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Coronavirus will test supply chain partnerships

11 Mar 2020
Category: News
Author: Evan Pundyk
Shape

The coronavirus (COVID-19) pandemic is not only a health crisis impacting daily life for individuals but has led to cascading supply chain disruptions, especially in Asia. Shippers and transportation providers are pressured to anticipate the impacts of the outbreak in North America with vital data changing every day. While the possible long-term impacts of the virus on supply chains are unclear, companies have to make decisions today on how to adjust to this disruption.

For now at least, Arrive Logistics’ executive vice president, Eric Lien, is counseling his customers to focus on preparation, flexibility and over-communication with trusted partners on their long-term strategy. Arrive Logistics is a third-party logistics provider headquartered in Austin, Texas, with offices in Chicago and Chattanooga, Tennessee.

The shutdown of manufacturing plants and logistics services in China coincided with a lengthy national holiday — the Lunar New Year — that Lien’s customers say was the best possible time for quarantines and work stoppages to occur.

“I was with 11 customers in LA last week; half a dozen of them were Asian-owned,” Lien said. “They were of the opinion that if there was a good time for it to happen, it was now. The bigger question is ‘does the customer have upstream suppliers that are replenishing downstream manufacturers they’re dependent on? Are those upstream manufacturers still hurt by labor shortages because of coronavirus?’ There are still many unknowns.”

Prior to Arrive Logistics, Lien spent 14 years at a Fortune 500 food shipper in distribution and supply chain operations; now he leverages that experience as a member of the Strategic Partners Division. This division is composed of executive alumni from enterprise shippers, carriers and technology providers and designed to be a resource that enriches the internal Arrive team and offers insights, networking and experience to their partners.

Lien explained that although the official holiday in China lasts approximately two weeks, “no one gets back to work at 8 a.m. on Monday.” In other words, many workers take the opportunity to change jobs, and the manufacturing sector’s return to 100% capacity is a gradual process. For that reason, shippers with operations concentrated in China build an extra two to three weeks of safety stock in their inventories, which they’ve been relying on to keep the movement of product fluid since the coronavirus hit.

So far, control measures in response to the coronavirus have shuttered much of China’s production, causing exports to plunge. Container spot rates from China to the North American West Coast are still down more than 10% year-over-year, and import shipment levels at the ports are a fraction of normal volumes. Intermodal rail volumes outbound from Los Angeles are down 36% since the beginning of February and are 22% lower than last year’s Chinese New Year-related trough.

Trucking spot rates from Los Angeles to Dallas are down 12% since Feb. 2, while rates in the opposite direction are up 24% in the same period. In other words, the trucking spot market is pricing in softness in Los Angeles, treating it like an undesirable backhaul market instead of the abundant source of freight that it usually is.

While the drop in Chinese exports has mostly affected steamship lines, drayage operators and intermodal volumes — total rail intermodal volumes outbound from Los Angeles are down 21.7% compared to last year’s CNY trough — truckload volumes have not been affected. Or, rather, they’ve been juiced by a somewhat surprising second-order effect: panic-buying.

Consumers are buying dry and canned foods, bottled water, paper products, and disinfectants at higher rates than normal, pushing up truckload demand across a broad swath of freight markets in the United States. It’s unclear how long that spike will last, or whether it will be followed by a deep trough if inventories run out or quarantined people simply buy less.

Over the past two years, the total business inventories-to-sales ratio has held steady at about 1.4 months, a higher level than the previous five years. Companies tended to hold more inventory in the 1990s, then progressively became leaner as new manufacturing processes and supply chain management philosophies took hold. Recently, inventories have trended back up as the cost of capital has fallen and consumer expectations of e-commerce fulfillment have required companies to forward-position more products.

Whatever happens — intensified panic-buying, a brick-and-mortar exodus and flight to e-commerce, or generally depressed economic activity — shippers, carriers and 3PLs are bracing for volatility in both directions.

Arrive works to understand each of its customers’ priorities and particular exposures to any supply chain disruption, custom-tailoring solutions around specific requirements, Lien said.

“It’s about understanding what they value, whether it’s lead time or their customers’ experience or cost of capital,” Lien said. “There are different metrics that our customers are trying to optimize, and we want to, first, understand it, and second, support it.”

“We’ve dealt with anything and everything,” Lien said. “We’re situated as a strong contractual service provider that works with reliable carrier partners on our customers’ long-term supply chain strategies.”

Lien said that short-term supply chain stresses can spike spot demand for team capacity and opportunistic brokers can exploit those situations to widen their margins, but Arrive isn’t built to do that.

One of the largest uncertainties for supply chain decision makers is predicting customer demand. With a “natural event” such as the coronavirus, supply chain managers are in a difficult spot: consumer behavior has the potential to strain or break the systems they have in place. Some may find themselves not using previously-booked capacity, struggling to source capacity, or in the chaos failing to see the true costs of their operation.

“We’re nimble enough to provide as-needed services, whether that’s capacity or data analytics, but we’d urge shippers not to take their eyes off the ball and focus on their long-term strategies,” Lien said. “Pick your partners well, because some are opportunistic while some are interested in understanding how value can be distributed over the long run between partners.”

To learn more about the Strategic Partners division, join Arrive Logistics and FreightWaves for a one-hour webinar on April 30 at 2 p.m. Eastern time. The webinar offers insights from these seasoned logistics leaders on today’s supply chain trends and challenges. To register, please click here.

 

Photo credit: Jim Allen / FreightWaves, original article posted here: https://www.freightwaves.com/news/coronavirus-will-test-supply-chain-partnerships


Tim Denoyer,
VP and Senior Analyst at ACT Research

As VP and Senior Analyst at ACT Research, Tim analyzes commercial vehicle demand and alternative powertrain development (i.e. electrification), and authors the ACT Freight Forecast, U.S. Rate and Volume Outlook. He previously spent fifteen years in equity research focused primarily on the transportation, machinery, and automotive industries, and co-founded leading equity research firm Wolfe Research.

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Scott Sandager,
Chief Administrative Officer 

Scott Sandager is the Chief Administrative Officer at Arrive Logistics. He joined Arrive in 2018, bringing over 14 years of logistics and brokerage experience, with expertise in project and change management, organizational design, talent development and customer satisfaction. Scott previously held many diverse roles of increasing responsibility with AFN, a Chicago-based freight brokerage.

Barry Conlon,
CEO & Founder at Overhaul

Barry Conlon is the CEO and founder of Overhaul, the global leader in active supply chain risk management and intelligence. With a remarkable career spanning over 30 years in supply chain security, he is widely regarded as a trailblazer in modern-day supply chain security standards and best practices.

Matt Pyatt, Chief Executive Officer

Matt Pyatt is the Chief Executive Officer of Arrive Logistics. He co-founded Arrive with President Eric Dunigan in 2014 after building his career at Command Transportation. As CEO, he is responsible for overseeing the company’s financial health, strategic vision and culture, as well as building a scalable leadership team to support Arrive’s growth.

Eric Dunigan,
President & Co-Founder

Eric Dunigan is the President of Arrive Logistics. He began his career at Command Transportation before co-founding Arrive with Matt Pyatt in 2014. As president, he is responsible for driving revenue and growth, as well as leading the Strategic Partnerships team — a veteran group of supply chain experts who work with Arrive’s customers to reimagine their shipping strategy.

Arrive Logistics VP of Market Intelligence David Spencer Headshot

David Spencer,
VP of Market Intelligence

David Spencer is the Vice President of Market Intelligence at Arrive Logistics. David joined Arrive in 2017 after spending six years at AFN focused on business intelligence. His department provides critical market data and expert analysis to internal teams and publishes monthly market updates for shippers and carriers under the Arrive Insights banner.

Andrew Clarke, Board Chair,
Arrive Logistics and Global Critical Logistics

Andrew Clarke is Board Chairman for Global Critical and DCLI, Inc., and a board member for Arrive Logistics and Element Fleet Management Corp. His 20 years of global transportation and logistics experience include time as CFO of C.H. Robinson, CEO of Panther Expedited Services, Inc. and SVP and CFO roles at Forward Air Corporation.

Dean Croke,
Principal Analyst
at DAT Freight and Analytics

Dean Croke is a Market Analyst at DAT Solutions, where he focuses on freight market intelligence and data analytics. His 35 years of experience with data analytics, transportation, supply chain management, mining and insurance risk management include time as co-founder of FleetRisk Advisors and in a number of other high-level roles with FreightWaves, Spireon, Lancer Insurance, Omnitracs Analytics (formerly Qualcomm) and more.

Asanka Jayasuriya,
CTO and Partner at 8VC

Asanka Jayasuriya is the CTO at 8VC. He is an accomplished engineering and product leader with 20+ years of experience in the cloud. He has a strong background in enterprise SaaS, PLG products, infrastructure, and security. Notably, he served as CTO and SVP of Engineering at SailPoint, leading their successful transition to the cloud and successful exit event. He also held senior leadership roles at InVision, Atlassian, and Amazon, driving growth, operational excellence, and innovation. At 8VC, Asanka works with the entrepreneurs and leaders in our portfolio as a virtual CTO supporting their growth.

Chad Eichelberger,
President at Reliance Partners

Chad Eichelberger is the President of Reliance Partners. Since 2015, he’s leveraged his extensive experience in risk management, compliance, best practices and contracts to lead the company’s logistics and truck insurance strategy and operations. Chad was previously the President of Access America Transport, where he led the company from $8M to over $600M in revenue.

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