September 4, 2020

COVID-19: Logistics Industry Update

COVID-19: Logistics Industry Update

A new strain of coronavirus, known as COVID-19  swept across the world in early 2020, with outbreaks springing up in virtually every country to varying degrees. As of the writing of this article, more than 800,000 people around the world have died from COVID-19 or complications related to it, with more than 175,000 of those deaths occurring within the United States. The coronavirus pandemic has changed the way we as a society interact with other people, the way we shop, the way we travel, and much more.

COVID-19 has also changed the supply chain for the foreseeable future. Shelter-in-place recommendations kept most non-essential workers inside their homes for months, which drove an unexpected boom in online sales that left the e-commerce sector reeling. The food supply chain began to quickly recognize its own inherent inflexibility as it struggled and largely failed to divert food supply from closed restaurants to consumer outlets. Distribution centers and meat processing facilities suffered from outbreaks that caused them to work with skeleton crews or close their doors entirely.

As Fall 2020 approaches, the various links of the supply chain continue to adapt and find ways to plant their feet more firmly as they adapt to the new normal presented by the coronavirus pandemic. This article will explore some of the ongoing logistics and supply chain challenges COVID-19 will cause throughout the remainder of 2020.

E-commerce Explosion and the Warehouse Crunch

Without a vaccine, it’s highly likely that the strain on the online retail supply chain will carry to the end of this year and beyond.  Many in the small parcel shipping industry have stated that the past six months have been “Black Friday everyday”.  Walmart’s recent relaunch of their online fulfillment services will put further pressure on the supply chain. With e-commerce demand already well above expectations in 2020, online retailers are now staring down a holiday peak season where a much larger than normal portion of consumer purchases are expected to happen online. Online sellers and their logistics partners have already been operating in a peak season mindset for most of the year, so it remains to be seen how an additional increase in holiday demand will impact operations.

A shortage of serviceable fulfillment space has also begun to temper growth for many online retailers. Compounding demand for warehouse space is expected to create demand for an additional 1 billion square feet by 2025, as well as at least 100 million additional square feet of cold storage space to accommodate for exponential growth in online grocery sales.

Regionalization of Suppliers and Partners

While Americans have spent decades outsourcing manufacturing and other services to China and other far-flung destinations where labor is plentiful and affordable, the coronavirus pandemic has shifted the focus of supply chain managers away from cost savings and toward simple viability. Around the same time that Chinese factories closed to halt the spread of COVID-19, American consumers began to clear retail shelves of essential items such as toilet paper, medical masks, hand sanitizer, canned goods, and more.

The U.S. retail supply chain couldn’t restock many of these items because their distributors couldn’t get the goods from China and other international origins, causing supply chain managers to alter the way they look at their supply chains. Stakeholders across the supply chain are now exploring the possibility of reshoring their own manufacturing operations or engaging in more comprehensive relationships with U.S.-based manufacturers and distributors. In theory, reduced reliance on China and less physical distance between buyers and suppliers should enable faster resupply in face of future supply chain disruptions.

Just-in-Time…Plus A Little Extra

Nearshoring or reshoring operations takes time—time that U.S. businesses may not have. With no end to the COVID-19 outbreak in sight in the United States, the potential for further large scale disruption seems likely at some point. This leaves manufacturers, distributors, and retailers in an uncomfortable position.

While Just-in-Time fulfillment and manufacturing have become the poster child of the global supply chain in recent decades, U.S. businesses now find that they must stock and hold higher levels of inventory to ensure that they can respond to sudden changes in consumer demand. The aforementioned shortage of available warehouse space makes it difficult to substantially increase held inventory. In addition, holding too much inventory may drive storage costs to an unsustainable point. Finding the right balance will be a challenge for logistics leaders in the months to come.

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Mr. Frank P. Crivello began his real estate career in 1982, focusing his investments in multifamily, office, industrial, and shopping center developments across the United States. From 1994 to 2008, Mr. Crivello assisted Phoenix Investors in its execution of its then business model of acquiring net lease commercial real estate across the United States. Since 2009, Mr. Crivello has assisted Phoenix Investors in the shift of its core focus to the acquisition of industrial real estate throughout the country.

Given his extensive experience in all aspects of commercial real estate, Mr. Crivello provides strategic and operational input to Phoenix Investors and its affiliated companies.

Mr. Crivello received a B.A., Magna Cum Laude, from Brown University and the London School of Economics, while completing a double major in Economics and Political Science; he is a member of Phi Beta Kappa. Outside of his business interests, Mr. Crivello invests his time, energy, and financial support across a wide net of charitable projects and organizations.

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