Apr 1, 2020

DealBook: As Demand Surges, Supplying and Shipping Take on New Importance

Ellen Rosen

Short-term needs and shortages have brought “dramatic changes” to the inner workings of transporting goods by truck.
Credit...Andrew Hay/Reuters
This article is part of our continuing Fast Forward series, which examines technological, economic, social and cultural shifts that happen as businesses evolve.
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.”
  • Updated March 24, 2020
    • How does coronavirus spread?

      It seems to spread very easily from person to person, especially in homes, hospitals and other confined spaces. The pathogen can be carried on tiny respiratory droplets that fall as they are coughed or sneezed out. It may also be transmitted when we touch a contaminated surface and then touch our face.
    • What makes this outbreak so different?

      Unlike the flu, there is no known treatment or vaccine, and little is known about this particular virus so far. It seems to be more lethal than the flu, but the numbers are still uncertain. And it hits the elderly and those with underlying conditions — not just those with respiratory diseases — particularly hard.
    • What should I do if I feel sick?

      If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.
    • What if somebody in my family gets sick?

      If the family member doesn’t need hospitalization and can be cared for at home, you should help him or her with basic needs and monitor the symptoms, while also keeping as much distance as possible, according to guidelines issued by the C.D.C. If there’s space, the sick family member should stay in a separate room and use a separate bathroom. If masks are available, both the sick person and the caregiver should wear them when the caregiver enters the room. Make sure not to share any dishes or other household items and to regularly clean surfaces like counters, doorknobs, toilets and tables. Don’t forget to wash your hands frequently.
    • Should I wear a mask?

      Experts are divided on how much protection a regular surgical mask, or even a scarf, can provide for people who aren’t yet sick. The W.H.O. and C.D.C. say that unless you’re already sick, or caring for someone who is, wearing a face mask isn’t necessary. And stockpiling high-grade N95 masks will make it harder for nurses and other workers to access the resources they need. But researchers are also finding that there are more cases of asymptomatic transmission than were known early on in the pandemic. And a few experts say that masks could offer some protection in crowded places where it is not possible to stay 6 feet away from other people. Masks don’t replace hand-washing and social distancing.
    • Should I stock up on groceries?

      Plan two weeks of meals if possible. But people should not hoard food or supplies. Despite the empty shelves, the supply chain remains strong. And remember to wipe the handle of the grocery cart with a disinfecting wipe and wash your hands as soon as you get home.
    • Should I pull my money from the markets?

      That’s not a good idea. Even if you’re retired, having a balanced portfolio of stocks and bonds so that your money keeps up with inflation, or even grows, makes sense. But retirees may want to think about having enough cash set aside for a year’s worth of living expenses and big payments needed over the next five years.

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