Small and medium sized carriers will get hit the hardest by Covid, the latest Council of Supply Chain Management Professionals’ State of Logistics report finds. The CSCMP report suggests that carriers cut costs internally, diversify revenue streams, and try to reduce empty miles to stay afloat.
The State of Logistics report covers more than trucking. We also learn that logistics made up 7.6% of GDP in 2019. Costs increased by 0.6% last year, or $1.63 trillion. There was a return to balance, after cost increases and tight capacity in 2018. The inventory sales ratio was very high at the beginning of the year, and stayed inflated for most of 2019.
Then, Covid hit us and supply chains went haywire. In this report, there’s some good, some bad, and some ugly news. Let’s get the bad stuff out of the way first.
To borrow a phrase from the State of Logistics report, coronavirus created a ‘painful and chaotic period.’ The CSCMP predicts that Covid will lead to higher inventories and ‘multi shoring.’ Instead of relying heavily on China, companies will likely want to diversify their supply chains, lest one country gets taken out of commission. Rebuilding supply chains is not going to be a fun process, but hopefully they come out stronger on the other end.
Meanwhile, the CSCMP does not expect all carriers to even survive Covid. ‘Small to medium-sized carriers with a tight list of customers in highly affected industries will be hit the hardest’ and will ‘need to think strategically to survive the industry turmoil’, according to the report. Carriers may have to cull their operations, and we will continue to see bankruptcies. Smaller operations who serve auto and hospitality clients will likely be hit the hardest. Over 90% of carriers own six or fewer trucks, so this damage could end up being pretty widespread.
Not surprisingly, falling demand, low rates, and the ongoing trade war with China were cited as pain points for carriers right now. ‘Bankrupt carriers cited challenges including falling rates and demand, increased tariffs and trade tensions, increased insurance costs, and increased cost of labor to retain drivers,’ the CSCMP report states. ‘The deeper a COVID-19-induced recession, the likelier this trend is to accelerate.’
The report contained some good news, so we’ll end with that. For those who do make it through Covid, conditions should be pretty good on the other side. ‘If you can make it through the next six to eighteen months, other carriers will drop out, capacity will tighten, rates will rise, and your longer-term outlook will be more stable,’ the State of Logistics report explains. The report predicts a capacity crunch in 2021, as the market is not friendly to new carriers this year. So, get ready for high rates again.
The CSCMP also says that conditions right now are a boon to e-commerce, for those who can get in on it. ‘You can diversify your customer mix to rely more on fluid, rapid-response e-commerce flows and less on traditional, scheduled, retail and industrial flows.’