How the retail industry kept on trucking during a pandemic
Logistics firm C.H. Robinson's CEO Bob Biesterfeld on the future of shipping.
This year, so many people have been stuck at home ordering everything they need to ride out the pandemic. But once that "buy" button has been pressed on a website, it falls upon an intricate network of logistics companies to actually get orders to consumers. This year has highlighted many of the pitfalls in U.S. supply chain infrastructure, but what do the companies on the front lines make of the situation?
"It's almost like Christmas every day," said Bob Biesterfeld, the CEO of C.H. Robinson, one of the largest trucking and logistics companies in the U.S. The entire shipping infrastructure that supports the retail industry has been under strain — both for orders placed online and for the rolls of toilet paper people have been hoarding from grocery stores — and relies on logistics firms like Robinson. The company has been investing heavily in new technology, both to better support customers in an increasingly uncertain world, and to keep up to date with more digital-first entrants into the industry. No one is ever prepared for a world-altering event like a pandemic, but the investments likely didn't hurt.
Protocol recently spoke with Biesterfeld on what it's been like to manage through the pandemic and the changes that we may see as a result of this tumultuous year.
This interview has been edited for length and clarity.
How has the pandemic affected C.H. Robinson?
We've been dealing with the impact really since early January, in our business in Asia, and then subsequently in Europe and in the U.S. And as we've been thinking about this, from a business continuity standpoint, we've tried to look at this through the lens of ensuring the health and safety of our employees and our customers where we interact with them.
Secondarily, really ensuring supply chain continuity for the companies that we deal with — we deal with over 120,000 different customers, from the largest global corporations to the smallest mom-and-pop businesses on Main Street. I've been really focused on ensuring continuity for them in a time of disruption, which meant different things at different times, whether it was the shutdown of production in Asia early on, or the shutdown of businesses in the U.S. as state and local municipalities started to close to [tamp] down COVID.
The third piece was just around the economic health of our own people, and how we might protect them as we go through the unknowns of things.
But in terms of what what has changed, we've obviously seen significant changes in global shipping patterns, the rapid deceleration of entire industries going into the second quarter — we're still struggling to see small businesses come back — to the underlying change in the consumer behavior, the mass shopping on consumer staples, this huge pull forward in ecommerce and what that meant to inventory levels for our customers, and the placement of an inventory and their ability to fulfill products on demand. It's almost like Christmas every day.
And you add to that the reduction in passenger airline flights, which carry roughly half of the world's air cargo — that caused all sorts of logistics challenges. In North America, you saw a number of trucking companies that went the route of "I'm going to take the Paycheck Protection Program versus working," which really drew down supply in trucking and caused some downstream effects there as well.
About a year ago, you announced a billion-dollar investment in tech. How is that going, and has it affected your flexibility in a time like this?
So when we announced that investment in technology, we said at that point — which has maintained really to be true — there were three primary areas of technology that we were investing in. The first was around our customers: How do we build great software that our customers need and want to use? They needed an easy button for shipping. And so we invested a lot in the Freightquote by C.H. Robinson platform, which allows small businesses to literally go online and, with a click of a button, have products packaged and shipped, swipe a credit card and ensure that they've got guaranteed capacity and access to what we believe is the largest network of motor carriers in the world. That brought a huge competitive advantage for those small businesses trying to stay competitive through this.
And on the other side of that was these large global companies that we serve: The Microsofts of the world needed to think differently about inventory in this ecommerce-driven environment. So how do we provide them visibility to inventory both at motion and at rest in a way that they can have real-time global inventory visibility at the SKU level across their entire catalog [and] can ensure the inventory position is in the appropriate place to fulfill these changing and evolving demands?
I think one of the things that's evolved on the customer side, too, is just this need for connectivity and speed. A lot of the antiquated ways of shipping products involve picking up a phone or sending an email. We've invested heavily in ensuring that our software system, which we call Navisphere, is the most connected platform in the industry — whether that's a shipper being able to go out and get an API call for a truckload freight rate or an LTL freight rate, and have that automatically populate in their ERP or TMS, so that they can secure capacity.
There's about 200,000 trucking companies in the U.S., and the average size of those businesses is five trucks. This is an entire industry of small businesses that are largely unsophisticated without technology. There's a tremendous amount of waste that occurs in that industry. For the small businesses, on average, about 20% of the miles they drive are empty, not revenue-generating, yet they're still generating greenhouse gases, but they're not getting paid. We've invested heavily in that carrier ecosystem to ensure that we can take waste out of that model. Because we have more freight than anybody else in the industry, we think about this technology. We're able to create this ecosystem for these carriers that can keep them moving constantly — whether it's multi-stop, or multi-load tours, or just the fact that they're able to go online and automatically book a shipment that happens to be next to where they're unloading another shipment — [and that] has added a ton of value for them in a time where there's where there's downward pressure on pricing associated with the pandemic. [The] third area of investment is really around our internal stability, scalability, reliability of our systems and just the infrastructure associated with that.
What are your thoughts on a digitally native competitor coming into the market, someone like Uber Freight? What are your differentiating factors?
It really is an apples and oranges comparison, I would say. You could compare Uber Freight to a very narrow section of what C.H. Robinson does. But if I think about what differentiates Robinson in the competitive landscape, and why customers choose to work with us, they respect the technology that we build and lead with but they also realize that the really complex supply chain problems they have can't be solved by technology alone. Our customers live in a global, multi-modal world; they don't just move trucks. They move parcels, ocean freight, air freight; they have customs needs, they look for supply chain consulting; they look for thought leadership to help them design better networks.
So when we engage with customers, we're bringing all of that to bear under Navisphere. On a domestic basis, we're competing with Uber Freight and the other 20,000 third-party logistics companies that exist in the industry. Leading with being a digital native is interesting, but I'm not certain that it's important.
I would give Uber Freight and others credit for changing the conversation a bit around what digital means in logistics. But from a true, sustainable competition standpoint, what's been portrayed as a line between the digital upstarts and the legacy brokers, I think that progressive companies like Robinson have been investing to stay ahead of the curve, or at least on par with the curve in terms of technology that the digital upstarts are having. And a lot of the digital entrants that have come in and said, "We think we can automate everything," are realizing that in order to be sustainable, they have to be profitable, but they have to have people as well.
What role do you think automation plays across logistics in the future?
I don't want to dismiss the reality of digital in the logistics space. I think that digital and automation are going to be huge themes that live on in the advancement of logistics over the course of the next several years. And they're just not limited to new companies that are coming in. If I think about all of the steps that occur in a truckload shipment or a partial shipment, there are tremendous opportunities today. It's the convergence of the power of compute going up and the cost of compute going down that allow us to think about how we solve these problems in exciting new ways. Leveraging artificial intelligence and machine learning to manage some of these processes I think are real opportunities that are going to help companies to drive yield. I think that robotic process automation inside warehouses is real, and there's opportunities to uplift efficiency there.
When I think about autonomous trucking, whether it be probably more in the near term, in contained environments like ports, or longer term, in point-to-point on the highway, I think there's huge opportunity for efficiency gains. [For] small trucking companies, part of why they have inefficiency is what I refer to as "the bias of the driver": The driver wants to go home. Yeah, human nature: At some point you want to go home. But if you are in that truly autonomous environment, and you're using drivers differently, more as local delivery drivers, the driver bias of where that asset goes somewhat goes away, which is a huge unlock in terms of productivity.
As long as this pandemic rages on, what do you see as the biggest challenges on a day-to-day basis for U.S. supply chains?
We're in this period of really a great unknown. I don't mean to over-dramatize that at all, but there's so much volatility in the market right now, and I think people are really working to project what the future looks like in a really uncertain environment.
If I go back to the second quarter, we saw an absolute collapse in all of the global logistics market: air freight, ocean, domestic trucking. In terms of pricing, capacity far outweighed supply. Now, you come to the third and fourth quarter of this year, and you'll see that ocean freight rates are up double what they were last year, air freight rates are up exponentially, and trucking spot market rates are up 40% to last year. But largely, it appears to be more of a supply constraint than it is a demand impact. Inventory levels at retail are at all-time lows. And the [Purchasing Managers' Index] is starting to rebound. We don't know if that's going to be permanent, but the PMI has a direct impact on shipping volumes.
I think people and companies are used to a more static planning mechanism where you look at things on an annual basis and say, "I'm going to lay out my 12-month plan, and this is how I think it's going to work." But there's so much volatility right now in the market. Smart companies are being challenged to take a different approach to execute in this environment in new and different ways in order to maximize results. And then you've got the undercurrent of just an incredible change in consumer behavior, tied to ecommerce, and how we all shop and expect immediate gratification.
Are you expecting that trend to continue? I know that ecommerce retail has doubled since last year in terms of total sales, but it still only accounts for about 16% of the market.
I mean, double is still double. So my personal opinion: I'm 45, my generation and the generation that follows us, I know when my wife and I talk about Christmas, it's like, "Hey, where do you want to go for Christmas?" We're not going to get each other presents, but it's like, what experience do we want to have? Family experiences are largely off the table right now, and so that dollar tied to the services sector has shifted to consumables.
And so I think you're going to continue to see that influx into durable and consumable goods that used to be going to the services sector. And based on how we're all being either trained or forced to purchase things, that'll continue as a tailwind for ecommerce. And I think we're all learning that this experience is nice, I don't have to go to the mall, I don't have to go to my local grocery store anymore, it's pretty convenient for me to order these things and have them delivered and installed inside my house. And so I think a lot of that trend is going to be here to stay, not that it's going to maintain at the same growth rate, but I think it's real and likely has some legs to it.
How much do you see those trends happening before they're reported on?
Given our position in the industry, we see things — both on a long term and a short term — probably pretty early on. One of the statistics that I talk about a lot is the shortening length of haul, The average length of a truckload from pickup to delivery over the course of the last decade: It's gone for us from 850 miles per load to somewhere just over 600 miles per load. And that exemplifies the change in what distribution looks like, placing inventory closer to the consumer. Are you in San Francisco?
So if you go order something online, they're not shipping it from San Fran anymore, they're shipping in from somewhere in New Jersey and some warehouse where they're importing it to the East Coast ports instead of the West Coast ports. Inventory just isn't moving cross-country the way that it used to.
In the short term, I think we also get a bit of a bellwether view into things. I look at the shift over the course of time from small businesses and the rise of the big-box retailers. I think this pandemic has also had a pretty significant, longstanding benefit to some of these big boxes as well — you don't have to look much beyond the comp store sales of the Costco, Walmart, Lowe's and Home Depots to see that they're going to be clear winners.