Capacity Under Intense Pressure With Various COVID-19-Related Obstacles

The capacity market is seeing major additional obstacles regarding the high-demand trends brought about by the coronavirus pandemic.

As manufacturers and retailers continue to boost their inventories in the booming era of e-commerce (made much more prevalent during the country’s stay-at-home orders), the economy is beginning to finally recover–but capacity is under more pressure than ever.

“There are short-term and longer-term implications,” said CH Robinson’s vice president of retail and supply chain solutions, Noah Hoffman. “The retail space continues to put demand on all suppliers. The retail community can’t keep up with both inbound and outbound constraints and e-commerce continues to fuel that space. So, certain inventory for retailers are at record lows.”

Economic growth is being boosted, currently, by government stimuli and the opening-up of the economy after the COVID-19 vaccine has been more widely distributed. This means that the ways in which consumers purchase their goods is shifting–rapidly–including the kinds of items people are beginning to buy again.

“This is going to compound the demands on capacity that’s already not readily available,” Hoffman added.

Additionally, now, infrastructure spending is coming back at a rapid rate, and construction efforts are now underway on a large scale.

“What we’re seeing right now versus last year is capacity is coming back,” explained Hoffman. “This is positive news. The thing is, it’s just not fast enough to keep up with demand.”

In mid-2020, nationwide lockdowns caused the marketplace’s supply to plummet, with many truck drivers out of work. Now, capacity improvements have come often at the hands of small carriers, and capacity itself is seeing major shifts in a positive direction although it isn’t meeting the current demand as much as the industry would like–yet.

“As it relates to the Southeast region of the U.S., we had the cold snap in February,” Hoffman noted. “That delayed the production season–call it two to three weeks. On top of that, we had a rebound floral season that led to a $2.6 billion Mother’s Day and floral season–which is a record high. And so, you have compounding volumes of looming produce season, [and] a blooming floral season that puts a ton of pressure on the [temperature] control capacity.”

Still, with capacity under so much stress, new challenges are arising–especially with the recent shutdowns along the oil pipeline affecting pallet availability.

“I would say it’s not only just the increase in demand, it’s the volatility and the unanticipated levels of the demand,” said Douglas Kent, Association for Supply Chain Management‘s executive vice president of strategy and alliances. “Managing the supply chain networks for known demand is much easier than managing unknown demand.”

Now, with difficulty in predicting the long-term effects of these changes, there is a wide array of disruption possibilities.

“So, we’ve got variability and volatility in demand,” Kent added. “When you combine that with the concerns around capacity in the overall network, this is like the perfect storm of chaos.”

Although a variety of consumer trends can change demand, the key to capacity is equipment and drivers. Not only has the nationwide driver shortage been a long-term obstacle for the trucking industry, but the current shortage in semiconductor chips has been an added difficulty.

“Now, with this chip situation, which is fallout from the pandemic and China, they’re not able to make enough [semiconductors] for the demand out there,” explained chief operating officer for Aim Integrated Logisitics, David Gurska. “Fortunately, we have a leasing arm, Aim NationaLease, so we’re fortunate to have slots and everything available, but if you’re just the average company, trying to buy a semi right now isn’t the easiest thing.”

This limitation within capacity means the industry needs to boost its overall optimization–any volatility will make it difficult to efficiently allocate resources and employees when they are readily available.

“A lot of it is course-correcting the last couple of years,” said FourKites’ senior vice president of customer success, Glenn Koepke. “So, it was a buyer’s market for a couple of years. And then, typically, what happens is there’s some sort of…black swan event that triggers the change because it was a buyer’s market for so long.”

Additionally, motor carriers have seen more of an ability to increase compensation for workers with the disruptions coming at a time of such high demand–and this isn’t likely to stop any time soon.

“Why is capacity continuing to crunch? A lot of it is just [an] imbalance of supply,” explained Koepke. “There’s always talk over whether we have a true trucking shortage or not. I think one could argue it’s just an imbalance.”