Q&A: Mark Yeager, Redwood Logistics CEO and Senior Advisor with CI Capital Partners

Logistics Management Group News Editor Jeff Berman recently caught up with Mark Yeager, Redwood Logistics CEO and Senior Advisor with CI Capital Partners. Yeager provided insight into the impact of the COVID-19 pandemic on logistics and supply chain operations on myriad fronts. A transcript of their converstation follows below.

Logistics Management (LM): How do you view the current impact of COVID-19 on logistics and supply chain operations?

Mark Yeager: What is happening is very unprecedented on a whole host of levels. In terms of supply chain disruption, it is an unprecedented time. I have been in this industry for more than 30 years, and I have never seen anything like this. The disruptive nature is much more significant than anything I have seen before, including 2008-2009 or any of the other various freight recessions. The current situation makes those look trivial by comparison….because it is such a fundamental shift for many of our customers.

LM: In what ways?

Yeager: It is difficult to address that only because each customer is experiencing and seeing their own challenges. We have some customers that are basically seriously shut down or nearly shut down, with production largely grounded to a halt, depending on the industry they are in. That is especially notable in the heavier industries like autos. Then there are customers on the other end experiencing unprecedented demand for things like PPE that need to get to hospitals as expeditiously as possible. And even in the middle we are seeing customers that are fundamentally trying to source differently or are facing different distribution challenges. The challenges they are facing are dramatic, and they really are for everyone.

LM: How do you approach that from a service perspective?

Yeager: What we really are trying to do is to rally our resources around our customers’ requirements. To that extent, we have had folks that we were working with that are now in significant shutdown, and we are now reallocating our resources to customers and really create more interactivity with customers than maybe we have ever had before…and that has been done by reallocating resources. We are trying to engage more interactively with customers with human interaction than we have ever had.

LM: How so?

Yeager: More like with zoom and phone calls and constant back and forth for Q&A and sharing ideas and that kind of stuff. That is invaluable as is just reaching out to make sure we are getting the job done….and try to replicate the in-office dynamic as much as possible.

LM: In terms of industry fundamentals/, how are things looking, given the current state of things, due to COVID-19

Yeager: It has really been a roller coaster ride. There is no question about it. A few weeks ago we were all worried about supply and how we were going to get goods from China and how we were going to source differently and keep our shelves stocked. Then we went through a period of significant replenishment, with the market tightening up and a lot more spot activity as routing guides failed. The market certainly also saw an increase in price so our purchasing price definitely went up. And now we are seeing volumes start to decline industry-wide. It is definitely market-specific….but the big markets are all down. It may be that we are reaching a new normal and that is largely a demand-driven phenomenon.

LM: Demand is really top of mind, it seems. How do you approach what is happening on that front?

Yeager: It is great that we are seeing some level of uptick in imports from China, but the question is where is it all going to go and is there demand for it? Certainly, we are seeing solid demand for basic staples. But anyone in a discretionary space is feeling the impact of slower demand, which is apparent in jobless claims. Nobody is buying cars or lawnmowers, at the moment, as they are worried. Folks are really trying to adjust to what they see as a big downturn in demand for a period of time. I do think that we will see, as people do return to work, that there will be a bit of an uptick, as people will want to get out of their houses.  Again, they won’t be making purchases for things like cars, but it is likely there will be an uptick for a period of time before going into a demand-based slump of some level or magnitude but really terribly severe.

LM: What about things like inventory management and allocating resources?

Yeager: COVID-19 should impact inventory management, in that I don’t think we will ever return back to people being happy to sit on millions of dollars in safety stock. That is not a good way to compete in the modern world. But I do think that there are certainly some commodities that we should be thinking differently about appropriate levels of inventory like PPE….for things like that, JIT remains a great strategy and one that have been very effective for a lot of shippers for years now.  The reality is that this current situation is unprecedented. We have not had sufficient inventory for things that in some ways are really life and death…..and I think it will cause some folks to re-think what they do and what risks they are willing to take to keep inventory levels low.  It depends on the type of goods and the real cost to society, if certain things run out.

LM: Would a short burst in demand be a good thing for carriers?

Yeager: Yes, any bump in the economy would be a good thing, and it could be a lifeline. There are going to be carriers that are challenged. There were more bankruptcies in 2019 than 2018, and I am certain we will see more in 2020 than 2019. Certainly an uptick in demand enables carriers to handle their contract business and also improve their performance for their freight in the spot market, which a lot of carriers will be forced into. That would be very beneficial, as many small carriers live and die on the spot market. And the spot market has softened in recent weeks, as the fundamentals have been challenged for them. Those carriers typically don’t have balanced freight and they need the spot market to operate at some level in order for them to maintain positive economics.

LM: How do you view the current state of intermodal, relative to COVID-19?

Yeager: The low retail sales are definitely tied to the intermodal story, as intermodal is based in the retail sector across the board. Established Brick and mortar retailers’ are huge intermodal users, and all signs would indicate this will continue to be challenging for them. I think the reality is you are going to combine relatively soft demand with very low fuel prices for the trucking segment. What that means is the intermodal costs advantage will be pretty seriously undermined. So if you don’t have a cost advantage, say 10% towards intermodal, most customers would rather use a truck than feel good about putting a significant amount of goods on a train. There needs to be some cost advantage to justify the additional transit and variable service levels. The reality is as long as fuel stays exceptionally low and there is soft demand in the truck market, even it its core lanes trucking will be very price competitive with intermodal. So, to a certain extent, a determination is made at the rail level, as to whether they are willing to bring price down to create that cost differentiation for the product that they want to maintain any semblance of their current volume levels and those have been challenged. Intermodal’s challenges are likely to continue and get worse. If you think about intermodal, the advantage there is labor and fuel, and it is a much smaller factor of the spread between truck and rail

LM: Taking a hypothetical approach, if we are in a post-COVID-19 economy, in the sense that more businesses open by, say, early July, and things get back to normal or on the way to normal, what happens over the second half of 2020 and into Peak Season.

Yeager: It is hard to know the answer. Most shippers right now are trying to defer to the extent possible and trying to not make those decisions until they absolutely have to, but that is not too far off. We may not see folks pushing things in early, as we have seen in years past to avoid the rush associated with Southern California in Peak Season. What we may see is a more condensed peak if the economy comes back, because people will try to push it out for as long as possible, and it may push into July and August before having to make that call. That could mean it will be a very busy October into November. To me it is a wait and see kind of a model, at least if you are in a sector sensitive to underlying economic performance. For example, the food and beverage sectors have a good road map of where it will go, whereas apparel and stuff highly fueled by the holiday season will have a baseline stock already lined up, but they will try and defer the remainder until you actually have to pull the trigger.

LM: What do you think some of the logistics lessons learned from COVID-19 will be down the road?

Yeager: I think we will look at this as a learning experience, especially if I am a shipper. Look at the last three years: there was high demand in 2018, low demand in 2019, and a crazy 2020. If you cannot learn from all three environments where supply chain strategy works and where it does not, you are missing a huge opportunity. We may never again see this kind of condensed microcosm of three different economies at three different times.