Check Call: The early bird gets the ESG worm

Mary O'Connell

2 years ago

Welcome to Check Call, our corner of the internet for all things 3PL, freight broker and supply chain. Check Call the podcast comes out every Tuesday at 12:30 p.m. ET. Catch up on previous episodes here. If this was forwarded to you, sign up for Check Call the newsletter here.

Inside this edition: the rise of ESG initiatives, congestion up again and the future of shopping malls.

Check Call on FWTV. This week on Check Call the show we talked to John Rattay, chief commercial officer at Redwood Logisitcs. We covered all things environmental, social, and governance. According to a study by NTT Data, 80% of shippers’ future growth plans include some form of ESG program. In the same study, shippers felt that only 20% of 3PLs’ ESG programs were further ahead of their own. Clearly there is a need that shippers want to meet that the industry as a whole is missing.

Where to start? Developing an ESG program isn’t about waking up one day and flipping a switch. Rattay indicated that can be as simple as becoming better every day. Through small steps, programs can grow and develop into something bigger and more impactful. It doesn’t have to be all about getting to zero carbon. Social responsibility programs can be as simple as sending recruiters and HR representatives to additional training or networking events where they will meet people who aren’t their typical recruits. Having a diverse workforce from all backgrounds and ages makes for a good balance. Like a buffet, you want a little bit of everything to have a good meal.

Early bird gets the worm. As more and more regulations come down encouraging or requiring companies to reduce emissions, the successful 3PLs and freight brokers will be those that take time now to put their time and money into developing programs that shippers can slide into. If you start with the smaller customer and come up with some supply chain sustainability, it becomes easier to scale up to the bigger customers. Then suddenly you’re the company with all the answers. There is nothing to lose. If anything there is more to gain by being responsible now.

On the horizon. Final-mile and e-commerce deliveries have been at the forefront of the supply chain world for the past two years. Final mile is typically the most expensive part of a delivery. From inefficient routing, low density and a host of other issues, final mile poses a huge challenge to the effectiveness and efficiency of a 3PL. Unless it doesn’t. These types of deliveries are here to stay, and it’s all a matter of how creative everyone wants to get to make them happen.

The rise of the machine. The future of solving these types of problems lies in machine learning that can help aggregate similar deliveries to the same area. One of the more exciting solutions could be urban order fulfillment. As more urban populations swell, these fulfillment centers could be a game changer. Being close to a larger part of the general population does come with a higher price tag, but the trade-off is lower transportation costs and the same-day service value add. While upfront costs are higher, the long-term savings on shipping costs and carbon offsets far outweigh the initial costs of setting up urban warehouses that act as fulfillment centers.

Finding creative space. Offering micro-fulfillment centers in urban settings can help manage large inventories and a wider variety of products while still maintaining expeditious delivery times. Wrapping this up into a value-add proposition could be the competitive advantage needed to sign a prospective customer. Companies such as Amazon and Costco are already taking advantage of this model. There are thousands of traditional malls and outlet malls that would be perfect for a final-mile urban fulfillment center, seeing as how warehouse real estate costs haven’t quite come back down from ludicrous levels.

Market Check. Oh Seattle, rough weekend? Heading into the eighth month of the year, the Outbound Tender Rejection Index (green) has plummeted to 1.16% out of Seattle, while outbound tender volumes (blue) have risen to the highest levels we’ve seen since March. Whatever is happening in Seattle, there is plenty of capacity and most freight should be moving through contracted opportunity, as an OTRI below 5% indicates that spot market rates are less than contracted rates. On the shipper side, carrier compliance should be amazing. Carriers are almost 99% compliant in picking up their tendered contract freight.

Who’s with whom? LTL Carrier Forward Air appears to be relatively unbothered by the impending recession, so much so that on its quarterly earnings call CEO Tom Schmitt said, “I would say if there is a recession, bring it on. Oftentimes, it feels like waiting for something is more scary than the event itself.” Unlike the full truckload carriers, LTL carriers are reporting highest-ever quarterly earnings. Earnings per share at Forward Air was $2.04 for Q2, which was ahead of the estimate by 21 cents. As the company goes into the back half of the year, revenue is expected to increase more than 20% year over year for roughly $512 million.

Quotable moment from Todd Maiden’s article: “‘People are thirsting for events,’ Schmitt said. ‘They are thirsting to fly, they are thirsting to take a cruise and to go to a concert.’ Forward is no longer solely working through domestic forwarders for events freight. It’s also selling its service directly to small events companies. Bypassing the intermediaries and selling directly to small and midsize shippers has helped improve Forward’s freight profile and margins across all of its modes. He previously stated margins double when cutting out the middleman.”