First and foremost, we hope everyone is staying healthy and doing well, all things considered.
Last week, we held a virtual panel, "The Future of Freight and Logistics" in which Dan Lewis, Co-Founder and CEO of Convoy, Ryan Petersen, Co-Founder and CEO of Flexport, and Karl Siebrecht, Co-Founder and CEO of Flexe discussed how the COVID-19 (Coronavirus) pandemic is impacting the supply chain and how retailers and brands are responding.
Moderated by Harshad Kanvinde, Practice Leader - Strategy & Supply Chain at Slalom Consulting, learn more about current trends in freight, transportation, and warehousing & fulfillment, and how technology and modern logistics solutions are helping businesses better manage supply chain disruptions.
You can read an edited version below, watch or listen to the webcast below or on YouTube, or you can access the full transcript here.
What is your view on the economic and supply chain disruptions caused by COVID-19? #
Harshad Kanvinde: Super-excited to be here, especially given the backdrop of COVID-19 and how the flexibility and resilience in supply chain has become super important and how digital technology can help. So I think let's start off with one key topic that's on everyone's mind—COVID-19. What is your view on the economic and supply chain disruptions caused by the current situation?
Ryan Petersen: At Flexport, this has been a big problem for several months now. We have about 300 employees in China so obviously our first priority has been their health and safety. Even now as China comes back online, factories have had a hard time getting workers back into these plants. We're still running well below about half of where we would expect to be in terms of volumes coming back up, but that is ramping up quite quickly.
Now, on the supply side of the economy where goods are coming out of China, that’s where the initial problem started, and now it’s become a global issue. But even as you focus on China, the one thing that most people don't know is that 50% of the world's cargo for air freight actually travels in the belly of passenger planes. And so the problem is compounded as all these flights have been canceled, and most major airlines have canceled flights from China, at the same time as the demand comes back online to move products from there. So, there's very little capacity. So you've seen a doubling in the price of air freight. So it's highly disruptive on the supply side.
I think it's too early to have any real numbers. But of course, the demand side is going to be very disruptive as well. We're now on a shelter at home policy. Everybody's working from home and I think that's spreading across the country. It's going to really hit the demand side of the economy, but we're much more tapped into the supply side at this movement.
Dan Lewis: Yeah, absolutely. So I'd say the biggest and most important thing is that everything is very unpredictable. Typically, when it comes to the supply chain, you know, you can sort of see patterns play out over time, you have seasonality. And so you know that during the January, February months things are a little bit lighter from a domestic trucking perspective, which will start to pick up as we head into spring and summer holidays. This year, it's completely unpredictable.
What we're seeing is that in some markets, due to people pulling demand ahead—you know, people going into Costco, or Walmart, or Safeway, and buying everything they could find from a staples-perspective—you're seeing a lot of demand surge right now in the United States. We've seen in some markets 5-10x the normal demand for trucking going into metros like Seattle, where people are essentially buying anything they can find on the shelves that they want to make sure they have in case the supply chain breaks down. And so a lot of the demand has been pulled ahead, which is causing erratic spikes around the country.
What that means is that in an industry like trucking, where most major companies have kind of an annual procurement process and they try to predict volumes on given lanes and set pricing and partnerships up on those lanes to make sure their needs are met, right now all of those agreements are shifting and you're seeing freight fall outside of that.
So the market for transactional spot freight is growing very quickly because all the existing agreements around where the freight should be at what time of the year, aren't really holding up as things play out.
Karl Siebrecht: Yes, I want to say we’ve seen three different waves. The first wave was centered around international manufacturing, mostly imports from China where we had customers whose manufacturers ceased production on some of their products. And so there's a scramble to try and forward-buy other products given a risk where more supply might get shut off. The second wave we started, it was more domestic. It was domestic manufacturing and retail. So manufacturers of consumables, in particular, needing to ramp volume as best they could and increase supply and manufacturing. And then on the other side, retailers—particularly online retailers whose demand was spiking—needing to add capacity to their fulfillment networks to try and ship all those products that are increasingly being bought online.
The second part of the domestic retail disruption that we've seen is...and most people have probably seen there's a lot of store closures—typically brick and mortar store closures. So if you think about that, the demand and that sales channel is cut off. A lot of these companies don't necessarily want to cut off their supply and need to find a place to sort of bandage back in some cases.
And then in the third wave, we’ve started to see the need to help with the distribution of medical supplies. So as Dan said, there's just a lot of uncertainty and disruption in general, but those are the three of the waves that we've seen specifically.
How are your companies and technology platforms helping customers manage the current supply chain disruptions? #
Harshad: Your companies are well-suited for supply chain flexibility. How is your technology, and how are your solutions, helping your customers cope with COVID-19 and other disruptions in general?
Dan: I mean, one of the big services that we offer and the value that we create is having access to the long tail of supply in the country. Many traditional trucking companies and brokerages primarily work with medium and large trucking companies as their partners. Because we have a technology platform and app on every driver's phone, we've been able to plug in tens of thousands of companies that have three, four, or five trucks.
And so we're a matchmaking tool and one of the things we do because we have the scale we have now because it's based on technology that can see all these things happening in real-time. We can actually really help at driving efficiencies, reducing empty miles, getting more conveniently located trucks there faster, kind of optimizing the system. So a big thing that we're doing right now is using that technology to get trucks to the right spot more quickly, help them understand where demand is coming from, and create more efficiency in that trucking network. That's important because I think, as we were just describing, where demand is spiking is something that we can see pretty quickly through our customers, but there isn't some national board that says, "This is the city that needs more trucks right now." So we have to be paying attention to the signals.
And then you look at these different categories and maybe if a state shuts down all their restaurants, then the supply chain that typically flows through all the restaurants, the companies that provide food to restaurants, the companies that are sort of the wholesalers for restaurants, that slows down and all the demand for food shifts to retail stores, or grocery stores, or delivery platforms. And so it's about knowing that dynamic, and then having relationships with all these different parties and reallocating supply as quickly as we can to different parts of the different sectors that are needing it when other sectors are starting to shut down.
Karl: I'll give a couple of examples. One is just managing unforeseen peaks. So we have some customers that in the typical Q4, their peak-to-mean sales might be 5-10x. And some of those same customers and then others that aren't used to having these kinds of spikes are seeing similar spikes in consumables. And so the ability to spin up additional capacity, like major chunks of capacity quickly, is one area where we've been able to help.
A second example is we've started to see a dramatic uptick in people reaching out for help on distributing medical supplies. So the other thing that's you know, effectively made possible because this is a software-based business as Flexport and Convoy are as well, is that we can move really, really quickly. So we had two inbound calls just yesterday, related to companies needing help with some of the medical supplies and one of them where the physicians arrived today and the other one looks like it'll go live probably tomorrow.
We have the ability to move very quickly, turn on services, and tap into a broadly distributed network of suppliers. And the suppliers, in our case, are warehouse operators that enable folks to react quickly and respond to ongoing uncertainty.
Ryan: One thing that's interesting here is you hear these guys talk about surges in demand and moving cargo like there's unprecedented amounts of demand. But on my side, we're seeing that supply of cargo is about half of what you would expect coming out of China. So at some point, these two forces have to collide and that's when I think real disruptions come down the pipeline, as we work through these inventory stocks.
Because different modes of freight are limited right now, one area where the Flexport platform really shines is on premium ocean freight products. A typical ocean freight shipment has to arrive at the port around three days before and it won't actually leave the port until three days after it arrives. And the journey of that ship is about 15 days. But there is a premium ocean service, you can be the last one to arrive and the first one out so it shaves two days off on either side. And there are certain boats that are smaller and faster, that only take 10 days. And so you can actually move products, instead of taking 21 days as a typical ocean journey from port to port, you can get it down to about 12. And that costs more but it costs a lot less than air freight, especially when air freight has doubled in price.
What changes are retailers that sell household staples making in response to the coronavirus? #
Harshad: What kind of changes are supermarkets and other retailers that sell household staples making in response to the coronavirus and how is it affecting your companies?
Dan: We're seeing companies that sell staple goods pushing the suppliers. So the companies that manufacture and produce bottled water and all of the CPG type products—home, sanitary products, etc—are trying to ship as fast as possible.
There are two things. One is bypassing distribution centers. So if possible, shipping directly in truckloads from a manufacturing plant into specific stores, because they can put out a pallet of stuff and people will just take it.
The second is when it comes to food, people are used to multiple channels. You'd go to maybe a restaurant one day, fast food, takeout delivery, retail, grocery stores, etc. Now, there are fewer options and demand is shifting. We're seeing retailers having to step up and bring more volume into their stores because other channels are being shut down. So the demand is shifting and you have to have more total volume of food going through those other channels now.
Karl: Let me just add to that. Specifically, we’re seeing a market increase in online purchasing. I'm sure everybody has seen Amazon's announcement to de-prioritize some goods, exclusively focusing on essential products over non-essential products. So we're seeing some of that in our business, too. And then to Dan's point about manufacturers just trying to get products to whichever channel as quickly as possible, including grocery, we work with companies in the bottled water space and just to share an anecdote to describe the magnitude of some of these freights...
Typically at this time of year, a bottled water company is building up inventory in time for summer. That’s not what’s happening right now. All the inventory that was planned to be pre-built and stored right now is being sold immediately. And one large player in that industry had their highest month of sales, selling something like 900 million bottles of water in the last month domestically.
Ryan: Yeah, that's been probably the biggest spike we've seen as well from a delivery perspective is bottled water moving directly from the manufacturing center to retail stores.
Are these disruptions exposing underlying supply chain weaknesses? #
Harshad: Do you think some of these disruption-related problems are just exposing some underlying weakness in the way companies are approaching supply chain? Are we going to see some long-standing sustained effects coming out of it?
Ryan: We've got a whole generation of MBAs that have been trained to think inventory is evil, and rooted out—at all costs—to get to this just-in-time world (in supply chain). And it does create systemic risk when we're so interconnected. One misunderstanding of supply chains is this idea that the goods are just produced in one place and delivered to another place. But in fact, if you look at a Chinese manufacturer, they're often sourcing components not only from around China but also from other countries. So you might have an electronics product where the lens is made in Japan, or maybe there's rubber that's sourced in another country and so on.
So any kind of disruption at any border can have all these downstream effects that are really hard to model and predict, and it leads to disruptions. I do think you're going to see folks start to think more about resiliency in their supply chain. We've had these crazy disruptions in the global supply chain. Last year was all tariffs. I think tariffs are still a big deal for companies. But that had people thinking that maybe they shouldn't be so dependent on a single source. Since then, companies have been diversifying manufacturing and making big shifts towards Southeast Asia. Our volume out of the Philippines has grown 20x year over year, with manufacturing shifting to Vietnam to Philippines, etc.
But in a global pandemic situation, I don't know that diversifying helps you that much because this virus is spreading all over the world and it hit China first, and then other regions. I don't know that diversification necessarily becomes the right strategy. But certainly, people are starting to think about that interconnectedness and how to make a more resilient supply chain.
Those come with real costs, though. Think about it from a human perspective: the ultimate insurance policy is running your own garden and growing your own food but it's pretty costly. It's not necessarily the right response, even though it might be the least risky way to reach your food supply. So it's really hard calculus if you're a supply chain manager.
Harshad: Karl, do you see some of that in your business as well? So the way people think about warehouse and capacity, other value-added services, how to flex around those dimensions. Once we get through the pandemic, do you think that some of it is just going to stick because people will now know that there are better ways to do things?
Karl: Absolutely. COVID-19 is just the most recent and in some ways, the most extreme example of what we see as a trend that is increasing with more and more business elements becoming dynamic—much of which is fundamentally driven by eCommerce. So, absolutely we've seen this as yet another example. Historically, the supply chain, particularly domestic distribution, has been an asset-intensive business and the value driver has been how well does a company manage these assets?
In our world, it's your physical buildings, the equipment that runs those buildings, and then labor, those have been the value drivers of determining whether or not you have a good distribution network. And now increasingly, value drivers are in technology, allowing you in many more ways to be flexible and react more quickly and with more sophistication.
Supply chain planning is at odds. Seasonality is predictable, but eCommerce growth isn’t. You may not be able to know if your online channel is going to grow 10% or 80% this year. And then also, amidst all types of supply chain disruptions, is the desire to ship products faster, which means you need more distribution nodes closer to consumers. The calculus around Ryan's point about how much inventory needs to be held, and what the trade-offs are for holding more inventory becomes more manageable if you can ship products faster and win more sales.
Unfortunately, this particular issue is painful on both the human-level and on the supply chain. But I think it will be something that companies go back on and figure out how to better build resilience into supply chains to try and mitigate the impact of this type of thing happening when it happens next. And technology will invariably play a role in that.
Harshad: Spot on. So, Dan, from the trucking standpoint, what are the things you're seeing that's getting exposed in terms of the way people run transportation networks?
Dan: First off, I think we should revisit this question in a few weeks. I mean, I think it's a really good question but it's one of these things that we're going to want to see how this all plays out. We aren’t going to rebuild the supply chain to handle this sort of an event on a regular basis. Second, I would say to Ryan's point, I think inventory is probably going to be something that a lot of people start talking about, which is you know, what does it look like when there is a disruption? And when should we revisit some of the assumptions.
At least in our business, there’s the dependency on global supply chain versus a dependency on domestically produced goods. And I think that's where the inventory really comes in. There was a general push to try to minimize all inventory, faster inventory turns, less cash tied up in inventory; it will probably become more surgical. Businesses will focus on the inventory part but also on replenishment, risk premiums will be placed on different types of inputs to determine if more or less inventory is needed.
More sophistication around that will end up happening. But it's going to be the balance of attributing risks to different parts, not one global question of do I have inventory or not?
Harshad: Thanks. The overall agility in the supply chain might change as well. Visibility into the more granular levels will determine how supply chains are managed.
One simple example is, although the retail stores are running out of hand soaps, of all different sizes, the shelves are pretty full with shampoo and body wash, and essentially it's the same ingredients wrapped in different packaging. So can we think about these things differently?
Are complex distributed eCommerce logistics networks that are optimized for fast delivery becoming a liability in this situation? #
Harshad: While we are on this topic, there is an audience question: Are complex distributed eCommerce logistics networks that are optimized for fast delivery becoming a liability in this situation? Are we optimizing too much for faster delivery and missing something in the broader supply chain?
Ryan: Well, that's a really interesting point because the way you get fast delivery actually is by having lots more inventory stashed all over the country, in whatever region you're trying to serve. Because slow delivery looks like all of the goods are stored in one place in the middle of the country, or even stored overseas, and then delivered slowly when the customer needs it. On some level, fast delivery is a positive force here because it means in order to achieve fast delivery, you need to have more inventory in stock. So that optimizing for one-hour delivery is going to make the supply chain more resilient in most cases.
What's going to be difficult and makes the problem turn systemic is when you're optimizing for just-in-time manufacturing and only having an amount of inventory needed to fulfill the expected demand for next week without accounting for the sort of surges and even black swans like right now. It's a nuanced answer that is hard to say exactly, but I don't think the move towards real-time fast delivery necessarily hurts us as much as people optimizing for low quantities of inventory.
Harshad: Right. Actually, the inventory being spread out is kind of necessary for high-speed delivery to different regions. Dan, Karl, any comment on that?
Karl: Yeah, I would just add, I don't think fast delivery is a liability. I think a key ingredient is it needs to be designed flexibly. Here's the thing, not all products need to be delivered quickly and not all consumers value all products being delivered quickly. But for some products there's a high demand to get it there fast. And the nature of those products and those SKUs changes over time. Effectively, all of our customers have a combination of fixed nodes and flexible nodes in their distribution networks.
Their fixed nodes handle their whole product catalog and the flexible nodes handle things that are moved out to the edge, so to speak. And those things could be the fastest movers, they can be the things that are on promotion, etc. We’re seeing this right now with some products needing to be shipped really quickly, unless they can bypass the warehouse entirely and ship the pallet straight to the store, in some cases. Really all you’re doing is changing the mix of what you're pushing off to the edge to enable faster delivery. And that's the key because right now it's consumables and medical supplies that can be pushed to the edge. Flat-screen TVs can take a backseat for the time being.
Dan: Yeah, I think it's going to be what is the risk that you can replenish the inventory? And then for that type of product, how quickly do people need it once they decide to need it? And getting smarter about that on a category-by-category level, or product-by-product level will probably be where we'll see more investment over time.
Would the supply chain be able to handle this disaster 10 years ago? #
Harshad: The move toward cloud computing, and AI, machine learning, and other digital things that people have been working on for years is that helping to make effective decisions now that we are in this crisis? If this had happened 10 years ago, would we be as well-positioned to respond to these kinds of disasters?
Dan: We absolutely are. In particular on the trucking side, until even five years ago, there wasn't a path to knowing where the trucks were, and being able to have direct communication with the truck drivers and the small trucking companies. Honestly, until the iPhone and the Android-based phones became free with your two-year upgrade in 2014, most truck drivers didn't have a smartphone with a data plan and nationwide GPS.
Now you have a supercomputer in every truck, that gives us information on where the driver is and they can directly communicate back and forth. There’s much higher visibility, much more real-time information, much more technology to do predictive analytics and to build models is more advanced. And so getting the data, having direct access to the trucks, and the truck drivers, and then having you know, data science and technology advances to make us better at understanding that and predicting what's going to happen based on that.
All that together means that we can make decisions much faster and better predict what's going to happen. We can see what's happening on the ground from a command-and-control perspective in a way that was impossible just five years ago. So I think we're in a much stronger position for it now. You know, it helps us react, it isn't solving all the problems, but it's definitely helping us react faster.
Karl: I'd say one of the indicators of this is that collectively our three companies probably work with all of the Fortune 50 companies. Ten years ago, these technologies didn't exist. Five years ago, when we were starting these businesses the tech existed but it was still in very early adoption—there was hesitation. Businesses wanted to know if our solutions were real and what the risks were of taking a new tech-enabled approach. And then what happens is customers try our services, they see good results, and then the perceived risk goes way down as client references go up.
And then you see a shift: If you’re not adopting some of these new capabilities, you may be falling behind. So separate and apart from this particular event, we’ll see that continue, and that just means that with broader adoption, we’ll see the industry accelerate that much faster.
Dan: Before this within trucking, and I assume it's the same for most of these spaces everyone recognizes and appreciates the value of visibility, technology, real-time access to what's happening on the ground—getting data back, getting digital documents, just things being faster and more visible.
But at the same time, the human relationship and personal trust is still extremely important so, you know, it's both. And I think right now, both are really important because the technology is giving us indications of what's happening, but we’re dealing with people.
And when you're calling and saying, "Hey, I'm worried the thing we're doing right now isn't going to work we need to change this." Doesn't matter how great your technology is if they don't trust you, and they don't have a relationship with you. They're not going to change their business and their process, based on what you're recommending if they don't know you. And so I think, you know, technology allows us to execute better but frankly, like the personal relationships allow us to get through these situations faster and collaborate on them faster.
Ryan: The thing that I wanted to say around the adoption of tech is that it's not just customers adopting tech and how it's going to help them but is their provider able to help them? I know one of the biggest freight forwarders in the world had to move all their employees to work from home this week and everyone was hauling their desktop computer home because the employees don't have laptops. I know our customers have told us that when they learned that their freight companies weren't able to move to work from home easily it made them...they really had a lot of trepidation around that.
So I think that that's one angle. And then how does the software platform of the provider enable you to work from home work remotely, your factories are working all over the world remotely. How do we connect these people together and software just has such a role to play in connectivity and making a company agile and responsive to...like, look, you never predict something like this by its very nature. But you can predict that things like this will happen. Last year with tariffs, a couple of years ago there was a port strike. There's always going to be something in supply chain. That’s the lesson. So how do you adapt when things like that happen? How quick are you at using technology to change the way you do your work?
Are shippers postponing technology initiatives in the short-term to manage COVID-19? #
Harshad: Well said, fully agree. I think there is a related audience question that in the short-term, are you seeing the shippers postponing or pausing the progress on technology projects in this situation? I can start off, I'm not seeing that in my line of work. I think we do a lot of work around digital innovation in supply chain and we have not seen that happening yet because the march toward agility and flexibility in supply chain networks is very real. But Dan, Karl, Ryan, are you seeing any short-term impacts because the resource and bandwidth is focused on the COVID-19 issue? Are pilot projects being put on pause or hold because of the situation?
Karl: I can think of a couple of instances where companies that are right in the midst of trying to adjust and urgently get things like consumables or medical products to market are shifting priorities. Everything else kind of takes a backseat and is sort of a luxury. The way that is manifested is discussing when to reschedule that meeting or that call of the pilot in four or five weeks. And, you know, that makes all the sense in the world.
Dan: Yeah, it's changing and we're also changing our priorities in the same way, which is, you know, what are we going to invest in? What are the types of things we're going to try to solve in the short term or making some adjustments to adapt to the things that are more relevant for the situation. So I think everyone is making those adjustments.
When will panic-buying slow down and do we have enough supply to meet current demand? #
Harshad: Awesome. So, where will we first see signs of panic-buying slowing down? And if everyone has two months of food at home, when do we see the demand drop? Do we have enough freighters to fulfill the demand? So the demand fluctuations on one side, when do we see signs of that slowing down a little bit? And in the meantime, do we have enough freighters to meet that demand?
Dan: Demand has been pulled ahead. I'm talking specifically about the domestic United States. It's happening probably in other parts of the world as well but we operate only right now domestically from a trucking perspective so that's what we're seeing. There's only so much of these consumables you can use per day and so much food you're going to eat per day.
I expect that people will buy stuff they don't end up using. So there is some sort of demand that is being pulled ahead and there will continue to be demand. Because from what we've seen, a lot of the things people are buying are things that they just want to store and they think are going to last for a long time. And I don't think they're going to start using all of those products right away. So we'll probably see a spike in demand. And then it won't be that all of the demand was pulled forward. People will just spend more this year to hedge against risk and so total spend will be up.
Of course, that could be counterbalanced if unemployment shoots up and there are less total dollars available. But I don't think that the people are going to buy this and start using it, I think they're going to buy it and store it. So we might not see a complete drop off after this upfront panic buying.
Ryan: And then on the air freight question, no, I mean, there's definitely not enough freighters. Air freight is one of the weird markets in the world where the supply of capacities doesn't really track the demand for the product because the supply of air freight is related to the supply of passenger travel. And what the airlines tell us is that they don't expect passenger travel to get back to normal until April of 2021. And they won't be flying flights that are empty, they'll fly some but they're not going to restore full flight service until next year.
And therefore your supply is going to be limited for at least the next 12 months on the air freight side. I do expect prices to stay pretty high. And you know people have to find alternatives like fast ocean products that we offer and other means. But the price is going to be high and only certain products will be justified to fly it in that environment.
How can the supply chain be more prepared to handle events like COVID-19? #
Harshad: So I think as we discussed earlier, the certainty is that these kinds of events are going to happen. So it's not about can you predict when the event is going to happen—that's almost impossible, but how can you be more ready and have better visibility, better flexibility in the system so you can react well?
So I think one thing I'm super interested in discussing, obviously, Dan, Karl, Ryan, all your companies are helping in that journey is with agility and flexibility. And what kind of impact do you see in a post-COVID-19 world? What are some of the things that we learn through this experience may be in planning the freight services, freight capacity, warehousing capacity?
Ryan: You're seeing a world where logistics managers have often been trained to just think about shipping cargo and shipping the physical goods, shipping a container if it's ocean freight or pallets such as air freight and trucking. And you're starting now for the first time to recognize that that's actually dollars of inventory, the dollars that are tied up in inventory. And you're going to see a lot of companies in a downturn like this, really start thinking about cash and their turns on inventory, and the cash that is tied up in inventory, how do we get that into consumers hands so we can turn it back to cash in our company's bank account?
Now all of a sudden logistics managers are coming to this realization that wow, we have an opportunity to be much more strategic than in the past where it was like "Okay, good job, but you're a cost center for this business." We're not going to make a lot of investments in technology for our cost centers." But if you're able to show how you can help the company better manage its cash and cycle the inventory faster or get it where it needs to be so you don't lose sales, make sure you don't have too much unsold inventory just sitting there. You have an opportunity as a logistics manager to be super strategic for the company and that becomes in a downturn, cash is king.
And I think you're going to see a lot more focus on the fact that, hey, all these containers on the water, when a CFO looks at that, she says, "Hey, that's a bunch of cash tied up right there." And they don't look at a container, right they're looking at inventory that they've had to purchase. And your inventory is your inventory, whether it's sitting in a factory, in a warehouse, or on a ship, it's still your inventory. And I think that's going to come front and center.
Dan: If you look back at some of the recessions that have happened in the past, the freight brokerage industry has actually done pretty well in some of those and has grown. And the reason is that companies are looking at reducing the assets that they own and not buying more assets. Large trucking companies aren't adding a bunch of trucks. And you also have some shippers - maybe they do 50% of their trucking with their own trucks and 50% is with third parties and contractors. And when you can't predict what's going to happen you tend to invest less in buying your own assets and more in using third-party services and contract services.
So we actually are expecting to see more of that spend shift to third parties like Convoy or other trucking brokerages that are helping to stitch together the available capacity across the country, and better utilize that. When you look at trucking across the board 35%, 40% of time trucks are running empty. You know, trucks show up at a facility and they wait for hours for an appointment. Maybe they get their appointment at 10 a.m. they only have 75 miles to drive but the drop-off appointment isn't until the next day. So now you're killing more time, right so another inefficiency. So empty trucks, inefficient appointment times, poor loading and unloading scenarios.
And the more that everyone's offering their own business and thinking about their own specific world, and micro optimizing for that specific trucking company, you end up with these greater inefficiencies, because you're kind of optimizing in isolation. And so what we're working with these companies is if you allow us to partner and think about the whole system, think about optimizing the appointment times, optimizing which truck does which job across thousands of trucks, and trucking companies there are actually real dollars you can save and real efficiencies you can realize quickly.
And I think in a time like this people are willing to work with someone who's going to do it slightly differently, give up some of that control and allow those efficiencies to happen because they're looking for the economic upside. And they don't want to make their own investments in their own trucks, because the risk of over-allocating capital into those areas right now. So we think that's going to be a trend that we've seen in the past week, that's going to happen again this time.
Karl: Yeah, I would echo that. And we're seeing it very vividly, all of a sudden, as we sit here, kind of on the precipice of a recession, companies don't want to commit fixed chunks of capital. A month ago, two months ago, a company had a forecast to grow and now chances are that forecast is being revisited. So if your forecast was to grow 10% and part of your plans for that was stability, which in our world could mean lease another building on a five-year term. Now, you're probably much less excited about doing that but you can still need the capacity if you can go out and acquire that in a non-asset way, and pay on a variable-cost basis.
And similarly, if you've got an existing infrastructure and your lease is coming up for one of the buildings in your network, you want to re-up that lease on a two- to five-year plan. Or if we can push that capital decision off and leverage flexible capacity you know, that can be a compelling option to take.
What is your advice to businesses that are impacted by COVID-19 or trying to mitigate supply chain disruptions? #
Harshad: Great. So I think overall, this message is probably stuck with the executives with the related stakeholders much closer to the heart because of the current situation that flexibility is important. And the companies that you run I think are critical pieces of that overarching ecosystem to get the goods moving and keep them moving. To wrap things up, guys, I think coming back to the current situation you guys are already working with many of these companies who are critical in making sure that the medical supplies and pharma, and household, the daily staples are stocked and people can continue living their lives, although we are living in a new normal kind of situation.
So coming back to that short-term view, what would be your advice for companies on how to think about let's say next month, next two months, while we are hunkering down and we are...as Dan, you said, "We are working together." The usual competition and everything I think that's there but I think we are all working together to make sure we are getting through these situations. What would be your advice for the companies for next month or so?
Dan: I mean, for the next few months, I'd say a, shift production to things that are going to be most relevant for the next few months. So to the extent that you can reallocate production capacity to produce things that are going to be relevant, either from, you know, some of the staples and some of the medical supplies like I think that's already happening, that's important.
The second is if you're a retailer, and you have specific vendors that you're working with, to stock your shelves, step back and look at all of the options. Are there second-tier, third-tier providers out there that can step up their capacity, you know, and just rethink the source of the things you're selling right now and look more broadly, and try to diversify across domestic options more. Because I think, you know, there's probably more likelihood that you can source domestically over the next few months and some of the international things might get shut down temporarily. Those would be, I guess a couple of things I'd focus on.
Ryan: There's a lot of good advice out there and I think one thing that...We're in such chaotic, fast-changing times. And if you want to build a company that's agile and adaptable to change, I think you really need to build good sensory nerves out to that world collecting information, and making sure it's flowing freely through your company. So we set up a daily 30-minute video call with all of our top leadership to go through and just share what are people seeing, what are you hearing, what are customers saying, what are carriers saying, what's changed in the world. Make sure that information flows freely. Because as Karl was saying, before, you know, you can adjust your forecast but you don't know if the new forecast is right or what.
And we have no idea how long this disruption is going to last, how long will stores be closed. I think the key is being adaptable and having that setup. Number one, having that sort of information flowing freely, so you can make quick decisions when needed.
Two cash is king right now. And making sure you don't have...if you have a lot of inventory tied up that's not selling you gotta get creative and find ways to unlock that cash. The Small Business Administration announced yesterday, a really important program for businesses to get credit from the government if you're in one of eight states that have been hit. We have a blog post on this on our website. Up to $2 million in low-cost financing to make payroll. So I think that's going to be really important for a lot of companies that are struggling.
You know, we talked today about all these companies where we're seeing a surge in demand, but we don't talk as much about the companies that aren't shipping anything right now and are unable to sell and aren't able to operate. So that's one that we're pushing to all of our customers letting them know about this new government program to be able to get money to make payroll.
And then how do you get your team focused on playing offense to understand and figure out what are the opportunities, your customer is likely suffering right now how do you get in touch with those customers make sure they know if you're open for business make sure they know about it. Find a solution, get products that you know they need. For brands that are typically selling through retail, how do you quickly learn the eCommerce game? And whoever is the most adaptable to change is going to come out ahead in an environment like this.
Karl: A couple of things. First is you know, from the internal-focus perspective, find ways to make work from home in a distributed workforce productive. We're three weeks into everybody working from home and you know, we're a lot better at it now than we were days ago. To Ryan's point about finding ways to establish lines of communication internally, you have to make sure people are connected, know how to get in touch with each other to make the decisions. And then just find ways to continue to have a sense of team as you know it. It may sound trivial, but doing virtual lunch over Zoom and virtual happy hours.
And these things sound kind of trivial particularly in light of the seriousness of what's going on but they entirely inform commitment and keep the team tight-knit to be able to make better decisions in spite of a different work environment. You know, Zoom, Google Chat, a lot of good tools out there, many of whom are now offering those services for free.
And the second thing is just you find ways that increase optionality. You know, as we already said, there’s just a massive amount of uncertainty. So, ways to set up either contingency plans or just open up potential options to get a grip on what’s happening.
Harshad: It's a new normal, at least for next couple of months, for sure. And we keep moving the goods. I think that's super important for many reasons. And we got to be creative, the way we are thinking about assets, and flexibility, and resources. So Dan, Karl, Ryan, always a pleasure to talk to you. Thanks a lot for the audience. We will make this recording available I think in a few days. And if there are any other questions, please send them we'll be happy to answer. So with that, we are wrapping up and we are closing the webcast. Thank you all.