2020 was a historic year from politics to a pandemic, but professionals working in logistics, in particular, faced huge challenges and had to dramatically pivot their strategies. As 2021 kicks off, professionals working in logistics, notably 3PLs and 4PLs, will need to remain flexible as some of the changes from 2020 are here to stay.
To prepare you for what lies ahead, here are 10 supply chain and logistics trends to watch for in 2021.
1. Shorter Contract Terms
As we all witnessed, capacity was incredibly tight throughout the year, giving carriers more negotiating power for higher rates, especially leading up to the holiday season. Contract trucking rates are heavily influenced by spot market movements so instead of conducting an RFP in Q3 or Q4 for the year (which is typically RFP season) and locking in a yearly rate, shippers created shorter contract terms, hoping rates will improve in 2021. While this helps shippers to lock in rates in the short term (and helps them budget), it is still a gamble because rates could remain steady or increase.
This year, I anticipate that this trend will continue. Shippers and carriers want and need more flexibility in this volatile market. Shippers are hoping for lower rates in the future, and carriers want to take advantage of a hot spot market without rejecting previously contracted freight.
2. Tech Investment for Shippers
Unless new technology investments are truly essential to running the business, many shippers will not be investing heavily into new technology until the pandemic is over. While technology will be a good investment in the long run, it’s often a “want” over a “need,” and it takes a lot of human capital, research, and time to invest in the right technology that will pay off for your business. Right now, every professional working within the supply chain has their hands full running the business, so I anticipate less money and time spent on tech investments in 2021.
While shippers may be hitting the pause button, logistics companies, especially 3PLs, have an opportunity right now to leverage their greatest asset: people. What is most important in our current environment is trusted relationships and human touchpoints. The industry is still scrambling to keep up with the demand for a constantly changing global supply chain, and handholding and relationships will go further than flashy new technology. 3PLs can capitalize on this by spending time discussing with carriers and customers how they can solve their current challenges with best-in-class customer service. If your company is leaning on a new technology or making an investment into this area, this is the year to publicize your innovation widely because there will be less technology noise in the marketplace. Have a technology story that got your company through 2020? Now is the time to tell it.
3. Consumer Buying Behavior Will Remain A Top Stat for Logistics
3PLs are tracking consumer behavior closer than ever. Due to the pandemic, consumer buying behavior changed dramatically, disrupting the supply chain in ways not previously seen. Because of consumers’ impact on the supply chain and demand of freight, 3PLs, in particular, will continue to follow key consumer buying behavior data.
Additionally, in 2021 I expect continued steady growth in-home delivery services (from retailers to foodservice) so all eyes will be on final mile demand. This year, we’ll see more online marketplaces and innovation within final mile delivery. With new companies and offerings entering the industry, 3PLs have an opportunity to forge new relationships and add core competencies with these businesses to gain an advantage over their competitors.
4. Spot Market Will Likely Stay Hot in 2021
We might call 2021 the Capacity Games–may the odds be ever in your favor. Carriers are entering 2021 with negotiating power. Amidst one of the most volatile marketplaces in recent memory, the growing disparity between driver supply and truckload demand has resulted in increasing tightness. When this is the case, we expect upward pressure on truckload rates, just as we did throughout the back half of 2020. We may have hit the peak of inflated spot rates, but with the pandemic still raging, carriers have the upper hand on rates and may decide to take fewer contracts this year to reap the benefits of the spot market. When some form of normalcy does return, we will see another round of shifting capacity and supply chain volatility; 3PLs that can navigate the chaos and guide their customers through it are going to come out on top with relationships and case studies that will speak volumes.
If you’re a shipper or a 3PL, this means you have to think about the whole carrier experience beyond just rates. Carriers want to get paid quickly and treated well, so if the facility they are servicing is difficult to navigate or doesn’t offer any driver amenities, your freight is far less desirable compared to previous years. To entice carriers, shippers and brokers need to be creative, reliable and more than anything, flexible.
5. Carriers Focus On Diversifying Their Book of Business
Prior to the pandemic, most carriers specialized in one or a handful of specific industries. This was a sound strategy because specialization allowed carriers to set themselves apart from the competition by tailoring their vehicles, routes and service to the needs of shippers (who all have different needs, depending on their industry). COVID disrupted this strategy. When the pandemic struck, certain industries completely shut down. From automotive to restaurant services, carriers can no longer focus on one niche industry as the pandemic showed how having all of your eggs in one basket is ripe with risk in these times.
This year, I anticipate more carriers will diversify the industries they support. 3PLs have an opportunity to help and should look for opportunities to offer freight to their trusted carriers who previously may not have considered that type of freight before. By partnering closely with carriers to educate them on the needs of that particular freight and help them enter a new industry, 3PLs will be able to solidify their carrier relationships while also problem-solving for shippers who are desperate for capacity.
6. Reefer Capacity Will Be Tough To Come By
People are still working from home. COVID numbers are at an all-time high, and many cities/states are under curfews and restrictions to discourage people from leaving their homes. But people still have to eat. Groceries stores and food delivery will continue to be in high demand, translating to huge demands on reefer capacity. Add to this the reefer capacity needed to effectively distribute the vaccine and the grip on capacity tightens. This isn’t news. This has been the case since March 2020, but it’s only going to continue.
3PLs have to remain nimble and creative to source reefer capacity and make sure the service they offer those carriers is top-notch to ensure those carriers will continue to partner with them. 3PLs who are able to keep reefer carriers moving and maximize the efficiency of their assets will be the ones who benefit on both sides of the customer/carrier relationship.
7. Regional Distribution
Because of the supply disruptions in 2020, there was a renewed focus on regional distribution. Amazon led the way during COVID, relying on their regional distribution network when drivers were hesitant to drive long hauls far from home. This will continue to be a go-to strategy for many shippers, and I anticipate we will see many retailers investing more into their regional distribution strategy. This shift will create two demands: final mile and long haul. 3PLs that are able to competitively source and seamlessly provide these two modes to their customers at varying degrees of volume will be the heroes of 2021.
8. Opportunities for Mid-Size to Small Carriers To Get Access To New Customers
With the COVID vaccine distribution, many large carriers, seasoned in pharmaceutical freight, have been tapped to move this critical freight which means they will not be able to fulfill previous contracts. So, who is going to move that freight? Mid-size to smaller carriers have an opportunity right now to get in with the companies left in a lurch.
This may not be the strategy for every carrier, but with so much capacity going to the vaccine (as well as all the implementation needed to distribute a vaccine), carriers have an opportunity to service freight previously unavailable to them.
3PLs, keep this in mind. Follow which large carriers are transporting the vaccine and take advantage of opportunities to follow up with their known customers who may be hurting for capacity. While historically technology, integration, volume commitments, etc. were barriers for mid-size to small fleets in providing service to large shippers, 3PL relationships should be providing access to these large customers as need for capacity widens.
9. Relationships Continue to Be King
As isolated as many of us have been in 2020, relationships and personal connections mean more than anything. Both individuals and companies want to work with people they know and trust and can rely on to deliver in a time of need. Logistics is truly a people business. No matter what role you play in the supply chain, if you focus on building and deepening your professional relationships, you are investing in your future.
10. Greater Focus on the Value of Drivers/Carriers
I’m hopeful 2021 will be the year that drivers/carriers will finally get the full respect they deserve. From keeping our grocery stores stocked to distributing the COVID vaccine, carriers/drivers have been on the frontlines of this pandemic. The past few years, the industry has talked about a driver shortage with the narrative focused on a lack of talent entering the industry. But if we take a step back, the problem isn’t people’s interest, it’s because these essential, frontline workers deserve a better wage.
If we truly want to solve the driver shortage and respect the people who have been front and center in this pandemic, the industry must reward carriers/drivers with better pay, benefits, and support.
As we continue to progress into 2021, it’s clear that many of the supply chain impacts from 2020 are here to stay. Flexibility and a commitment to relationship building should be a priority for any logistics company looking to navigate the challenges ahead.
Aaron Galer serves as senior vice president of Strategic Accounts at Arrive Logistics, “a carrier and customer-centric” logistics company that is headquartered in Austin, Texas, and has offices in Chicago and Chattanooga, Tennessee. Aaron is focused on growing and strengthening partnerships with Arrive’s enterprise shippers and carriers as well as tailoring unique solutions specific to their needs, industry and logistics challenges. He also serves as an internal resource to the entire Arrive team. Prior to joining Arrive, Aaron helped launch the Amazon Freight program and has nearly a decade of logistics experience with Fortune 500 companies including Expeditors and Starbucks. His past responsibilities include building and overseeing transportation teams that manage large transportation spends and developing technology for large shippers. Aaron is active in the supply chain communities in the Greater Grand Rapids and Greater Seattle areas; he holds certifications in Lean Six Sigma and with ASCM and has a degree in Supply Chain Management from Michigan State University.