C.H. Robinson’s Bob Biesterfeld on Recovery from ‘Huge Supply-Chain Dislocation’
Date: Friday, July 17, 2020
Source: The Wall Street Journal
The head of North America’s largest freight broker sees shipping markets looking closer to normal
The head of the largest freight brokerage in North America says the coronavirus pandemic is resetting the U.S. trucking market, pushing some carriers out of business as companies adapt to upheaval in domestic supply chains.
“I would characterize the freight markets over the course of the last three to four months as being as volatile as any time in my career,” Bob Biesterfeld, chief executive of C.H. Robinson Worldwide Inc., said in an interview with The Wall Street Journal. “It was almost like a dimmer switch. You saw what was happening in New York and everything shut down.”
Distribution networks were upended as companies scrambled to ship more groceries and household goods while demand for transport from other sectors plummeted. “It’s like a deep inhale of inbound freight with no exhale, right?” Mr. Biesterfeld said. “And at the same time, the outbound production industries in those geographies were absolutely shutting down…It created just huge supply chain dislocation from a trucking perspective.”
With demand now on firmer footing, trucking prices on the spot market are rising and contract carriers are turning down more freight than they were before the coronavirus pandemic in search of stronger returns.
Mr. Biesterfeld spoke with the WSJ Logistics Report’s Jennifer Smith about the fallout from the pandemic and how the freight market is shaping up now as the transport sector readies to report second-quarter earnings. This interview has been condensed and edited for clarity.
WSJ: What’s your take on the freight market at this stage in the pandemic?
MR. BIESTERFELD: We’ve obviously seen increased trucking bankruptcies. We’ve seen lower truck employment. We’ve seen some highly leveraged companies in the space that have been essentially displaced as part of this…That is definitely driving a more robust trucking environment today than we saw leading into the pandemic.
So the freight economy domestically feels more healthy today probably than it even did leading into the pandemic.
WSJ: What are you seeing internationally, in ocean and airfreight?
MR. BIESTERFELD: Even with decreases in demand on the water, I think the steamship lines have done a nice job of rationalizing capacity through blank sailings to keep pricing more normalized.
Obviously, we saw a huge run-up in airfreight pricing as passenger belly space came out, and we had huge backlogs coming out of Lunar New Year and then the increased demands on (personal protective equipment). We’re seeing that come down. But air is still at an elevated rate relative to where we were last year.
WSJ: In the early months of the pandemic there was a lot of supply-chain dislocation, shortages of staples amid consumer stockpiling. Did trucking capacity play a role?
MR. BIESTERFELD: During the restocking…we shipped 30% to 40% more (paper goods).
Beer was actually the number-one growing category…What we didn’t experience was necessarily a shortage on the supply side. Anheuser-Busch never ran out of beer and Procter & Gamble never ran out of toilet paper.
The challenge was the retail supply chain…Their distribution networks just simply are not built to push that much product through.
The bottleneck really became that final mile from (distribution center) to store because the demand at the store level was so high. We put together a lot of secondary supply plans for retailers to add additional capacity…to stage more drop trailers, things of that nature.
We could accelerate replenishment at the store level that way.
WSJ: So the problem wasn’t that there weren’t enough trucks to move everything?
MR. BIESTERFELD: When you get times of dislocation and the spot market pricing far exceeds that of the contractual market, you have a choice to make, right? You either honor your commitments with that long-term contractual customer or you minimize those commitments as you pursue higher pricing opportunities in the marketplace.
I know for many of the manufacturers and retailers that we work with, the reason that our volumes were up 30% and 40% is that we were essentially covering for other carriers who had made the decision to not honor commitments through that pandemic.
The demand patterns were shifting as the carrier networks were becoming less efficient (because so many businesses were closed and not shipping freight), and that’s what caused some of the dislocations.
So while, yes, there were trucks available, they weren’t necessarily where they needed to be at the time.
WSJ: C.H. Robinson moves a lot of food through its Robinson Fresh division. Has the upheaval in food supply chains started to rebalance as businesses reopen?
MR. BIESTERFELD: There continue to be choke points on fresh products at retail to get it into store. When you had the restaurant industry essentially shut down, you saw some collapses in commodity prices that you would typically associate with restaurants, things like squash, potatoes, onions.
So we did work with a lot of growers across our network to help move that product into secondary markets, such as food banks.
WSJ: It sounds like you see the domestic freight market back on track and looking more like a normal market than it’s been for some time.
MR. BIESTERFELD: You opened up the year of 2020 with a pretty dislocated market for the first couple of weeks. And then it’s quote-unquote normalized for back half of January into February, into March. And then we got into the Covid-19 pandemic and all hell broke loose with rapid replenishment and everything else. And then we hit this incredible trough in the marketplace, where pricing in a transactional market dropped exponentially to a level that we haven’t seen since 2017 or before.
Coming out of this, it feels like demand is much higher today domestically than it was in February or March.