Prior to the COVID-19 pandemic, companies were increasingly relying on 3PLs to manage their supply chains, largely thanks to the steady rise in e-commerce and the impact of the digital marketplace on traditional brick and mortars. However, no one could have predicted the disruption of 2020, as retailers scrambled to move an unprecedented amount of goods quickly and safely in response to consumer demands. In fact, the Institute for Supply Management reports 97 percent of companies have been impacted by supply chain issues caused by COVID-19.
The pandemic forced companies to reevaluate their entire supply chains almost instantaneously to successfully adapt and meet the demands of the changing environment. Because of this, the use of 3PLs rose to the forefront for many brands in 2020 as they looked for strategic, critical guidance to best meet the challenges of the day.
Approximately one year into the pandemic, now is an optimal time to reflect on the top challenges that faced 3PLs during this period and the solutions that will continue shaping our industry in 2021 and beyond.
Problem: Pre-Pandemic Labor Shortages Escalated
The labor shortage is not a new challenge, but one that was exacerbated by COVID-19. Pre-pandemic, the steady rise in e-commerce was creating significant labor issues. In fact, CBRE reported e-commerce created demand for an additional 452,000 warehouse and distribution workers in the U.S. between 2018-2019.
On the transportation side, the driver shortage is ranked as the No. 1 industry concern, according to the American Transportation Research Institute. This is largely due to the higher-than-average age of the existing workforce (46 years old) and the subsequent impact upon exiting for retirement without having younger recruits to fill the void.
With these challenges already facing our industry, the pandemic took them to new heights as more workers were needed to accommodate the massive uptick in shipping volumes due to e-commerce. COVID-19 also presented new considerations, such as rising wage pressures due to the pandemic’s economic, political and public health challenges, as well as older drivers opting for early retirement out of safety concerns.
Solution: Incorporate Automation Advancements
Automation is increasingly being utilized as a solution to help manage labor shortages. From a warehouse perspective, this means more frequent use of automated guided vehicles, goods-to-person robotics picking, and automated racking and shelving techniques to improve efficiency and cost-competitiveness.
GEODIS recently conducted a beta test at a distribution facility in Indianapolis to pilot the increased use of robotics in its warehousing efforts. Using 21 robotic units that offered an autonomous and smart-picking solution, a leading women’s apparel brand saw a 100 percent increase in operational efficiency. This is just one example of how automation can increase efficiencies and address labor market concerns.
While automation has largely taken off within warehousing, we expect to see strides moving forward to specifically address driver shortages. 2020 was filled with exciting advancements in this realm, and we will continue to see innovative solutions like autonomous vehicles and drone delivery enter the market at a greater rate.
Problem: Capacity Shrank While Demand Surged
In 2020, the traditional peak season came and never left from a volume perspective. But while demand surged, capacity evaporated. As more than 50 percent of air freight is transported via cargo holds of passenger planes, capacity plummeted as flights were cancelled. For ocean freight, the lack of goods primarily out of Asia created a ripple effect that was felt globally. All the while, road shipments faced capacity issues due to skyrocketing e-commerce orders coupled with ongoing labor shortages.
The capacity constraints in the parcel delivery network were particularly a shock to the system for many in 2020, which was largely a byproduct of this acceleration in e-commerce. According to Transportation Impact customer data, parcel volume was traditionally 60 percent commercial and 22 percent residential prior to COVID-19. During the pandemic, this ratio drastically flipped with 40 percent being commercial and 46 percent residential. While delivery networks were previously accustomed to moving a large amount of goods with fewer stops, the process was reversed and created an immense strain on the current infrastructure.
Solution: Rethink Delivery Strategies
Due to the capacity constraints we saw in 2020, 3PLs will need to incorporate more diverse delivery strategies moving forward. For example, a solution for small parcel delivery issues is to build an expansive network that includes multiple international providers. By building and leveraging the network, it provides 3PLs the opportunity to identify the best small parcel provider to use in real time for its customers based on current capacity and shipping needs.
Air cargo delivery will be an interesting area to watch moving forward, as we continue to provide solutions that will help us solve 2020 challenges. Because of the increase in e-commerce, 3PLs will have more strategic control over flight patterns. For instance, GEODIS recently expanded AirDirect services to add a weekly flight from Shanghai to Guadalajara.
Problem: Unpredictable Buying Patterns
In 2019, online retail sales in the U.S. amounted to $343.2 billion. By 2024, this is projected to skyrocket to $476.5 billion.
The pandemic led to unpredictable buying patterns as consumers shifted away from brick and mortar stores to e-commerce platforms. While top e-commerce categories prior to COVID-19 were consumer electronics and apparel/accessories, the pandemic created an entire new demand for the type of goods being purchased online. In particular, demand for essential items such as groceries and health products grew in numbers we hadn’t seen before.
One of the biggest challenges of the pandemic—and one that will remain—will be anticipating consumer buying patterns moving forward. Brick and mortar sales will increase as vaccines are more widely distributed, and we will see a new ratio of in-person to e-commerce shopping. The convenience factor of buying online is here to stay, but the question remains what the scale will be.
Solution: Accelerate Digital Technology
While it’s impossible to pinpoint consumers’ future buying patterns, the adoption of new technology by 3PLs will help brands build resilience. For instance, providing real end-to-end visibility will be imperative moving forward. By offering a robust “control tower” that integrates complex operational systems across all modes of the supply chain in one streamlined view, companies can best track and trace shipments, strategically manage inventory, and overall receive transparency that leads to faster and smarter decision-making.
Additionally, we will see innovative technology that offers solutions to move products closer to the end customer. For example, GEODIS recently released a new digital platform, City Delivery, that enables retailers to deliver goods directly to consumers from the closest retail store in just a few hours thanks to a combined delivery network of traditional carriers and private individuals. We will continue to see new technology that revolutionizes last-mile delivery, particularly in the urban environment, as e-commerce buying trends continue in some capacity.
Looking Ahead
No one knows what challenges lie ahead, but 2020 offered lessons to 3PLs we will take with us moving forward. Due to the pandemic’s spotlight on supply chains, we expect companies will increasingly leverage 3PLs as strategic, solutions-minded partners that will help protect and enhance their operations in the face of any challenge. By incorporating lessons learned during the pandemic, we will be best equipped to provide the solutions needed to support their growth moving forward.
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As president and CEO of GEODIS in Americas, Mike Honious is responsible for freight forwarding, transportation management, business development, strategic management office, legal, accounting & finance, human resources, engineering & technology, ProVenture, shared service center and IT. He previously was the COO of GEODIS in Americas, and before starting with the company 15 years ago, he held several senior level operations positions at Gap, Inc.