If there’s one thing 2020 taught us, it’s the dangers of prognostication. Last year at this time, preparing a solid market forecast seemed like a slam-dunk: The economy was humming along, unemployment stood at record lows, and all indications were we could expect more of the same. Then, Covid-19 hit the U.S. economy like a wrecking ball, shuttering businesses, sending unemployment to new heights, and generally making hash of those expectations.
So what does all this mean for 2021? Is there any way to tell? Will the economy stabilize? Will the employment picture improve? And what does the turmoil of the past year portend for the logistics supply chain sector?
We didn’t have to look far to find someone who could weigh in on those questions—particularly those that relate to the supply chain. Our own Gary Master, publisher of DC Velocity and COO of Agile Business Media, has an extensive background in business economics along with 30-plus years’ experience in supply chain logistics. As an executive at a media company focused on the supply chain, he keeps close tabs on the market in general and the supply chain logistics market in particular. On top of that, he tracks general economic and supply chain trends along with developments in the retail and manufacturing sectors—which, taken together, he says, give you a good picture of what’s going on.
As 2020 drew to a close, Editorial Director David Maloney sat down with Gary to get his take on what lies ahead—where the markets are heading, the trends taking shape in warehouse design, and how the pandemic will reshape supply chain operations.
Q: Obviously, 2020 was a roller coaster year for nearly every facet of the supply chain. As we begin 2021, what are your overall impressions looking forward?
A: I think it helps to take a quick look back at 2020 in order to understand where we are with 2021. 2020 brought the strongest economic shocks you could possibly have. In the second quarter, we had the single greatest percentage drop in GDP (gross domestic product) year over year, quarter over quarter, ever. And then in the third quarter, we had the greatest rise in GDP ever. So, it was just a remarkable year from an economic standpoint, when you look at that wide variance.
Now, as we enter 2021 with the shock and awe behind us, we are trying to figure out where we go from here. I think that when you look at 2021, you’ve got acceleration of certain industries, you have the new administration in Washington, and you have the vaccines that give us all hope. Vaccinations are going to help boost economic growth and activity in 2021.
Q: Where do you see the material handling market heading this year?
A: I think you are going to see a steady continuation of activity. Despite the conditions in 2020, we had hot areas, such as food and grocery delivery. We had micro fulfillment making inroads. We had the e-commerce boom and escalating demand for last-mile delivery service. All those things are going to continue to be hot in 2021. Covid has just accelerated the growth of those areas.
Q: There’s also a lot of pent-up demand with projects that were put on hold in 2020. Companies have the cash but have been afraid to spend it during the pandemic. Do you foresee a loosening of those purse strings?
A: That is a great question. The answer is yes and no. Will vaccinations and rising business confidence help shake some of those projects loose? The answer is yes. We have already seen several major projects—some involving the construction of massive distribution centers—getting approved and going forward. That’s the positive side.
On the negative side, you’ve got some companies that, with Covid-related expenses, with economic uncertainty, and with a downturn in business, are now a bit cash-strapped. So, they are caught between the need to make changes and a lack of cash to make those changes.
Even so, I think you are going to see some companies really step it up and launch major projects. Others are going to be more cautious because of their cash position. Overall, the economic fundamentals are good—with the exception of unemployment, which is way too high.
Q: Do you think that once we get through the current wave of Covid cases, the unemployment rate will drop, especially as vaccinations become more widely available?
A: Yes, that is the assumption most people are making right now. Despite the surge in cases this winter, the vaccines’ arrival gives us hope that we can get the pandemic under control and return to a normal way of life. Could you imagine that? A normal way of life, Dave? Sitting on an airplane without a mask. Going to an actual—not virtual—event? Wouldn’t that be a wonderful world?
Q: It certainly would be. So much of economics is based on trust and confidence. What has to happen in 2021 to rebuild consumer confidence and nudge us back toward normalcy?
A: I think there are a couple of things. The number-one critical component is getting more vaccines approved and more people vaccinated. I think once we see immunization rates begin to rise and hear that it’s starting to take hold, that gives us hope. And then you start thinking about being able to travel again and going on vacation. You start thinking about being able to go to gatherings and events. That builds confidence and trust. From an economic standpoint, that is a really, really good thing. So, I think getting people vaccinated is number one.
I think number two is what happens in Washington. A government held in check by both parties is good for the economy, as it keeps that government on a more centrist course. Economically, it’s good for businesses when there’s little risk of the government making a radical right or left turn. They are able to plan based on normal growth trends and economic conditions. I think those are two things that are particularly critical right now in gaining the trust of the consumer and the business community.
Q: You mentioned the high unemployment rate. How will this affect our supply chains going forward?
A: Before 2020, all we talked about was labor shortages, labor shortages, labor shortages. Now, we’re in a situation where upwards of 20 million people are unemployed. It might seem that we could solve all of our problems by simply taking those unemployed individuals and putting them to work in the material handling sector. But it is not as easy as it sounds.
The other thing is, it is a risk. Human workers get sick and can’t be counted on during a pandemic, when they could be quarantined or sidelined by illness for some time. So, even though we have a high unemployment rate, we still have a business environment that is risk-averse. That means there is now an even greater need for automation to take that labor risk out of your business.
I think you are going to continue to see robotics grow. We keep hearing how companies are looking to employ robots in any way they can throughout their operations—from manufacturing to warehousing and distribution, where they perform picking, packing, put-away, and truck-loading tasks. Everybody is looking at anything that can be done with robotics.
The pandemic has also underscored the need for flexibility. We don’t know what is going to happen in the future or even tomorrow. Everybody is looking to add flexibility to their operations. Robotics and automated solutions create flexibility.
Q: Labor concerns could also have repercussions for facility design. After the Great Recession, we saw companies make design changes aimed at reducing their reliance on labor, as they were cautious about increasing headcount even when conditions improved. I think we can expect this pandemic to have a similar effect on the way companies design facilities.
A: That is a great point, Dave. It is the pendulum effect, right? I think right now, a lot of folks are looking at labor usage within their facilities and how they can reduce their staffing needs. It is a cost issue, but it’s also about efficiency, accuracy, and reducing their exposure to risk.
Q: Transportation also had a long, strange ride in 2020, with business nearly falling off a cliff in the middle of the year before rebounding in the fall to record-breaking levels. What do you see ahead for transportation as we begin 2021?
A: I think you hit the nail on the head. When you look at utilization, rates, and everything else across the board in transportation, it’s been a very weird year. With all the consolidation we’ve had within transportation, we lost a lot of capacity, which left the market susceptible to shortages.
I am hoping that when the new administration starts to look at economic stimulus and spending, it will consider the needs of our nation’s infrastructure. I think that if we move forward with infrastructure projects and make needed repairs quickly, it will make the transportation sector more efficient.
I am also really concerned about shipping rates, especially the “Amazon effect” and consumers’ expectation of free shipping. That’s been going on for some time now, but it just puts pressure on what companies can charge for shipping and threatens their profitability. We just really need innovation on the transportation side.
Then, lastly, there’s the matter of helping individuals understand that transportation could be a great career opportunity. I mean that from the truck driver on up. Getting more trucks on the road, getting more individuals to see driving as a viable career path—I think both of those are critical to bolstering the transportation segment.
Q: Are there things we can do to make our supply chains more efficient?
A: I think the pandemic has demonstrated the risks of global sourcing and the need to find sources closer to home. We easily fall into the old trap of cost, while risk avoidance falls down the ladder. I hope that we as a global society have learned our lesson and that we are really thinking about creating a truly resilient supply chain.
Overall, I think we can feel good about 2021 with the vaccinations coming. We will see a 3.0% to 3.5% increase in business overall next year and maybe 2.8% to 3.5% year-over-year growth in GDP. I also think that we will see across-the-board growth in the material handling industry, with certain segments—like robotics, automation, software, and services—doing particularly well. I think you are going to see a good strong year in those areas, so I am excited about 2021. Quite frankly, I am glad to see 2020 leave.