By Steve Tracey, Susan Purdum, and Kusumal Ruamsook. The Center for Supply Chain ResearchÒ, Smeal College of Business
The COVID-19 pandemic and government efforts to contain the spread of the virus through travel restrictions, social distancing, and shelter-in-place orders have widespread influence on business operations and personal activities. During this time of crisis, supply chains are at the forefront not only in business and government planning, but also in the minds of consumers.
The COVID-19 pandemic spotlight is in play across supply chain enterprises, but it has shone particularly brightly on the transport and logistics (T&L) operators in their role as front-line, essential service providers. The T&L industry provides a vital “link” that keeps goods moving through supply chains, and this role is ever more important during the pandemic. T&L operators bring much needed medical supplies to hospitals and first responders, as well as groceries and other household supplies to store shelves and directly to the doorsteps of anxious consumers who are unable or unwilling to leave their homes.
As front-line, essential service providers, T&L operators face unique challenges that require a balancing act of keeping workers safe and goods moving under market volatility amplified by the pandemic. In this post, we explore COVID-19 impacts on the industry and highlight key tenets of effective T&L responding strategies.
Though the COVID-19 disruption has nationwide effects on T&L operators, those in some states and cities are more exposed to the disruption than others. The Commonwealth of Pennsylvania is among them. Pennsylvania is home to many warehouses and transportation facilities, as well as critical freight routes to major cities on the East Coast and Midwest. As of May 2019, about 9.4% of employment in Pennsylvania was in the T&L sector, above the 8.5% nationwide. The sector employs a much higher percentage of workers in major transportation corridors like the Allentown-Bethlehem-Easton corridor which serves the Northeast (about 13%). Based on 2017 data, these workers provided services for nearly 900 million tons of freight movement, including about 402 million tons of intra-PA freight and 496 million tons of interstate freight.
The Whipsaw Effects on Freight Volumes
Freight volumes, thus demand for T&L services, have been whipsawed by changes in retail and manufacturing demand as a result of various government-imposed containment measures. At the start of the outbreak and initiation of containment measures in March 2020, surges in demand for consumer staples and medical supplies have been taxing the labor force and the capacity of delivery equipment of operators that haul these “critical” goods. T&L staffs—from warehouse associates, dispatchers, to drivers—worked longer hours to meet emergency delivery needs from retailers and manufacturers hustling to replenish their store shelves, fulfill online orders, and restock distribution centers.
Since the beginning of April, freight volumes have dropped as quickly and sharply as they rose in March as an economic recession set in. Although strong demand for critical goods continues, it no longer offsets the loss of general freight volume caused by business shutdowns and consumer spending declines that have ceased the need to move other goods like fashion apparel, restaurant supply, electronics, and automotive manufacturing inputs. Drop in freight volumes have been felt throughout the United States, but several areas such as the eastern region have been particularly significantly impacted.
In early May, Pennsylvania’s Governor Tom Wolf announced a gradual reopening plan categorized into three phases – red, yellow, and green – that would allow less affected areas to open first. As businesses reopen, pent-up demand to move goods needed for these businesses could create yet another round of whipsaw effects on freight volume. This is particularly the case if the reopening coincides with another pandemic outbreak, and thus the need to reinstitute containment measures ensues.
The Double-Action Effect on Operations
The pendulum swing of freight volume is not the only effects the COVID-19 crisis has on the T&L industry. The pandemic containment environment where non-essential businesses shutter and social distancing measures become norms has had a double-action effect on operations that protect workers and hamper freight movement at the same time. Pre-COVID-19 operations practices were upended as a result, affecting not only in T&L workplaces, but also in T&L interactions with their supply chain partners.
T&L Facility Operations
At T&L facilities, work areas have been re-tooled, processes redesigned, and new safety protocols instituted. T&L facilities must figure out how to retool their layouts to add space in work areas and breakrooms, putting in place barriers where necessary to keep people apart and marking the floor to indicate six-foot distances to further promote social distancing. Regarding process changes, T&L facilities are adjusting start times and break times to promote social distancing, while modifying task scheduling to accommodate the need for more frequent cleaning. Safety protocols such as temperature and symptoms screenings, personal protective equipment (PPE) donning requirements, and enhanced cleaning are also instituted. Implementing these safety protocols means that necessary PPEs like masks and gloves, and sanitation supplies like hand sanitizer and disinfectant must be in stock and made available to workers. Productivity loss is commonly experienced owing to these various measures (e.g. fewer staff on-site, more cleaning time vs. freight handling time).
En Route Operations
Similar safety measures are also taken outside T&L facilities to protect vehicle operators on the road. Drivers are provided with PPEs and sanitation supplies they might need while on the road to keep their hands sanitized, to disinfect their vehicles, and to reduce risk exposure when outside the cab (e.g. at truck stop, gas station). Additional precautions are made to address risks associated with team driving on a long-haul run, for instance, by installing a removable barrier between the driver and passenger and/or to separate sleeper berth. Route planning is also affected, requiring considerations of the states the drivers will travel through, relevant travel advisories, and temporary changes to policies like toll collection and truck-stop operating hours.
Pick-Up and Delivery Operations
Another aspect of COVID-19 effects on operations pertains to T&L interactions with supply chain members at various pickup and delivery locations, ranging from port terminals, warehouses, retail stores, to consumer neighborhoods. Government restrictions on which businesses can remain open has led to increases in failed delivery attempts at a closed business. Operational complications arise because, depending on T&L policies, the cargo must be returned to the sender/consignor, or brought back to T&L terminals for re-consignment, potentially creating a backlog of freight in the terminals. Meanwhile, at locations that remain open, social distancing measures and decreased on-site personnel result in longer dwell times as it takes more time to load and unload trucks. Cascading delays and lead-time variability could ensue throughout the supply chain as trucks are impeded from effectively moving freight from point to point.
Key Tenets of Effective Strategies
As the country grapples with the COVID-19 pandemic, supply chain disruptions call for T&L operators to think differently and act quickly. The T&L sectors in the United States entered the COVID-19 crisis with rapid actions to protect their employees and customers, while bolstering agility in various aspects of their operations. Here are observations of three key tenets of effective strategies that can guide T&L actions in navigating the crisis and strengthening their positions for the world after the COVID-19.
Effective Strategies Prioritize People Safety
Keeping employees safe is the foremost onus of effective T&L strategies that encompass additional precautions to protect their workers not only in terms of physical health discussed earlier, but also in terms of livelihood. The latter entails such interventions as sick pay to workers diagnosed with the disease or placed in quarantine, additional hazard duty pay, and extended time-off period without risk of termination.
Effective Strategies Embrace Technological Transformation to Enable Agile and Safe Operations
Technological modernization in the T&L sector was already a precedent pursuit, but the need has become more urgent considering the COVID-19 pandemic impacts. Uncertainties have put a premium on agility in all aspects of operations for which digital technologies have seen increased applications. Notable examples are in dynamic route planning and resource deployment where capabilities like heat maps and geo-fences help T&L to avoid risky hotspots and prevent service disruptions created by shipping embargoes and facility closures. Digital technologies also help to facilitate safe interactions and streamline processes hampered by containment measures at pick-up and delivery locations. Some examples include using software solutions for contactless gate check-ins and paperwork signing, and geo-fencing and electronic notifications of arrival for prompt loading and unloading at the facility docks.
Effective Strategies Adopt Collaborative and Proactive Risk Management Approaches
Leading T&L operators implement proactive risk management approaches that deploy scenario-planning techniques to systematically evaluate market-specific conditions where different demand and supply environments are considered. Their scenario planning is backed by active risk monitoring to understand, for instance, areas with high-risk spread and freight lanes affected, as well as by close communication with shippers to understand the state of production schedules, inventory levels at various locations, and plans for restart, among others. These approaches allow T&L operators to constantly reframe action plans and deploy them rapidly in response to the changing environment.
The COVID-19 crisis is a paramount test of the resilience of transport and logistics as a vital link in supply chains. In its role as essential, immediate responders to the pandemic and backbone of long-term economic recovery, the outcome of this test will have significant implications for economic future of Pennsylvania and the United States as a whole. Resilient T&L operators understand the value of people, advanced technologies, and proactive risk management in collaboration with supply chain partners in empowering them not only to withstand the COVID-19 impacts, but also emerge for the better in the post-crisis world.