Disruption In Container Logistics With John Murnane

The North American inbound supply chain was well-run and extremely cheap before the pandemic brought disruption to the logistics and transportation space. Since the pandemic, the shipping industry had to adapt and is still adapting to this uncertainty. Prices are going up, congestion is at an all-time high, and we won’t recover from these challenges overnight. Join Joe Lynch as he talks to John Murnane about the disruption in container logistics. John is a senior partner at McKinsey & Company. At McKinsey, he is the leader of the logistics sector. So he covers everything from air & ocean carriers to warehousing & fulfillment. Listen and learn more about the shipping industry, shipper & carrier relationships, sustainability, end-to-end shipping, and much more. Find out about the disruption in container logistics and how it can be solved.

—

The section below is transcribed. Transcription has limitations so there may be grammar and typo issues.  

Disruption In Container Logistics With John Murnane

Thank you so much for joining us. Our topic is disruption and container logistics with my friend, John Murnane. How is it going, John. 

I am doing great. Thanks for having me. How are you?

Excellent. I am glad we are talking about this topic. Please introduce yourself, your company, and where you are?

I am a Senior Partner at McKinsey. I am based in Atlanta. I lead McKinsey’s Logistics Sector globally with a colleague named Martin Joerss, who is based in Hamburg.

Tell us what you guys do over in that McKinsey’s Logistics Practice.

We call it a sector, but we serve the logistics industry. For us, that is all the different, interesting, fascinating parts of logistics throughout the global supply chain, ocean and air carriers, forwarders, folks doing container leasing, and Marine services. We do a lot of work in ground handling and transport, terminal operators, and rail trucks, both asset-based and brokerage.

We also do a lot of work in the warehouse and fulfillment. I serve companies that operate fulfillment, real estate, and industrial developer. We also do Last Mile post and parcel returns, plus all the folks that are in and around that space doing data, transparency, tech, robotics, and all the fascinating, fun companies that are trying to knit it all together.

Do you work more with shippers or the actual logistics providers?

We work with both. In the group I lead, the logistics sector, we serve companies that make a living in moving stuff around. I have got a number of colleagues in a practice that is adjacent to ours that are in manufacturing and supply chain. Those consultants and partners serve the big retailers and manufacturers who pay to have the goods moved.

I do not know what you guys did at McKinsey but it was not so long ago that there was no logistics practice. It was logistics and supply chain or supply chain and logistics or manufacturing supply chain and logistics. It was always the tail end of something else. We have arrived because we have a McKinsey partner who is responsible for watching over us.

We have got 100 McKinsey partners that I do not know if we are responsible for it.

 

The business needs some babysitters. Tell us a little bit about you. Where did you grow up? Where did you go to school? Give us some career highlights before you joined McKinsey.

I grew up in California, pretty close to the ports of LA and Long Beach, but did not get into logistics. At a young age, I was a Mechanical Engineer at Duke. I worked in entertainment for many years at Disney and the NBA in finance and design roles, which was a lot of fun.

It is not as entertaining as logistics.

When I got into logistics, it was at McKinsey. I went to Business School at Michigan and then I joined McKinsey. You joke about logistics being the end. I got recruited into the travel and logistics practice because I knew a thing or two about travel. I started serving logistics companies back in the day. This is 2003 or 2004. It was not sexy. Logistics was not quite as hot as it is now, but I found the work fascinating. I liked the people.

I got into rail, parcel, and trucking, and then I moved to South America to lead our logistics practice. I was in Chile for three years and then I got into the ocean space and Marine terminals. I have been hooked ever since. It has become more fascinating given all the things that we have seen in the last years, from the eCommerce boom to automation to the push for sustainability and what happened with the pandemic.

It is fantastic that you have got that South America experience because I feel like we have had so much stuff in China for so long. I have nothing against China, but it makes more sense to ship stuff from Mexico or South America in general. We do not do nearly that much business with our South American partners who we fully understand compared to China.

There are lots of bags coming in and out in a lot of air freight. I was in Chile, which does a lot of flowers and salmon, and exports a ton of copper and minerals.

Let’s talk about our topic, which is the disruption in container logistics. Why don’t you take us back to before there was this disruption? Talk about what was going on in the space back in the day?

You hear a lot about underinvestment in infrastructure and “failing” logistics infrastructure in the US. Many years ago, things were working well. If you were a manufacturer or a consumer, you probably had the lowest cost supply chain in the world that was able to get you products from anywhere in the world any time. The cost was quite low and the supply chain runs very well. It is smooth. As such, it was something that a lot of people took for granted.

It seemed very opaque compared to now. Many years ago, if you were moving freight, your stuff disappeared into the ocean for three weeks or a month.

There is also opaque because no one has looked into it. We have all learned how important it is. I used to serve clients and I did a lot of marketing and sales work, helping people with sales and pricing. I serve clients in logistics. I remember hearing sales executives complain to me. I can’t make these value-based arguments. I can’t talk about our value prop because I can’t get access to anyone that matters.

Ten years ago, people had a well-ran, extremely cheap North American inbound supply chain. And they took it for granted.

I am talking to a procurement leader four levels down and they do not care about our value. It was opaque because, to some extent, there was not engagement on this topic at the highest levels, and certainly, there is now. Many years ago, you had a well-run, extremely cheap North American inbound supply chain. The infrastructure did not get bad overnight. The pandemic hit us in three ways. One is we all started buying a lot more stuff. We did not spend any less. We stopped spending on travel and restaurants.

No new car, no vacation, but I can buy crap online.

I can upgrade my house. I did some of that myself. I am in the house more and I invest in doing some things around the house. I got an indoor bike to stay in shape, but we spent 20% more money on stuff.

I always call it not your grandparents or great-grandparents pandemic. In the 1920 pandemic, 50 million people died worldwide and there was poverty. We joke that the COVID-19 or 20 that we gained from sitting around eating and buying stuff. That is not to discount all of the misery that it brought, but most of the misery was isolation for us.

When you have a situation where there is more volume being purchased, that means more containers and more trucks move. At the same time, global capacity fell by about 14% or 15% over a similar timeframe. If you have been paying attention, that probably feels intuitive. We had people that were sick so we could not stack. We had operations that were shut down at times. We had congestion because people were stacking and storing containers because they could not get them to the next place and they were waiting and also every stage in the value chain.

We all saw the earnings releases that talked about, “I am 65% short of the team. I need to operate these warehouses.” They are open, but they are not running anywhere near full capacity. If it is 20% up in demand and 15% down in supply, you have got a congestion problem. On top of it, those increases weren’t smooth. If those increases were smooth, our logistics industry might have had a chance, but it was overnight, then it stopped and started again.

That made for some challenging times, and you ended up getting what you got, which is pretty poor service, long lines, congestion, delays, and uncertainty where things were. You also have price increases because the companies that were moving the goods were trying to manage to make sure that they were at least taking good care of the clients that were willing to pay the most. It became challenging for our shippers.

I do not think it hit the biggest shippers, the Home Depots or the Lowe’s. Those guys had contracted rates. They call them the bat phone when they call the shipping companies. They did not all of a sudden get double or triple the cost of a container. They were okay. It was a lot of the other smaller players. You mentioned this spike 20% up in demand, 15% less in capacity, but if you were 20% or 30% off in your headcount in your consulting practice, you could address that internally because you are all a team.

This was across a whole bunch of supply chains that are spread out across the world. Communication was always difficult given time zones, languages, and the lack of computer systems. The coordination and fixes were all slow. I was talking to my daughter and she is in Portland. She was excited. She called and said, “The couch that I ordered in October 2021 is going to be here. I forgot what it looks like.”

We are all getting used to waiting a little longer than we used to, but it is nice when they arrive.

We still seem to have these shocks every once in a while. Shanghai had more COVID. In the US, we are seeing shortages of headcount in a lot of places, especially in warehousing, dock workers, and trucking. There is a lack of capacity when it comes down to it.

 

I know everyone wants to know and figure out when this is going to be over. I do not think it is going to be overnight, partially because I do not think that the disruption is going to be over soon. The fact that we have got basically almost no trucking going on in China despite the manufacturing plants being open, but the trucking operation is pretty much ground to a halt. It means we have got days of inventory that are going to stack up and then need to be pushed through the system. The disruption and uncertainty are going to be a part of our new normal. With regard to when the average demand and supply get back closer to where they used to be, it is going to be a matter of consumer spending and labor.

We love the idea of things normalizing and getting to a new normal, but we are seeing inflation and other problems. We see the war in Ukraine and the recurrence of issues in China with COVID. We have trade issues with China. In a lot of ways, the new normal is not normal.

The new normal is going to change because of events outside of our control of weather or geopolitical. Change is going to be more prevalent in the coming decade than it was in the last few, which is why to some extent, I think we did have that false sense of security that everything was working. We did have a period of relative sanity, which allowed us to fine-tune the system despite its insufficient infrastructure.

We talked about the way it used to be pre-COVID years ago and what happened. What is next?

What is next is recovery. I think that, in time, we would expect to see supply improve and consumer spending on goods moderate a little bit. We are seeing an increase in consumption of services, which makes sense because there is the ability to do that. My wife works in travel and she has never been busier. People are eager to get back out and travel again. I do not think we are going to see the end of events and discontinuities. Those are two things to watch to tell us when congestion and prices are going to moderate are going to be consumer spending on goods in North America and labor availability.

Talk about those shocks. There are many ways we can describe this. We could say our supply chains got a little brittle, meaning they broke rather than being bent. Another way to describe it is we have too many risks in there and a lack of resiliency, depending on how you want to talk about it. We know we are going to have some more shocks in this system. How do we deal with all that?

There are a few things. A lot of this is ongoing. It is already happening. We need to stop looking at the supply chain as a simple commoditized part of the operation. It is not a simple call center. It is not something that should be managed by a small team in procurement focused on the cost lever. This is a C-level topic. The supply chain is and forever will be a C-level topic. Shippers need to be thinking about all the things that they can do to accept the fact that the logistics industry will always be more complicated than it used to be. Part of that is more safety stock.

I know you are an auto guy. The old just-in-time Math assumed simple, easy commodity-priced trucking and logistics operation. The world is more complicated than that. Certainly, some companies are looking at how I can think about de-risking my supply chain, both in terms of the number of locations that I sourced from, to increase the number so I have more flexibility.

If I lose one node, they will be looking at nearshoring and reshoring. The math on those deals is never easy, but they are certainly spending time thinking through that, especially thinking about that in light of new sustainability targets. All of my clients are hearing calls from their clients who are hearing calls from their customers to say, “How can I be more sustainable? How can I meet the new carbon aspirations?”

You hit a whole bunch of topics. I want to break them down a little bit. It speaks to where we are at in this business. The first thing you said is this is no longer a small decision. When I used to sell logistics and supply chain services, the way I sold mostly less than truckload in some truckloads, but we had the technology. I remember I would call and say, “I want to talk to the owner, the CEO, the head of operations, or a general manager.”

We impact finance because we are going to take some of those functions away. We do it as part of our service. We interface with the sales guys because they are the ones who are always saying, “Where is my stuff?” We work with your ops team on the inbound and we work with your logistics team. A lot of times, when I would call that C-level guy, they would say, “Talk to Tony in the back.”

The disruption and uncertainty in the shipping industry will be a part of the new normal. It’s not changing overnight.

I would go see Tony and back, and he did not want to have a strategic discussion. He did not care if the finance guys had to audit the bills. I said, “We audit the bills because we have a TMS,” and I start my whole spiel. I am going to parody this a little bit. He was like, “Those guys got me Kid Rock tickets.” That is why he bought from that logistics company. He did not have that strategic focus that I wanted my customer to have.

One of the things we have all been through is when you call that guy and say, “I want to manage all your freight. I want you to use our technology and you are going to see all of your shipments there. He says “I will give you an Excel spreadsheet with all our loads in it. You put your price in and if you are cheaper, I will give you those lanes tomorrow.”

I was like, “I do not want to save you $50 on tomorrow’s load. I want to save 10% on your annual spend.” It would be like, “What are you talking about?” The number might have been used to bend. We spend $500,000 a year, which is bad enough to leave it to somebody who does not care about the strategic function of logistics. Now that number got to $5 million, you go, “What the hell, guys?”

There is a lot of change on both sides of that transaction that we are going to go through over the next few years. I have a good friend who is a former CEO of one of the container lines. He says, “Enough with this value base. I lose customers for $50 a box. It does not matter how much better we are.” That was the history. In that world, you do not have the right executives in the decision on the shipper side. You do not have the head of sales, marketing, or operations. You have someone in procurement.

When you have someone in procurement, they have one metric, which is how they can get the unit costs down. You also need to get better on the sales side. The guys that I work with, the carriers, trucking companies, and railroads, now have an opening to say, “It was not so commodity-based,” but they have got to be able to deliver. They got to be able to go and articulate what they do that is different than the next guy and why that is worth it.

I always use the same analogy back in the olden days when we had stockbrokers. They are transactional. You would always hear the term churn. They wanted to churn your account, “I want to sell your Dell stock and move you over to Apple.” They make money on both of those transactions. Those guys did not care about your overall financial picture. They cared about what you had in your investment account.

Now we have moved to financial planners. You do not hear anybody say in their stockbroker. Financial planners are aligned with their clients. They say, “We are going to get paid 1% or 1.5% of what you have in your account. I want to make you rich so I can get 1% or 1.5% of that every year.” It is the same thing in this business. We have to switch out of this transactional thinking and move to that financial planner. A lot of companies want to do that. They do not want to be ringing the bell and having the siren go off that they made $1,000 on a transaction and celebrating at the office that day. That is a lack of alignment and it is yesterday’s news.

You will see more gain share partnerships and relationships like that between carriers and shippers. It takes real change on both sides. This will be the shock that gets the awareness to a place where those things are pursued. Not just between carriers and shippers, but to some extent, between different players in the logistics chains, carriers and ocean terminals, railroads and trucking lines, warehouse fulfillment operators and last-mile parcels.

One of the things I want to touch on briefly is the timeout containers. We will get more back to the containers for a second. We started using containers a lot in the late ‘50s and ‘60s. There is a book, The Box That Changed the World. Prior to that, we could not even do global trade because the cost of logistics was so high. That was a tremendous innovation. We have seen this change the world. We would not be doing nearly the global trade we do now without it, but we have not seen a lot of innovation in that space. Now we are starting to see information technology. That is another piece of that. Speak to that and the sustainability that is important to us.

The technology has come along in terms of tracking. It is available. You will see more adoption of that, especially in the reefer space, but also in dry boxes. I have seen a lot of startups and investments in foldable boxes and alternative equipment. The main way we are going to get better sustainability on our container fleet is by finding better ways to extend their lives.

I never heard that. We are throwing a lot of those out.

 

We lose track of a lot of them because we do not know quite where they were. Telematics, tracking, and things like that will help there.

How long does a container last?

There are containers out there that have been in the fleet for twenty-some-odd years. The average is probably closer to 12 to 15. There are all sorts of uses. One of them is use for alternative storage.

If anybody from the container ship lines is reading, give me a call and I will deliver you 50 containers. I live about 25 minutes out of Ann Arbor. There are some farms and not quite rural, but I always drive by and think, “What are you doing with that container?”

They only need them where they need them. Our supply chain is imbalanced. They need them to pick up soybeans and send those to São Paulo. The fact that they are in Ann Arbor does not help them a whole lot because of the amount of money and time spent to get them down there. Managing that global fleet better and extending its life would be great from a sustainability standpoint.

It comes up a little bit on my show about sustainability. Some people might be shaking their heads and say, “I do not believe that the man is causing global warming.” I always say, “I do not care what you think. It does not matter what I think.” This is what consumers and brands are asking for it. When one of those big brands says, “What are you doing?” you better have an answer. It is too late to do anything at that point.

You do have to embrace it now. There are a lot of small ways. When it is over the road, we are trying to get rid of empty miles. That starts with measuring the empty miles, which brings me to another point. We were saying that 75% to 80% of containers are leaving LA and Long Beach empty so they can go be filled up in China with more goods for us. Meanwhile, we have a shortage and we have gone mad.

It is illogical, but the understandable conclusion from the supply chain is an afterthought. The supply chain has always been an afterthought.

It is not designed. It just happened.

There are many forces well beyond the global supply chain that decide what is our import and export balance with China and where do we manufacture intermediate goods for auto? There is nothing logistics can do to account for the fact that there is that much import-export balance on goods. With empty backhaul and empty miles within the US, there are a lot of things that the logistics industry can do to help. There are smarter ways to reroute though there are still a lot of empty miles even in the US.

I have become more aware of this. There is the empty truck that is moving from LA to New York, and you go, “That should never ever happen.” I do not think that happens nearly as often as it used to, but what is becoming more of a concern is the half-empty trucks and you go, “I had 10,000 half-empty trucks leave this location. Is there a way?” I know there are technologies and the guys over at flock freight and others are saying, “We can do something about it.”

The main way of getting better sustainability on container fleets is by finding better ways to extend their lives.

We will see more shared loads and multi loads where everyone will call multi-stop, where we are going to say, “That truck is full.” That is good for the environment and truckers. For the shippers, we are going to have to figure that out. We do not want to put I-can’t-move-your-food onto a truck with auto parts. We have to be careful about how we manage it with the shippers but I think it is going to lower the price of shipping.

Once we are fully loaded with the real cost of all of this stuff, whether it be the drivers, assets, new vehicles, or the autonomous and electric vehicles that we bring in to make a more sustainable fleet, the cost per unit is going to be higher. It is going to put the burden on us to figure out how we can make better use of each of the units. Maybe it is two hours later, but that allows me to share a load and double my density on the chunk move. All of those things can happen in time, but it takes great collaboration between carriers and shippers to make it work. The transparency and tools of the data exist to be able to do it, but it takes tremendous collaboration and trust to get it done.

I am going to put you on the spot here. I know you work with a lot of different companies. I want to tick off some standard categories and what kind of work you are doing for these companies. Let’s say an over-the-road carrier calls you. What do you tell them these days? What would be a typical project you would work on with them?

Over the road, carriers were doing a lot of work and helping them think about how their network is going to change as manufacturers figure out a new supply chain or as we try to start to think about electric vehicles and ultimately autonomous vehicles. Not just how should you think about the timing of those technologies, but what are the network decisions you are making now that will feel sub-optimal in 5 or 10 years because the investments that those companies make in assets and infrastructure are not short-term. We are helping them think about sustainability in terms of how they can help their shippers with their sustainability targets. Those are some of the big themes.

Do you talk to any brokers, 3PLs, and non-asset-based? What are you doing for them?

Sustainability is a topic for them in terms of how I can provide. I am already helping them knit together. A lot of them are trying to figure out, “How can I knit together solutions across modes? How can I optimize those around sustainability targets?” We are doing a lot of work almost across the board in growth. How do companies find growth?

There are a lot of new freight flows that are coming, not just because there are always new freight flows that are coming, but sustainability and the targets that all these companies are taking on are creating a whole lot of new goods to move. We are working with a lot of companies, whether they be asset-light, asset-heavy, broker, truckload, but also parcel and the like. It is like, “Where do you find freight? How do you get it? How do you leverage the tools today to find those companies?”

Do you work with Final Mile or Last Mile guys?

We do. We work with from a pallet and LTL Final Mile, and heavy goods Final Mile. We do a lot of post and parcel work. We have got a huge practice globally that has done tremendous work in helping drive efficiency in the postal space and parcel as well.

They need it.

Those companies are struggling.

 

From what I understand, the Final Mile for home delivery to goods is the most expensive part of the journey. I was not being critical of the post office. We want it to be better, but we put a lot of constraints on it, and I think it is the hard part.

I do not want a pallet delivered to my house and then distributed all of those parcels to my neighbors. I would like just my piece delivered to my house. Getting my piece delivered to my house is expensive. The costs are getting better relative to the pallet moves because the density of residential delivery has come up so much. Many years ago, the density of residential delivery was terrible. It was hard to make the economics work for the big parcel companies. As our volumes have gone up, that has improved the relative density, but it is still tough.

What about warehousing and fulfillment? We have seen so much change in that space. What is going on when you work with them?

First of all, permitting and getting sites are extremely challenging.

The sites have to be closer to current consumers.

If you want a site or the old model of three sites in the middle of nowhere, you can still get that. If you want the sites that people want now, which is one hour or maybe even less outside of every resident in the country, those sites are hard to come by. We do work with developers on construction and permitting on how to do that well and how to forecast and identify where the sites are going and where you need to be. We are also working with operators on how to drive productivity in those sites. We are doing a lot of work on how to refine, recruit, train and retain talent. That is a theme across all logistics.

I was talking to somebody about a paint company and they said, “We do not have anyone retire from this location.” It was their DC. The reason they had no one retired from there is because it was a young man’s game. He did not want to walk 10 miles picking stuff up and moving stuff around. We have to make that job in the warehouse easier so you are not breaking your back.

If you walked by an auto assembly plant and walked through it, you would see that nobody was doing a job that was backbreaking or that required excessive strength, crouching, or reaching. We have eliminated those and we see that same mindset move into fulfillment. Those guys are going to become technicians rather than strong backs.

We have had conversations for years about technology in the fulfillment space. Now it is happening. They made fun of us many years ago because it was early and no one had proven all the economics. It was whizzbang cool stuff, but is it having an impact now. There are certain functions that are being largely automated and you are seeing high ROIs.

Also, you have got a lot of technology now that is more flexible than it used to be. Building the $10 million conveyance system just for this client and then hoping you retain them is a scary proposition for a fulfillment operator. Having flexible, robotic assets that can move seasonally or move to a new facility if you lose a client. We are also seeing longer contracts which helps. Fulfillment operators are saying, “I do not want to do a three-year deal.”

You can’t facilities for that and build a location if necessary for a bigger customer. We are trying robots now. This is becoming somewhat like automotive. In automotive, what we learned is if you give me one year, I am not going to invest in it.

From a container line standpoint, a lot of people are trying to figure out how to facilitate end-to-end shipping better.

The payback cycles on some of those technologies are getting shorter, but it is hard to make many of them work on a three-year contract. We are seeing a lot of fulfillment players and manufacturers agreeing to 5 or 7-year deals or agreeing to co-invest in the technology that they want to offer something that customers can’t get elsewhere.

Let’s circle back to the beginning. What do you talk to about the container people, the guys with the ships, the rail, drayage, and the modal?

From a container line standpoint, a lot of them are trying to figure out, “How can I better facilitate end-to-end shipping? I do not know if I want to own all those pieces of the operation.” It does not do me a whole lot of good to get it to the port if it sits in the port. Much worse is it does not do me a whole lot of good if I am sitting at the pilot station waiting to get into the port.

A lot of the conversation and work in the container space is, “How do you collaborate with the terminal, the rail operation, and the consolidation or deconsolidation facility to get boxes and get them back?” The whole concept of end-to-end is probably the strongest when you think about container terminals, dray, rail, or trucks. Figuring out how to create more seamless, more partnerships, and share data to do that. In some of those, you see the metrics and the CMAs of the world that are investing quite a bit in buying companies to knit together that offering,

They are buying over the road companies here. They made an extra $100 billion or something in those ship lines during COVID. To your point, they are investing in that end-to-end solution. Somebody said this to me and they work closely with one of these companies. They said, “Do not be surprised if we see single-use containers because we do have a trade imbalance with China.” If that container is only going one way and I have to ship it back on a boat that is filled with containers that are empty, somebody might say, “Why am I shipping it back there?” “It is because these are expensive containers.”

Do they need to be expensive containers? Could they be less expensive and single-use? I know somebody is going to say, “What about recycling and all that?” There is a design that has to happen here. We got people like John and his team there. They will figure it out. From my perspective, we see it in automotive. Sometimes, you ship back the containers that brought your stuff. Sometimes, you do not because it does not make sense because it is one way. Do you guys work with air freight companies?

We do but it has been a challenging and rewarding a couple of years for air freight. The belly players have been tough because they have not had the majority of their capacity with many of the passenger lines, much of the passenger capacity down. The pure freight players have done extremely well. Airfreight was a key enabler and one of the early winners in the pandemic and continues to be. I think the questions on air freight are how can they use advanced analytics to drive even better forecasting of volumes and, therefore, even better service levels and yield management? We think there is a lot of opportunity in the air freight space around advanced analytics and pricing.

I heard it from Flexport and the guys over freight ways. One percent of all overseas volume is on air freight, but it is 30% of the revenue. What it speaks to is you are not shipping auto parts, usually on a plane. You are shipping electronics, chips, medicines, and stuff like that that is high value and small.

Mostly high density. Value per cubic foot is off the charts. That ratio feels approximately right.

I also heard that 50% of the air freight is passenger planes.

That is why air freight prices absolutely skyrocketed.

 

They were flying anywhere.

They moved up first. Ocean container rates have skyrocketed too, but in the air cargo, when your supply chain breaks down at some point, the only option you have is to get it there. It is the last resort for a lot of things and the first resort for high-value cargo. A lot of companies, for the release of the phone, will send enough phones for the first couple of months via air, and then they will send the backup to refill stock via ocean. In a pandemic, it was the first choice. The majority of the global air freight capacity is the belly of the passenger. When so much of our passenger fleet was grounded without anyone to pay for the international passenger move, you lost the belly cargo.

I heard somebody use the term preighter, which is passenger freighter. They sometimes took the seats out of planes and filled them up. Other times, they put stuff on the seat that you might have been flying to a conference on. Now, it has got a stack of mobile phones on it. I am going to try and summarize all this and then I want to get some final thoughts before you go into what is new over at McKinsey. The topic is disruption and container logistics.

John talked about the steady-state. We will talk about many years ago, pre-COVID, and what happened during COVID, that horrible time with demand spike, capacity down, sick people, and broken supply chains. We learned how brittle our supply chains were. You talked a little bit about what is next and where consumer spending is going. We are spending more on services and a little less on products. We are going to see how the industry reacts to what are still shocks and aftershocks of what happened.

We do not even know the implications of the conflict in the Ukraine and inflation. We are better, but we will see. Lastly, we talked about what we learned during this time that logistics is not a commodity and that we have to insist on a seat at the table. We no longer be just a commodity service. John took us through all of the different things he and his team do with their clients. Any final thoughts on this big topic, John?

We have been talking so much about eCommerce. It is going to be omni commerce. You have seen a bit of a drawdown and a correction back. We talked about ten years of eCommerce acceleration in two months. That was true. You have seen brick and mortar make a comeback. Some things are better are bought in person.

My kids bought mattresses online and they are like, “We love it.” I was like, “I am going to have that mattress for ten years. I have to lay down on it.” I am not going to look at 5,000 reviews. I love eCommerce, but to your point, some of those shopping experiences are going to have to become experiences, not a pain in the ass experiences. Everyone wants to go to the Farmer’s Market or a cool boutique. We have to get back to a cool experience if I am willing to leave the house.

For shippers, many of them want to get to a place where they are managing more on Omni channel commerce supply chain. One of the most frustrating parts of the pandemic was when we had out-of-stock items on the website and obsolete items sitting in storerooms in the retail centers. That was painful and was a function of having two supply chains, which is the case for many shippers. They built their old brick and mortar supply chain, then they added a supply attender to eCommerce, and they did not talk to each other.

You will see companies now figure out, “How do I have one more flexible Omni commerce supply chain?” There are going to be some variations. There will be times and products where you want to buy online or in-store. Certain companies will have a blend of the two. That is where we are going on that front, which we did not talk about but I think is important.

It also needs to be designed. It has to be created. It can’t be a bolt-on because we bolted on the gig economy and thought that, “We got an eCommerce solution.” Instacart, Shipt, and some of those solutions for grocery, from what I understand, the grocery store companies are losing money on those and they obviously do not like that. The gig economy stepped up. It is great. We are always going to have it.

There’s a lot of opportunity in the air freight space around advanced analytics and pricing.

We are always going to use it in logistics, but it needs to be managed by logistics guys who are operational experts and good at routing and technology. It can’t just be, “Bob down the street buys groceries for the neighborhood. It does not work as the way it needs to.” We are going to see those grocery stores become grocery store/fulfillment centers in some cases or maybe one fulfillment center in the Detroit Metro area that serves all of the eCommerce.

Some of those business models will evolve. Even a company as great as Instacart or some of the early applications is adding cost on the top of the already existing flow and retail, brick and mortar, and all that stuff. The ideal way of doing that is to have dark stores that are designed for efficiency and pick, pack, and ship, not for the grocery experience that we have all grown to love.

Tell us what is new over at McKinsey and how do we reach out? Do you have any webinars coming up or case studies?

We love to have conversations. The best way to get in touch with us is on our website. It is easy to find me or any number of colleagues. You can send an email and we will respond. I will probably get the email. If I am not the right person to talk to, I will find someone else. On the site, we have got an interview with Sanne Manders, the COO of Flexport, which is great. We are putting up content all the time.

What conferences are you guy going to? 

I know we are excited about TPM in 2023.

When is that?

TPM is in Long Beach in the early spring every year. It is still a long way away. I do not know what the next conference we have got.

We have coming up in May 2022 in Northwest Arkansas. I interviewed a professor from the University of Arkansas, the number one supply chain school carrying Gartner. John, thank you so much for taking the time.

Thanks so much for having me. It was a pleasure talking to you. I look forward to keeping in touch.

It was my pleasure. 

 

Important Links

• John Murnane
• The Box That Changed the World
• Flexport
• Sanne Manders
• https://www.LinkedIn.com/In/JohnPMurnane/  – John Murnane
• https://www.LinkedIn.com/Company/Mcinsey/ – McKinsey & Company

 

About John Murnane

John advises companies across a variety of industries and continents on their transformation and growth efforts. His broad cross-sector experience ranges from hospitality to global transport—including hotels and airlines, ocean and air freight, and trucking and distribution—and spans the value chain from capital-intensive real estate development to asset-light brokerage and distribution. He advises clients on growth at both a strategic and tactical level including M&A, new product development, value-based pricing, digital sales, and sales force effectiveness.

 

The Logistics of Logistics Podcast

• If you enjoy the podcast, please leave a positive review, subscribe, and share it with your friends and colleagues.
• The Logistics of Logistics Podcast: Google, Apple, Castbox, Spotify, Stitcher, PlayerFM, Tunein, Podbean, Owltail, Libsyn, Overcast
• Check out The Logistics of Logistics on Youtube