Given everything that is going on with the COVID-19 pandemic right now, its impact on both the general economy and the logistics and supply chain sectors is apparent. The most recent edition of the Global Port Tracker Report issued by the National Retail Federation (NRF) and maritime consultancy Hackett Associates observed that estimates at major U.S. retail container ports dropping to their lowest level in five years in March, with imports expected to remain significantly below normal levels over the next several months, as the pandemic continues.
Logistics Management’s Jeff Berman recently caught up with Jonathan Gold, NRF Vice President, Supply Chain and Customs Policy, about the Port Tracker Report and related retail supply chain developments. A transcript of their conversation is below.
Logistics Management (LM): How do you view the COVID-19-related volume declines that were noted in the Port Tracker report?
Jonathan Gold: I think everyone understands what is happening, as it relates to the COVID-19 situation and the significant impact it is having on supply chains. Obviously, it started in China and led to factories shutting down initially. And as things are ramping back up right now, the focus is for most U.S.-based retailers that basically have had to shut down because of stay-at-home orders. There are some essential retailers still open, but a lot are not because of those orders. The impact that has on the supply chain and whether or not companies are continuing to import or moving product forwards from the port to the distribution center is kind of where that focus is now. While you are seeing factories get back up and running in China, you are seeing other factories in other parts of the world and the impacts on their factories. So, this is where the focus is now, with everyone looking at their global supply chains and how to make the best decisions going forward.
LM: When in meetings with your membership, what are retailers telling you what their biggest concerns are on both short- and long-term basis, given the current lack of visibility, coupled with a steep decline in demand?
Gold: Right now, the biggest concern is when companies are going to be able to open up their stores again. The biggest concern is that we are going to see a patchwork system put in place, not just at the state level but at the local level, that puts different requirements placed on retailers in different businesses as far as how they are going to operate in the future. We just launched our Operation Open Door program, which is taking a look at how do we build the right way for retailers to open their stores and get moving once again. There are a couple kind of key areas we are focusing in on such as logistics, social distancing, and safety issues, how to handle returning employees and some of the legal issues there, and liability around customers and employees. The big question is going to be ‘are you going to open your store, and, if, you are, will the customers return? So, that is where I think the focus is going to be for companies. Another question becomes ‘how do you re-open your store in a way that provides that type of certainty and expectation for customers and also employees to come back to your store?
LM: While the timing for the state-by-state re-opening of the economy remains uncertain at this point, what are some of the things retail shippers are paying the closest attention to, is it something like inventory management, asset management, or other things?
Gold: First and foremost, it is the protection of your workforce and your employees, especially those that are working in your distribution centers and ensuring they are being taken care of to begin with. Also, there is the possibility of any potential new requirements vendors for entrance into your facilities, for things like delivering cargo or taking your product to stores. Inventory management is really a key piece of this. Obviously, there have been a lot of retailers closed for more than a month now, so, for those retailers that were not deemed essential, when they do re-open how quickly are they able to get into the stores and also re-position merchandise that is needed because they have essentially lost a selling season for being closed for this amount of time. Even if retailers did have online operations, there have been some challenges there, even though those sales have increased. It is still not enough to make up for that in-store purchase, which is instrumental for retailers. Making sure the right goods are on the shelves when customers return and the protection of your workforce and making them feel safe and secure upon returning to work are key.
LM: Losing a selling season, as you mentioned, speaks directly to retailers in myriad ways. Taking that a step further, if the economy were to fully re-open by say, late June or early July, that may put a sharp onus on Peak Season. There would likely be a fair amount of pent-up demand by that point, especially with the holidays soon to follow. What, in your opinion, may or may not happen, as stores re-open, as it relates to Peak Season?
Gold: It is really unclear right now, in terms of what is going to happen. You have had a number of retailers now that have been putting holds and cancelations on orders going forwards. I think that until retailers can figure our what their positions are going to be once they get through this, there might be a hold on those massive purchases. Right now, everyone is trying to figure out what that consumer demand is going to be moving forwards. Obviously, you have got high unemployment right now. Does that employment return and how quickly does it return? How much discretionary cash will consumers have going forwards? That is not determined for the holiday season. Retailers are going to be very cautious going forwards for a variety of reasons, but it is unclear what that Peak Season is going to look like right now. Most companies are focused on how they are going to get through the next six months and determine how things are looking for the holiday season.
LM: The Port Tracker report lowered its estimate for volumes over the first half of the year by 15.1%, from 10.47 million TEU to 8.93 million TEU. Was the reduced forecast surprising at all?
Gold: It was somewhat staggering but not entirely surprising. Prior to COVID-19, the economy was doing really well, with strong consumer spending and the expectation of positive sale for this year as well. COVID-19 really changed everything, with things having been shot down now for a number of weeks. We could see those numbers change more in the next edition of Port Tracker until we figure out what is next, but it is not surprising given where things are. We are in unchartered territory right now, and retailers will have to plan and thing accordingly based on what consumers may do and how we come out of this situation.