The Council of Supply Chain Management Professionals issued its annual State of Logistics Report recently. The report, presented by Penske Logistics and authored by Kearney, a global management consulting firm, reflected on supply chain disruptions caused by the pandemic and other events in 2020.
Besides tracking trends and the component costs of logistics during a year turned upside down by COVID-19, this year’s report is probably more notable for the pallet industry because of its emphasis on sustainability. In fact, for the first-time, authors included an entire chapter related to sustainability. In addition, the report actually referred to pallet recycling.
It would seem the time is ripe for the wooden pallet industry to secure a solid future by demonstrating the environmental benefits of wood packaging in terms of sequestering carbon and contributing to sustainable practices.
As the report noted, shippers, carriers, investors and customers all are placing increasing value on sustainability. To cite just one example, companies like UPS, FedEx, DHL and Amazon are spending billions of dollars on natural-gas-powered trucks, electric vehicles, sustainable energy and carbon sequestration.
As consumers and employees increasingly value sustainability – and governments accordingly promulgate related regulations – reducing the carbon footprint becomes a business necessity. Fueled in part by severe weather blamed on climate change, consumers, employees and business partners prefer to deal with companies that are working to lower carbon emissions and helping to mitigate or reverse carbon-fueled trends. “This change in public opinion is turning sustainability from a luxury or a moral issue into a growth opportunity,” the authors wrote.
Most initiatives to save costs in logistics have the double effect of helping to ‘save’ the environment and climate, the report noted. For example, initiatives to reduce transit routes save fuel and also reduce the carbon impact.
“Every effort to reduce obsolete inventory, or to trim packaging, or to recycle pallets can have a sustainability ‘side effect’ of reducing carbon footprint,” the report stated.
Pallets got a second mention in the chapter about sustainability. “Finally, you can reduce waste, whether that’s disposable wooden pallets or slow-moving and obsolete inventory.”
If they are not already doing so, pallet companies probably should be availing themselves of the Nature’s Packaging initiative. It is a cooperative effort of the National Wooden Pallet & Container Association, the Western Pallet Association, and the Canadian Wood Pallet & Container Association. The Nature’s Packaging website, www.naturespackaging.org, provides various resources, tools, and information to convey the fact-based environmental benefits of solid wood packaging.
Even the title of this year’s State of Logistics Report, ‘Change of Plans,’ reflected the disruptions caused by the pandemic. The disruptions varied by sector, but they frequently led to record-high prices and drops in service. Consumers shifted spending from entertainment and other service-oriented options to at-home consumption. As a result, many shippers faced huge demand to restock inventory — and sometimes struggled to find capacity at any price.
Logistics costs represented 7.4% of GDP in 2020, a decline from previous years. The U.S. economy shrank by 3.5% to $20.94 trillion, while logistics shrank 4.0%, to $1.56 trillion; this was primarily due to advantaged financial metrics, such as inventory carrying costs.
In 2020, U.S. business logistics costs fell by 4.0%. It was driven by a 15% decrease in inventory carrying costs. With the drop in manufacturing activity and commerce early in the pandemic, many companies reduced inventories, even if it was involuntary. The result was lower costs. Interest rates also fell slightly.
Transportation costs rose by 0.8% in 2020. That was far less than the 4.75% growth in 2019 or 10.4% in 2018, but it certainly was a contrast to an economy that shrank overall. The increase was driven by a 24.3% increase in the parcel and last-mile segment, as e-commerce and home delivery exploded.
The isolation of people at home – working at home, not being able to go out and gather in restaurants and for events like concerts, for example – led to explosive growth of e-commerce and last-mile deliveries. In 2020, e-commerce (some of which was picked up in-store) grew by 33% to $792 billion, representing 14% of all retail sales. Consumers expanded their baskets, adding more groceries and meals. They also expanded expectations, in both delivery time and in-transit visibility. Demand for home improvement and home furnishings exploded as house-bound consumers decided to upgrade their immediate surroundings and sellers expanded the range of delivery options.
The K-shaped recovery of 2021 – so called because different parts of the economy recover at different rates, times, or magnitudes following a recession – accentuates the helter-skelter character of global economic conditions. The pandemic changed consumer habits in ways that decimated hospitality, restaurants, and airlines while boosting grocery retail, home improvement and e-commerce.
The U.S. economy is expected to grow by 7.7% in 2021, and the global economy by 6.3% – much better than economists feared at the height of the pandemic.
“Yet,” wrote the authors, “the predictions feel tenuous, fueled by fiscal stimulus with uncertain longer-term effects, and potentially vulnerable to new viral outbreaks.”
Indeed, that statement was written before the resurgence of the pandemic in the form of the Delta variant of COVID-19.
To download a copy of the report, visit the website for the Council of Supply Chain Management Professionals at www.cscmp.org.
