warehouse labor and wage pressures.
Geibel: The demand for goods and services in the supply chain industry has created increasing needs for workers across the board, from drivers to senior managers. The need to acquire as well as retain talent is an opportunity for organizations to develop a culture and a climate where people want to work.
We have certainly learned that there can be a balance between work from home and work from the office. Competitive wages and benefits are a baseline requirement if you want to keep and attract talent to compete in this market.
What solutions have your companies brought to market to alleviate these challenges?
Geibel: At Dunavant, we pride ourselves on taking on the hard things. In these challenging times, we’re surrounded by opportunity. Whether we’re thinking inside the box to optimize each and every shipment or thinking outside the box to evaluate modal options, port pairs, or transloads, we’re continually looking for a better way to execute and manage our customers’ supply chain activity.
As an early adapter in implementing transloads at the ports, and then moving the freight inland, we were able to keep our customers’ products on the shelves. We have leveraged our technology to dynamically plan and optimize freight shipping plans to ensure customers are getting the most value on a given shipment.
We also started an entire business unit focusing on cross-border Mexico operations, as many of our customers are exploring options to nearshore supply. With all the challenges that exist, we know that at the core, our ability to be flexible, adaptive, and responsive to our customers’ unique needs is critical to their success.
Hothem: The future of supply chain and logistics is in automating tasks within the warehouse to reduce reliance on variable labor during peak and non-peak shipping periods. There’s been a rapid shift toward direct-to-consumer fulfillment, which has increased the adoption of autonomous robots or “co-bots” to speed order fulfillment.
In addition, we’re starting to see the early adoption of drones to support cycle counting case and pallet locations in high-bay racking configurations to eliminate the need for material handling equipment and the operators to physically count products. There are many new technologies that are being tested in warehouses nationwide with the goal to increase order throughput, while reducing the reliance on variable labor for selected tasks within the warehouse. Companies are realizing it’s no longer cost effective or productive to just “throw bodies” to get the work out the door.
This is particularly true when companies can’t find the people to hire or they’re coming in at a higher cost than companies are able to afford — then more companies will turn to technology and automation solutions to solve for this problem.
What does 2022 and beyond hold for the supply chain?
Geibel: It’s time again to think anew and act anew. Anyone involved in the supply should be actively considering options to mitigate risk. Now more than ever, companies need to consider their supply chain network design, nearshoring, distribution center locations, modes, etc.
There is a whole new world unfolding with automation, autonomous vehicles, real-time visibility, and dynamic planning — to name a few. The demand for goods will slow down, the premium pricing will disappear, and those who take the right steps now will survive. These are, indeed, interesting times.
Hothem: Wages and supply chain costs have risen dramatically in 2022, and it will take many quarters before those costs begin to moderate for the consumer. Costs tend to rise much more quickly than they fall, so we should not expect inflation percentages to drift back to normal levels until the end of 2023.
Regarding real estate, commercial vacancy rates for new warehouses remain in the low single digits, which is pushing triple net lease (NNN) rents higher and higher. If the economy experiences a recession in the next 24 to 36 months, we may see commercial real estate costs fall. But until that time, we would expect commercial real estate capacity to remain tight.
The Memphis area continues to be a geographic hub for e-commerce logistics. When comparing the cost of inbound and outbound logistics, wage rates and commercial rental costs, the greater Memphis region remains a very cost-effective geographic area for logistics services as compared to other regions of the country.