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Consumer demand drives more visible, service-oriented supply chain (with video)

XPO president discusses how changes in consumer demand are reshaping the last mile

FreightWaves President George Abernathy chats with XPO Logistics Last Mile President Erik Caldwell. (Photo: FreightWaves)

An XPO Logistics (NYSE: XPO) executive forecast Thursday that XPO might need an additional 25-30% of delivery capacity during this fall’s strong peak season.

“We want to go into this peak period and really prove that we’re ready for the Super Bowl and ready to do this,” XPO Last Mile President Erik Caldwell told FreightWaves President George Abernathy during the keynote event, “How Changes in Consumer Demand Are Reshaping the Last Mile,” as part of Thursday’s virtual FreightWaves Last Mile Logistics Summit.

That additional 25-30% of additional delivery capacity would be on top of what XPO was running this summer, Caldwell said, noting that the company’s summer volumes were even higher than what was delivered during the 2019 peak season. 

The COVID-19 pandemic “accelerated” the growth of online shopping. Consumers have not only adapted to purchasing large items such as mattresses, furniture and exercise equipment online, they’ve also become more comfortable with allowing delivery workers to come into their homes with those big items, Caldwell said.

As a result of that consumer shift, companies are also shifting their focus. Instead of focusing on  efficiencies and being as lean as possible, companies are starting to think about how to make their supply chains more agile and resilient, he said. For the last mile and for parcels, that shift also means focusing more attention on distribution and labor.

“The last mile is the most complex piece of the puzzle and part of that is because you’re at the end of the supply chain. So every upstream impact to raw materials, production, shipping, warehousing, final transfer to the delivery hub, any hiccup or any issues in there manifest themselves in the final delivery,” Caldwell said.

Although October has typically been a quieter month for last-mile activity, XPO’s forecasts are still strong for the month because retailers are trying to clean out their backlogs and respond to pent-up demand for those bigger-ticket items, Caldwell said. Consumers have also been engaging in more home improvements projects during the pandemic. 

According to XPO’s surveys on consumer behavior, 94% of consumers expect to continue to shop more online after the coronavirus pandemic. 

To facilitate last-mile deliveries, XPO maintains close partnerships with its regional warehouses and is working on additional ways to process returns regionally.

XPO has also invested $550 million in technology, including automation and software, so that it can build a platform that provides visibility across the supply chain. That visibility spans from transportation and the warehouse and across the last mile to the contract delivery team and to the interaction with the consumer. 

The platform also allows consumers access to touchless proof of delivery, Caldwell said. Another way XPO is harnessing technology is by utilizing a cloud-based management system that provides end-to-end visibility on warehousing and delivery,

“This is part of that secret sauce of how do we maintain really high levels of service and high levels of efficiency,” Caldwell said of XPO’s investments in technology. 

Another important element in facilitating the last mile is handling returns, which can be the “most complex activity we do in the industry,” Caldwell said. With return rates of 15-25% for parcels, returns are in essence the largest vendor, he said. 

To process returns, XPO has developed a regional strategy for some customers and it has dedicated large-scale return centers that process items more quickly. The return centers deploy technology that can restock items back onto the shelf and resell them during the same season if the items are still sellable. 

XPO’s return rate is about 10% for big and bulky goods, and so for 10% of the time, it considers those goods as “first-mile returns” that require tracking and automation tools.

“The question is: How do the best companies handle returns better for our clients, for our customers?” Caldwell said.

Last-mile logistics also is complex because of the consumer involvement. Not only do companies have to work out scheduling deliveries with consumers, they sometimes cross the threshold into consumers’ personal space to deliver goods, Caldwell said. 

Furthermore, big and bulky items can be “an emotional purchase,” and so consumers have high expectations.

“Companies have to get everything perfect to have the perfect delivery,” Caldwell said. 

Although the COVID-19 pandemic accelerated online shopping trends, it also caused companies — and individuals at large — to appreciate the frontline workers of the supply chain. Caldwell recalled he was emotionally moved at a Love’s in West Virginia by the people thanking and applauding truck drivers coming out of the truck stop. 

“In [the] supply chain, it’s truly about invisibility. That’s our superpower. If we do everything perfectly — last mile, trucking, warehousing — if you do everything perfectly, you’re invisible. And that’s kind of the golden standard,” Caldwell said. 

“For one time, this invisible industry, this huge industry that supports the entire country, became very visible. And I think everybody in the country — U.S., Canada — across every company really appreciated how much passion and focus went into [keeping] America moving forward and making sure people could order goods that get to their homes,” he said.

Click here for more FreightWaves articles by Joanna Marsh.

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Joanna Marsh

Joanna is a Washington, DC-based writer covering the freight railroad industry. She has worked for Argus Media as a contributing reporter for Argus Rail Business and as a market reporter for Argus Coal Daily.