The economy has changed radically this year because of the Coronavirus pandemic and pressures on supply chain management, creating a whole new set of expectations and requirements imposed by third-party logistics customers on their service providers.
Agility, speed and transparency are the new standards required by shippers, according to the researchers and company executives who contributed to the 2020 State of Logistics Report, issued on an annual basis for more than 30 years by the Council of Supply Chain Management Professionals.
As has been the case in recent years, the research was conducted by the Kearney global consulting firm and sponsored by Penske Logistics.
“It is abundantly clear logistics have a driving role in assuring resilient supply chains,” declared Michael Zimmerman, partner with Kearney and co- author of the 2020 report.
“Logistics practitioners will need to become even more agile as they navigate recovery in the second half of 2020 and into 2021,” he adds.
“With the ‘reopening’ of American businesses, many supply chains have become off-balance,” observed Penske Logistics President Marc Althen. Supply chain managers must rely on solid data and experienced advice as they move forward, he says.
“This is an important time to reevaluate your supply chain, from distribution points to modes of transportation, and the State of Logistics Report provides the level of insight necessary to make these types of critical decisions.”
Says CSCMP President Rick Blasgen, “To say that everything changed is an understatement.”
He observes, “Many in our industry have led efforts in adapting, innovating, and managing through unprecedented disruption while simultaneously creating new operating models. This report provides a portal into what you need be ready for in the future – Adapt, improvise, overcome!”
Warehousing Will Grow
Last year, warehouse rents continued rising and vacancy rates stayed near historic lows. Ecommerce continued to drive growth, especially in regard to smaller, high-amenity urban warehouses operating closer to the customer base, the report notes.
Inventory storage costs grew 6.6% in 2019 because warehousing capacity remained tight, as has been the case in recent years. “Warehouses delivered the highest square footage completed in a single quarter on record — and the market quickly swallowed it up,” the Kearney researchers report.
In 2020, the researchers expect that disruption of consumer supply chains stemming from the Coronavirus pandemic will drive a new surge in warehousing demand, especially for temperature- controlled warehouse space as more consumers order food online. But that isn’t the only driver.
The researchers estimate that a 5% bump in safety- stock inventory will require about 750 million square feet of industrial space as companies soften their lean-inventory strategies.
“The rise in stock levels should spur industrial activity, given the expectation that the warehouse construction pipeline will remain full and warehouse availability will remain tight,” they say.
Technology is increasingly being deployed to boost efficiencies in distribution centers. “Pandemic ecommerce is leading to an expected increase in adoption of warehouse automation solutions to keep costs and operational complexity in check even further,” the researchers explain.
Sales of autonomous mobile robots are estimated to double to $27 billion by 2025, they point out. This and other tech solutions put the industry in a good position to support a vigorous recovery. In 2019, logistics costs accounted for a reduced percentage of GDP (7.6 versus 7.9 in 2018), reflecting better overall productivity.
The logistics industry had exhibited very good fundamentals before the pandemic devastated the economy. “Although almost nobody saw the COVID-19 crisis coming, the state of the industry in 2019 suggests that it could recover quickly,” the researchers assert.
The pandemic tested 3PL service providers abruptly, with sudden stops or surges depending on which industries they served, and this is expected to have a lasting effect.
Most heavy manufacturing, the automotive industry and important segments of basic chemicals came to a stop when factories closed because demand had virtually evaporated.
“The 3PLs and supply chains serving the hospitality and restaurant industries were mostly stopped cold,” the report says. “On the other hand, high-tech products such as microprocessors continued to fly across the globe, still needed for providing inputs to crucial computers, servers and military products.”
CPG and grocery demand surged as people hoarded and then shopped during shelter-at- home orders.
The report remarks that a number of 3PLs reported they were able to redeploy some of their people and assets from the halted and slowed industries to the ones that were hit by surges. “Most shippers we spoke with reported that their 3PLs had a ‘we’re in this together’ attitude rather than invoking force majeure clauses,” the researchers reveal.
Insourcing a Threat to 3PLs?
However, the report’s authors warn that 3PLs need to keep investing and sharpening their expertise. “Some shippers told us that advances in technologies (warehouse management systems, transportation management systems, track and trace) make the insourcing decision easier to take.”
They add, “Those shippers committed to buying talent and innovation from 3PLs reported that they were seeing incremental improvements in creativity, such as the campus model for 3PLs where multiple shippers are served from the same group of facilities, or the buildup of 3PL last-mile networks and extra cross-dock capacity that can help shippers with surges.”
The implications of the COVID-19 crisis have reemphasized the value of technology in logistics, the researchers stress. “Even providers previously hesitant to invest in shipment location tracking or electronic signatures, claiming such digital technologies were unnecessary, are now embracing them as table stakes.”
With rising labor costs, and despite the COVID-19- induced recession, shippers and 3PLs are looking to automation and robotics to make logistics more efficient – not just by achieving control over complex and unpredictable product flow, but also to gain greater control over labor costs.
While the Kearney researchers believe that serious growth and application of autonomous trucking is still five to 15 years away, they note that legions of mobile robots are already working alongside humans in many warehouses and DCs.
“In general, winners will emerge from this crisis with more digitally savvy logistics operations, especially in the areas of creating transparency and interfaces while reducing needs for physical labor across modes and nodes,” the report concludes.
EEOC Nixes Antibody Tests
The Equal Employment Opportunity Commission declared that employers are not permitted to conduct antibody tests as a condition of employment for employees returning to work.
In a June 17 question-and-answer document, EEOC said tests for the presence of an active virus in employees who are already in the workplace are permissible because it shows that an employee is a direct threat to others in the workplace.
The commission said its position is in line with the current opinion of the Centers for Disease Control and Prevention (CDC), which has said that antibody tests should not be used to prevent an employee for re-entering a workplace.
Although some employers had hoped that antibody testing might help identify employees who were potentially immune to COVID-19, the CDC has stated that the meaning of an antibody test is not well defined and understood at this time.
However, the EEOC also has said that its position will be subject to reevaluation in the future, if and when the CDC changes its views.
While EEOC says requiring antibody testing before re-entry to the workplace is not allowed under the Americans With Disabilities Act. That kind of test is different from a test to determine if someone has an active case of COVID-19, called a viral test.
The EEOC has already stated that COVID-19 viral tests are permissible under the ADA and continues to maintain that position.
The commission also said job applicants may be screened for symptoms of COVID-19 after making a conditional job offer, as long as it does so for all entering employees in similar jobs. This ADA rule also applies if the applicant has a disability.
The commission also said employers should be aware of their legal duty to address possible ethnic harassment of Asian-looking workers who may be linked in the minds of other employees with China, the country of the pandemic’s origin.
Driver Drug Test Waiver Extended
The Federal Motor Carrier Safety Administration extended its waiver of pre-employment drug and alcohol testing for truck drivers to Sept. 30 in response to the continuing Coronavirus pandemic.
In normal circumstances, an absence of 30 days or more from the random testing pool would trigger the need for a pre- employment drug test when the driver returns to work.
FMCSA extended this period to 90 days because fleets who furloughed drivers during the pandemic are now starting to return them to work.
Under the waiver, the agency declares that the employer must ensure:
1. The driver has participated in a controlled substances testing program that meets the requirements of the drug testing rules within the previous 90 days.
2. While participating in that program either: the driver was tested for controlled substances within the past six months (from the date of application with the employer), or anticipated in the random controlled substances testing program for the previous 12 months (from the date of the driver’s application with the employer).
3. The employer ensures that no known prior employer of the driver has records of a violation of the rules or the controlled substances use rules of other agencies within the previous six months.
4. Specifically, this last requirement means that the employer must conduct a query of the FMCSA Clearinghouse to ensure that there is no violation that would prevent the driver from performing safety-sensitive duties. In addition, the employer must conduct safety performance history investigation of the driver.