How Shippers and Warehouse Operators Manage Turbulence
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In a time of unpredictable tariffs and changing international trade policies, shippers and warehouse operators have been dealing with an uncertain business environment, supply chain upheaval, and shifting inventory levels and purchasing practices.
“You’ve heard of COVID 2, the sequel?” quipped John Janson, vice president of global logistics for branded apparel distributor . “This [tariff situation] has been an unbelievable disruption for a company like us.”
To navigate this unpredictability, Janson, who oversees SanMar’s network of U.S.-based warehouses, is pursuing two strategies: moving product and shifting sourcing among countries; and taking product in high-tariff countries back to the U.S. “ahead of whatever the new tariff rate will be,” he said.
SanMar also has an exit strategy from China and will have minimal sourcing exposure soon, he added.
Janson noted it has been a delicate balance to manage volatility in both demand and cost.
“Uncertainty is the worst thing for our business,” he said, mentioning that his team is constantly making supply chain adjustments.
To minimize stockouts, SanMar has three locations designed as “anchor sites,” located in Virginia, Ohio and Nevada.
“Our goal is to keep these [anchor sites] fully stocked with all core products, so if we need to backfill, we can do so from these three sites instead of many,” Janson said.
Flexibility and agility are imperative, with some 90% of SanMar’s customer orders received late in the day and shipped that evening, Janson added.
“You wouldn’t think there would be a lot of T-shirt emergencies [in our business],” he said. “But you’d be surprised.”
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Amid shifting trade patterns and unsettled tariffs, shippers are definitely examining their networks and contemplating how and where they source, said Andy Moses, senior vice president of solutions and sales strategy at Penske Logistics.
“We work with an e-commerce retailer that gets 90% of its goods from China,” he shared. “It’s been very disruptive for that business.”
Moses noted that shippers are trying to figure out how to navigate increased costs, whether on a direct basis or spreading the cost over a basket of goods in a market. Many are taking the lessons learned from the COVID pandemic and are applying them now.
“The supply chain community has become more resilient,” he contended. “We are more accustomed to an environment where disruptions are frequent, and the industry has rallied around [how to deal with them].”
Moses added that shippers today are placing a premium on agility and rapid response, “and have learned to situate their [warehouse] networks so they can leverage the most advantageous modes of transport to support those networks.”
Dedicated and Multiclient
Moses also cited interplay between the “dedicated” and “multiclient” segments of the warehouse market, with customers increasingly desiring both.
“The general trend has not changed of distribution networks adapting to have more inventory [in more places] closer to customers,” he said. “If you are going to spread your inventory across more locations and more customers, you may not need all the space [of a dedicated building].”
Moses recommended using only a portion of a building space operated by a third-party logistics provider.
“That saves on cost, and again, addresses the need for flexibility to be able to position inventory quickly in response to customer demand,” he said.
Port & Company apparel productsmove along the conveyor belt at a SanMar distribution facility. (SanMar)
In this current market, some shippers look to their 3PL as a strategic warehousing partner, while others simply focus on finding the lowest-cost provider.
“There is a segment of the market that always looks for lowest price,” Moses said. “But businesses with complex, service sensitive supply chains, they play the long game.”
Penske Logistics ranks No. 19 on the Transport Topics Top 100 list of the largest logistics companies in North America and No. 12 on the TT Top 100 list of the largest for-hire carriers.
Overcoming Challenges
Demand planning in this unsettled environment remains a huge challenge, particularly for retailers, said Noah Hoffman, vice president North American surface transportation at C.H. Robinson Worldwide.
“Retailers are working hard to manage inventory differently and avoid passing along higher production and tariff costs to consumers,” he said. “[The market challenges are] ripe for retailers to switch to managing inventory at the item level instead of the shipment or load level.”
That shift is evident in the volume running through C.H. Robinson’s item-level purchase order tools, which is on track to double, Hoffman elaborated.
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He said it’s astonishing how little visibility some retailers have into their inbound supply chains.
“They often buy from suppliers with storage and transportation included,” Hoffman added, noting a disconnect because it is the supplier who has the visibility into what is where and in what quantity.
He used an example of a retailer whose frozen waffles are “flying off the shelf in Florida” but might inadvertently reorder more that they don’t really need.
“They can’t see the 80,000 cases of waffles in the supplier’s warehouse in New York, which can be trucked down to Florida in a day,” Hoffman explained, adding that item-level visibility makes demand planning more accurate.
“It provides a more granular approach that enables much better alignment between inventory, demand and transportation,” he said.
C.H. Robinson ranks No. 2 on the logistics TT100.
Advantage: Foreign Trade Zones
Global markets roiled by tariff uncertainty have led to increased interest in foreign trade zones, first established by Congress in 1934. A FTZ is a secured facility, typically operated by a 3PL or a manufacturer, where products can be stored and duty payments delayed, Joe Hedges, manager of international programs for the city of San Jose, Calif., explained.
Hedges supports manufacturers and 3PLs in setting up FTZs. He cites Silicon Valley-based RK Logistics as a flagship FTZ operator in Northern California. RK has been providing FTZ services to local semiconductor equipment manufacturers and other clients for more than 30 years.
There are several advantages to an FTZ, Hedges said, such as delaying and managing the timing on payment of duties to help cash flow; managing product arrival into the U.S. at the optimum time to minimize tariffs; better inventory management and flow of import goods into manufacturing; and the ability to avoid tariffs entirely when goods in an FTZ are then re-exported to another country. In addition, duties are paid only when goods exit the FTZ and enter U.S. commerce at a time of the owner’s choosing.
Warehousing Demand
An unsettled tariff environment doesn’t seem to be putting a dent in the pent-up demand for warehouse space globally, if the recent quarterly results from Prologis, the world’s largest developer of industrial properties, is any indication.
“If we were to sum up the mindset of many of our customers, particularly our largest ones, we’d say they are increasingly looking past the headlines and what has been an evolution of their thinking over the past few months as those headlines constantly change,” said Tim Arndt, Prologis’ chief financial officer, during the company’s recent earnings call. The company’s “build to suit” starts for the first half of the year reached $1.1 billion — its largest start to a year ever.
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Those numbers underscore “how larger customers with the resources and scale to think long term are being strategic … and positioning for growth,” he said.
Arndt shared a comment from one business executive who was exhausted from adapting to the shifting tariffs and decided to focus instead on running the business and “figure out the tariff details when there is some clarity.”
One thing that is predictable about supply chains is that the unforeseen will occur, Will O’Donnell, Prologis’ managing director of global corporate development and growth, told Transport Topics.
“Resilience becomes much more of a necessity,” he said.
Prologis’ approach, O’Donnell added, is to provide “strategic value and insights besides negotiating the lowest price for four walls and a roof.”
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