Supply Chain Battles Extraordinary Demand, Sick Workers

It's not like you just press a button and order more. There are shortages of raw materials, finished products and the people to make and deliver them. Under the circumstances, the US supply chain is holding up pretty well. So far. JL


Ellen Rosen reports in the New York Times:

When demand spikes unpredictably, it takes weeks for manufacturers to crank up production at multiples of the volumes they’re used to producing, and for retailers, transporters, etc., to deal with getting those products to the shelves and into homes. Shippers are facing huge challenges to ensure that they have the tools and have capacity. Manufacturing plants and warehouses are understaffed, so the truckers expecting a quick turnaround for loading “could wait as much as 15 hours for their cargo.”

The coronavirus outbreak has changed the nation’s dialogue by more than adding “social distancing” and “flattening the curve” to the lexicon.

Just a few weeks ago, many people would have been hard-pressed to talk about the nation’s supply chain. But with shortages of protective gear for medical workers and basics like toilet paper and hand sanitizer, the inner workings of transporting goods from manufacturers to consumers, medical professionals and other businesses suddenly has taken on new importance.

“Shippers are facing huge challenges to ensure that they have the tools and have capacity,” said Lily Shen, president and chief executive of Transfix, an online marketplace that connects companies with trucking services. And the truckers, she said, had enormous pressure as well because “they can’t work from home and are constantly on the road.”

While pricing agreements remain in place for planned production and delivery, the sudden rush of short-term needs has caused “dramatic changes,” said Anshu Prasad, co-founder and chief executive of New York-based Leaf Logistics, which seeks to create forward-looking pricing agreements for shipping by truck. But right now, “It’s a pretty intense time in our business,” he said.

Not surprisingly, prices are increasing to meet sudden demand, Ms. Shen said, since a national emergency was declared March 13. She said that because the U.S. shipping market was fragmented, with more than 18,000 combinations of routes, it was difficult to quantify across-the-board increases.Apart from a limited supply of critical medical products like masks, gowns and ventilators, the lack of consumer products is vexing as well. According to Mr. Prasad, items like toilet paper have only a low margin per unit so retailers usually inventory a few weeks of typical demand. “When demand spikes unpredictably, it takes weeks for manufacturers to crank up production at multiples of the volumes they’re used to producing, and for retailers, transporters, etc., to deal with getting those products to the shelves and into homes.”But there are additional problems, he said. Some manufacturing plants and warehouses are understaffed, so the truckers that went expecting a quick turnaround for loading “could wait as much as 15 hours for their cargo.” Pennsylvania briefly decided to close all of its rest stops in a move intended to protect travelers, but the closures also impeded long-haul shipping without roadside facilities, so some were later reopened. And there are driver shortages, compounded by the aging population of truck drivers, whom some deem to be more at risk to die from the virus than those who are younger.

Another aspect, Ms. Shen said, was that the impact of the health and safety of workers nationwide also was now a key factor. There is the looming possibility of factory closures and driver shortages, in addition to thinner ranks at the distribution centers.

Even when there are pricing agreements in place, a few isolated truckers try to capitalize on the volatile shipping market. “Last month, a carrier came and loaded the freight. But he then tried to extract a ransom,” saying that the agreed-to rate was unfair. Rather than negotiate, Mr. Prasad said, the manufacturer paid the additional amount but said it would never use that carrier again. While the contracts do provide for arbitration to resolve disputes, in this instance, Mr. Prasad said, the manufacturer opted to continue with the shipment rather than cause any delays.

Transfix and Leaf in the short term are working to track shipments to help carriers and shippers. Ms. Shen said that her company was trying to alleviate the “uncertainty of where products are.” In the long term, Ms. Shen and Mr. Prasad are trying to increase transparency in the market and digitize relationships that are often still conducted by phone and fax.

Even before the pandemic, the supply chain presented challenges for manufacturing and e-commerce entrepreneurs, said Laurie Yoler, a general partner with Playground Global, a Bay Area venture capital firm that has invested in Leaf. “The shipping of freight has been fragile in this country,” she said. “There’s a lot of room to improve reliability and stability.”

Both companies plan on pursuing growth even in the face of an uncertain market.

Ms. Shen joined Transfix two years ago as chief operating officer. She was promoted to president last year and, in March she became chief executive. It was trial by fire; on her third day as chief executive, “the entire company moved to working remotely,” a transition she described as “seamless.” That was fortunate because the shipping sector was anything but.

When the crisis subsides, she plans on focusing on increasing automation in the market. Longer-term demand for shipping is, she said, “still there.”

Leaf has a different approach in its platform that provides forward-looking pricing agreements so manufacturers and other shippers are not caught unaware in the costs of shipping. Mr. Prasad co-founded his company in 2017, after many years in the logistics sector, to imbue predictability into prices and terms and, in addition, to reduce the number of hours that trucks make return trips empty, after unloading cargo. While he said that the safety of his team was paramount, he was looking ahead to growing his business, including a new platform in which manufacturers or other shippers could trade their contracts as their needs changed.

No matter how immersed in logistics, both entrepreneurs have faced some personal surprises in the current climate. For Ms. Shen, it was the empty shelves at her local store when she finally had time to shop.

And expertise was no match for the challenges of pandemic-imposed home-schooling. Mr. Prasad has a teenager at home who understandably has work to do, and who, like many high school students, may not have done enough planning.

With store shelves reorganized to display only essentials, supplies are in short supply. As a result, Mr. Prasad said, “we just can’t get our hands on that hot glue gun needed to finish a fashion design project.”