The Roaring 20s Are Back Thanks To Disruption’s ‘Bingo Wheel’

Few people had a Russian invasion of Ukraine on their radar a few months ago, but the conflict in Eastern Europe has become just the latest disruption to global markets after a long list of disruptors, from COVID- 19 to shipping and trucking capacity constraints, from labor issues to product shortages.

Through it all, logistics providers worked hard to maintain service levels that gave a semblance of normality. Through these times, innovation seems to prevail.

“Supply chains are getting better,” Mark Manduca, CIO of GXO Logistics, said Modern Shipper in a recent interview. “It’s like going back to August/September of last year, we hit the price peak. That doesn’t mean it’s over.”

Calling the current environment a “bingo wheel” in which companies don’t know where the next disruption will come from, Manduca said GXO’s business (NYSE: GXO) remains strong with more interest in its services with e-commerce, automation and outsourcing “trends that are on fire right now.”

For a warehouse industry that is only about 5% automated, Manduca sees great potential for automation solutions and, therefore, great potential for GXO.

“[Customers] we’re looking for the right price, but we’ve moved from commodity to value-added service,” he said. “This is very clearly shoulder to shoulder, hand in hand, global blue chips working alongside global blue chips.”

Of the three trends, e-commerce is only 20% integrated into overall retail sales and only 30% of the industry seeks outsourced vendors.

“We are literally at the foot of the hills,” Manduca said.

There is no single automation tool that dominates the market, he said, but the top automation demands are in goods-to-person robotics, up 103% year-on-year on the other ; vision technology, up 54% year-on-year; and cobots (robots that work alongside humans), up 223% year-over-year.

Read: Mergers and acquisitions are just one growth path for GXO

Read: GXO Logistics Reports Strong Fourth Quarter Results

“There’s still gigantic growth ahead,” Manduca said. “This industry could easily be 50-60% automated in the next 10 years and we’re barely at 5% now.”

Manduca noted that GXO is working to adapt a technology to the problem.

“Certain technologies work better with certain products,” he said. “What you’re trying to solve here is to turn 50 pick rates per hour into 300 picks per hour. The goal is [efficiency].”

Future possibilities

Reverse logistics is a thorny issue for e-commerce brands and warehouse operators. With estimated return rates between 20% and 30%, managing this merchandise when it returns to a warehouse and restocking it is a time-consuming process.

“We’re still in the first two or three innings of what this industry can do,” Manduca said. “If you think about the deployment of reverse logistics, [it] has been such an exciting area over the past 10 years because we’ve gone from 1 in 10 items returned to 1 in 3 items returned. The holy grail of what’s left to do is open the box that’s returned and figure out what’s wrong with the product.

Manduca said artificial intelligence could one day accomplish this, but the industry isn’t there yet.

Watch: Mark Manduca explains GXO’s mission

“For example, if a shoelace is broken, we don’t have a robot that can identify that the shoelace is broken,” he said. “That said, the technology we are deploying is a game-changer on every level. Some of these things have taken leaps and bounds.

The retail supply chain

Manduca spoke with Modern Shipper before Russia invaded Ukraine, and it remains to be seen what impact this dispute will have on retail sales – both in-store and online – here in the United States. However, Manduca said some GXO customers are looking to convert up to 80% of their sales to online sales, which presents challenges for supply chains.

“The consumer spends and it continues unabated. … We don’t see it collapsing; the Roaring Twenties are happening,” he said. “As an industry, we’re seeing direct-to-consumer demand and getting around that extra five to six weeks [for products] go brick and mortar. We see people going directly to ports and getting these goods sooner.

Moving warehouses and products closer to the consumer is driving the U.S. warehouse boom and some companies have encountered “start-up issues” to meet the challenges, Manduca said. GXO solves this problem by “behaving like our customers” and operating warehouses in a way that matches customers’ wants and needs.

“They just can’t do it effectively on their own,” he said. “We had a client who used robots and made 100 selections per hour; but if we did that, we could get 200 or 300 selections per hour. »

E-commerce is also changing the appearance of warehouses. While some brands maintain dedicated facilities, Manduca said GXO generates approximately $300 million in revenue (out of $700 million) from multi-tenant facilities. This is an area that many warehouse operators are getting into.

“It’s a great way to bring in smaller customers and train them to take dedicated warehouses down the line,” Manduca said. “There are a lot of operators playing in this space, but it’s a very different model from the top-notch model.”

First to market

GXO is unique in the services it provides. Spun off from XPO Logistics, GXO maintained that it was trying to build a category as a technology logistics provider.

“If you think about the business, we spend more than half of our investment in our technology,” Manduca said. “If you combine that with a big pipeline that just keeps getting bigger…. we will continue to invest heavily in technology. We will lead the way in this regard.

Manduca said the company is also looking to scale, both organically and inorganically. In February, GXO made a firm offer of $1.3 billion for the British company Clipper Logistics. This decision has generated positive feelings within the investment community. Morgan Stanley’s Ravi Shanker said the deal offers cost synergies with “potentially even more compelling revenue-side benefits.”

“We like that GXO is backing its organic growth story with inorganic acquisitions, which is an opportunity given the relative fragmentation of the business,” Shanker wrote in an analysis of the deal. “We are surprised that GXO has done this in the UK, a country in which they are already very strong, although [management] believe there will be little customer overlap and great revenue/cross-selling opportunities.

“Ultimately, we believe this combination makes a lot of sense and (once approved) should be accretive and well received by the market,” Shanker added.

Manduca said it was important for GXO to work with its customers and not necessarily for its customers.

“You want to know you’re working shoulder to shoulder with someone rather than a master servant [relationship],” he said. “It causes a flywheel because good becomes great and great becomes amazing.”

Click for more articles from Brian Straight.

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