Schafer: Supply chain shows its resilience in pandemic

The first stories about the impact of the corona­virus on business warned that goods headed to the U.S. from China would be disrupted. Of course, within weeks business was disrupted pretty much everywhere.

At businesses that make things, strategic priorities were shelved in 2020. Everyone focused on keeping the operation running.

Yet global trade survived. The case for long supply chains remains intact, so long as they are flexible and adaptable. That's because nowhere is safe from a disruption.

Businesses talk about a new normal as the pandemic subsides. In logistics and supply-chain management, this seems to be it.

"It has been a chaotic environment, and there's been a ton of changes in global supply chains," said Chris O'Brien, chief commercial officer of Eden Prairie-based third-party logistics giant C.H. Robinson. "But when you're in period of chaos like this, there's not a lot of tweaking going on."

Early in the pandemic, it seemed the story was how it revealed the folly of American businesses relying on suppliers from the other side of the world.

The logistics team from global accounting and consulting firm KPMG said early last year that the pandemic would accelerate already-evident trends against globalization.

Economic nationalism was on the rise that would blunt growth in global trade volumes. And customers' growing expectations for prompt delivery made long supply chains impractical.

The term nationalism, as applied here, didn't just mean that American firms would buy from American suppliers, but that a company such as 3M would do a lot of business in a place like China without importing or exporting much. Instead, it would open plants there that served Chinese customers.

By the end of 2020, though, forecasters didn't seem quite so sure. The big consulting firm Kearney, publisher of a Reshoring Index that captures manufacturing returning to the United States from Asia, said there wasn't much of that last year. For instance, manufactured imports from China ended 2020 about the same volume as the year before.

Instead of bringing production back, U.S. manufacturers have been working on "right shoring," figuring out the best place to buy or build manufactured goods after thinking through everything including how vulnerable the supply chain was to a disruption.

That's consistent with what O'Brien describes seeing at C.H. Robinson, a global leader in what's called third-party logistics. C.H. Robinson doesn't operate its own trucks or those new ships that are about five times the size of the USS Iowa battleship. Instead, C.H. Robinson helps customers all over the world find space for their goods on trucks, planes or ships.

C.H. Robinson has been as busy as ever and just reported a 26% jump in quarterly revenue, to $4.8 billion, as earnings per share more than doubled.

O'Brien said consumers might not appreciate how resilient and adaptable businesses have been in the last year, confronting a problem no one has really seen before.

Food service is a great example, as people didn't eat any less when the public health crisis gave them fewer options for restaurant food and shut down school cafeterias. They bought more from stores — served by a completely different distribution system than the one that takes care of restaurants and schools.

"The big thing this last year showed was the resiliency of the supply chain," O'Brien said. "Things are still getting through."

But it has been messy. In ocean shipping, for instance, the price to ship one of those standard-sized steel boxes known as a container from Shanghai to Southern California more than doubled. There have been bottlenecks at container ports and delays in getting empty containers back to Asia.

The airfreight market was disrupted, too, and in the U.S. a chronic problem of not enough truck drivers seems to only have gotten worse.

Those KPMG consultants are obviously right about one thing, and that's how the customers just want their stuff right away.

Consumers have gotten used to the idea that they can buy something and then watch it make its way through a freight system like FedEx's. A text at 2:48 a.m. that something you ordered was scanned leaving a warehouse doesn't have much value, but it's fun to know.

As O'Brien pointed out, why wouldn't business managers want to know precisely where their container freight was? They need to confidently tell customers when to expect delivery, so C.H. Robinson and its competitors provide tools and services to let customers know exactly what's in the boxes, where they are and when they will be off the ships and onto a truck.

The sooner businesses know there has been a hiccup, the sooner they can start looking for a workaround.

"The best supply chains are flexible, agile, and include options," O'Brien said. "There's no place in the market that's immune from some disruption."

Some customers have recently done some "near shoring," O'Brien said, which means finding suppliers or moving production closer to home. Others, he said, started buying abroad in the last year for the first time, mentioning the story of a customer called Thomas Scientific.

That company was introducing a COVID-19 test product, and the sources of supply were all abroad. It had little experience purchasing outside the country.

"As ocean freight was constricted, we found creative things we could do with airfreight," O'Brien said. "We converted ocean to air, we found unique charters, and the bottom line of that is we gave them options … and the people to connect to. Now they tell us, 'We feel more comfortable doing business around the world now, if we were to come up with the next product.'"

O'Brien can't imagine international trade flows ever really slowing down.

Remaining a domestic business, buying from American suppliers and selling only to other American businesses, hasn't been a realistic plan for a long time.