Logistics Outlook: 3 Areas to Watch as 2021 Unfolds
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The new year has begun with strong demand for shipping, but the forecast is tempered by COVID-19 uncertainties. Building on an unprecedented 2020, demand for trucking and warehouse services across all sectors is up and not likely to return to pre-pandemic levels until the third quarter, if at all. Although this bullish outlook is good for the industry, risks remain. Here are three areas to watch as 2021 unfolds.
1. Freight Transportation and Trucking
According to Avery Vise, Vice President of Trucking at FTR Transportation Intelligence, the growing wave of COVID-19 infections could continue to bolster demand for trucking as consumers continue to purchase goods online. However, depending on the efficacy of the vaccine rollout, e-commerce demand could drop and begin reducing freight demand sooner than expected.
Another key factor to watch is retail inventory levels. High demand for food and beverage items, retail consumables, and home improvement goods has made it difficult for retailers to maintain adequate inventory levels. Replenishment of inventories is expected to be a key driver of trucking and intermodal markets in 2021, but to what extent remains to be seen.
The truck driver shortage continues to plague the industry. Many drivers left the industry or retired last year, in part due to COVID-19 threats. And new truck driver graduation rates are down 30-40 percent due to COVID-19-related training and state-level testing limitations. To attract drivers, carriers began increasing pay rates in the second half of 2020 as freight demand surged. These trends should continue well into 2021.
Construction Freight Increases
As vaccine distribution expands, freight analysts expect companies that delayed capital construction and building projects to step up their investments. In addition to re-invigorating the economy, this should benefit flatbed and less-than-truckload (LTL) carriers, as well as railroads.
Regulatory and Policy Changes
On January 20, freshly inaugurated President Joe Biden issued a “regulatory freeze” memo to pause any new regulations from moving forward. A common practice of new administrations, regulatory freezes pause any midnight regulations—orders President Trump signed at the end of his term—until the new administration can review them. Such orders include the State of Washington’s meal and rest break preemption determination for commercial truck drivers, as well as the U.S. Department of Labor’s final rule clarifying employee versus independent contractor status under the Fair Labor Standards Act.
Additionally, the Biden-Harris Administration has laid out its plan for the transportation industry over the next four years. The plan seeks to modernize infrastructure, replace roads and bridges, and renew the country’s commitment to clean energy, including a goal of net-zero emissions by 2050.
Warehouse Space Demand
In 2020, logistics real estate accounted for 86 percent of all commercial leasing activity and more than 350 million square feet of space, an increase of 5.7 percent over 2019 figures. E-commerce growth and new leases signed by third-party logistics (3PL) companies fueled the surge. According to the 3PL Central’s 2020 Third-Party Logistics Warehouse Benchmark Report, the sector experienced a very strong year in 2020 with a 50 percent increase in demand and warehouses running near capacity (90+ percent). This growth should continue into 2021. Many online retailers are eyeing malls and brick-and-mortar shops with vacancies as short-term capacity for distribution and fulfillment centers, a viable solution given the proximity to consumers.
The shift toward sustainable warehousing continues as many companies switch to using eco-friendly packaging, re-using pallets and containers, and recycling all appropriate materials. Because warehouses spend 15 percent of their operating budgets on energy costs, many are focused on optimizing facility functions, switching to LED lighting, and investing in renewable energy sources like solar power.
Automation and Robotics Investments
In 2020, venture capital firms invested 50% more in warehouse automation and robotics startups than during 2019. Consumer increase in demand for e-commerce buying in smaller batches has driven warehouses to increase efficiency and reduce order-fulfillment costs. New robots are smaller, cheaper, and more mobile than traditional systems, making them a practical investment for many smaller firms. One company, SVT Robotics, offers a scalable e-commerce platform that enables cash-strapped companies to integrate robotics systems easily with business software.
3. Last-Mile Delivery
Home Delivery Growth
Not surprisingly, 2020 was a good year for home deliveries. Technavio estimates in its latest report that the North American last-mile delivery market will grow by nearly $45 billion in the next four years, at a compounded annual growth rate of more than 14 percent.
Technological advances are trending in 2021 alongside goals to enhance the customer experience through customer-friendly features. Last-mile logistics companies are increasingly adopting advances such as online delivery status updates, real-time order tracking, and delivery time estimations. Capstone’s last-mile delivery technology platform, MileZero, lets consumers track the exact location and ETA of their deliveries through live, interactive maps, and allows for last-minute rescheduling.
Analysts report that some consumers are prepared to pay a 30 percent premium for same-day delivery, and even more for guaranteed delivery. By 2025, same-day delivery could account for up to 25 percent of the delivery market. With surcharges becoming acceptable, delivery is becoming a profit center in its own right.
Electric Vehicle Use
Instead of large national or regional delivery hubs, shippers are shifting to small, localized delivery hubs. This is opening the door to electric vehicles, such as e-bikes and e-scooters, which can cover shorter distances efficiently. Drones and autonomous vehicles also likely to become popular in the future.
Integrated Solutions from Capstone Logistics
Capstone Logistics offers robust, integrated solutions that improve visibility and tracking, optimize scheduling, reduce costs, and much more. Contact us to learn how we can partner with you to address your most complex supply chain challenges in 2021.