As we wrap up this year, Senior Vice President of Global Distribution Bruce Krebs shares what's been going on in the distribution and warehousing world, how automation is developing, and what you can keep in mind to tackle 2022.
Chris Parker: Hello everyone, and welcome to the Expeditors Podcast, where you can hear about front-of-mind topics in the logistics and freight forwarding industry through the lens of a global logistics provider. I'm your host, Chris Parker. And today, we're going to talk about the world of distribution to know how they've been handling the last couple of years, exciting developments and automation, and lessons to think about as we bring this year to a close. This will be the last episode of 2021, and we'll be back with more content in January of next year. But today, joining me is the Senior Vice President of Global Distribution, Bruce Krebs. Bruce, welcome.
Bruce Krebs: Hi Chris. Great to be here.
Chris Parker: Pleasure to have you. Let's get to know you a little bit before we start chatting about today's topic. Could you walk me through your career or all the events that led to where you are today?
Bruce Krebs: Yeah, sure. Well, we're going to have to go back about, well, over 30 years ago. I started in the logistics industry as an intern in Italy and Europe. The reason for that is I studied world trade development in college and double majored in Italian and world trade. And did my junior abroad, fell in love, and tried to find any excuse I possibly could to get back to Europe. And fortunately, I did find a company that gave me the opportunity. And so, I shipped myself over to Europe and worked as an intern for three months in Milan, Italy, and got hired shortly thereafter, ended up living in Italy for six years. Then I moved to Miami and became a district manager for that same company, which is now part of UPS. At that time, the company was going through a significant amount of acquisitions. And in fact, in one year, I think I had to integrate into my operations over nine new companies.
Chris Parker: Wow!
Bruce Krebs: Yeah, so I saw the writing on the wall, and fortunately, I was offered a great job to become director of operations for Latin America for the largest air freight forwarder into Latin America. And I did that for six years until that company too was acquired. And at the time, I was running South America and operations based in Buenos Aires. We got acquired. I got transferred with the new company to Mexico City, and within the first year of being there, I was given the opportunity to interview at Expeditors, and well, 21 years later, here I am-
Chris Parker: And you stay put for a little bit?
Bruce Krebs: It's been an amazing 21 years with Expeditors. I started in Mexico City. I then moved to Brazil and then, after six years in Brazil, moved back to the Southern border and was there for five or six years and have now been based here in corporate headquarters in Seattle for the last six years, working with the Global Distribution Product around the world.
Chris Parker: You've started from doing air and a lot of operations. How did you get directed into distribution? What about distribution interests you?
Bruce Krebs: That's a great question. So I would say career-wise, I kind of felt like I was an air guy for the first few years of my career.
Chris Parker: There's a personality test that you took that said you're an air guy.
Bruce Krebs: And then ocean was extremely important. But then, when I moved to the Southern border, I was very much a customs brokerage fanatic, in the sense that we had an amazing opportunity down there. I think Expeditors, without a doubt, is by far the best broker in the world. But, if you were ever to go to the Southern border, I don't think anybody can come close to us and touch us. But, as part of being on the Southern border and running Mexico, we did have the opportunity to expand quite a bit in distribution. And before I took on this role, my region was the largest in terms of distribution revenue. And when the opportunity came to move here to corporate, I jumped on it and haven't looked back since. I mean, distribution is like all of our products, incredibly complex and incredibly interesting.
Bruce Krebs: There's far more science and a lot more thought that goes into a successful DC than most people realize. So, we have an engineering team, I get to work with a lot of interesting people, and we have a lot of interesting personnel dynamics too. There's never a dull moment in this product or, quite frankly, in any product that we offer, but there's always something interesting and new going on in the world of distribution. I love it and am really happy I took on the job, and we'll see.
Chris Parker: Yeah, absolutely. Well, I'm excited to talk today about a lot of the developments that have been happening in the distribution, and it sounds like it... Like you said, yourself, it's changing all the time, and there's lots of exciting things going, so we definitely want to cover that. But before we do that, I also want to know, in your day to day, what has your world been like?
Bruce Krebs: The Worldwide Senior Managers, we all sponsor accounts. And what's so great about that program is it allows us insights into actually how we're interacting with the accounts that we sponsor around the globe, how our services are, and across all services. And it gives us an insight into how well we perform in our various different products. And so, 22 or 24 months ago, when COVID really started taking off, obviously the distribution operations were some of the hardest-hit it in the early months because clearly, you cannot run a warehouse without having people on the ground. You cannot run a warehouse remotely. Sometime in the future, when we've got virtual reality, and we can drive forklifts and do things through automation, that may become a reality, but that's just not the way it is today.
Bruce Krebs: So we had a lot of struggles, I would say the first three to four months, until we were able to settle down and come up with the right strategies. So I can honestly say for the last 12 months, the majority of my time has been spent supporting some of the other products that are suffering far greater challenges, whether it be on the ocean freight side that everyone's well aware of or even on the air freight side. So, from a product perspective, I would say that we have not had any serious operational challenges that have had to get escalated to a senior management level, and it's been probably 16 months. So from that perspective, I've been extremely fortunate, unlike some of my other product counterparts that are spending all their time trying to explain to a customer why their ocean freight rates are five or 10X higher than they were two years ago and why the freight's not moving.
Bruce Krebs: So we've been spending a lot of our time on, at least over the last six months, refining our processes and procedures so that we can simplify and make it much easier for our staffing or for us to onboard or service our existing customers. So we haven't had to deal with some of the same challenges where we're dealing with air, ocean, or domestic service providers that simply don't have control over their resources. We have a lot more control over our resources on the distribution side. So, that probably might be a surprise for many that-
Chris Parker: Someone's hair here is not on fire.
Bruce Krebs: Exactly. So from a distribution standpoint, it has been the biggest challenge that we have is saying no to a potential customer. So I think that's been my biggest challenge, myself, and our entire teams, especially on sales and account management, having to say no to opportunities because we simply don't have the space or the equipment or the labor to support them. So we've been extremely cautious, and we've been extremely transparent with our customers. And, we've only said yes, when we are 110% sure that we can deploy and deliver on our commitment. I think that's been our biggest challenge has been saying no.
Chris Parker: And that just because it's been tough. So, and that word commitment that you're using like it is a commitment. We want to be able to execute flawlessly for new customers. And if we can't do that, then that's not fair to them. Right. And that hurts our reputation. We don't want to do that.
Bruce Krebs: We don't want to do that because all we're doing is we're creating a situation with a customer that we're endangering their relationship with their customers and our relationship with that customer. I would never want us to consciously take on business if we weren't 110% sure we could service.
Chris Parker: Let's talk about that now, actually. So what would you say right now is going on in the world of distribution?
Bruce Krebs: So what's going on is that, well before the freight's getting to the DC, it's probably already late. The customers have probably already paid four to ten times more than they had expected to pay or had paid a year prior, and chances are it's late because production was late because of the factory challenges that we've seen. So by the time the freight has gotten to the DC, it's already on fire and late, and there's somebody at the other end that desperately needs it.
Chris Parker: And you're kind of caught this weird middle area, right?
Bruce Krebs: Yeah. We're the last ones before the freight gets to the end customer or the consumer. And of course, it's now really late by the time it's ready to ship in the DC. So the amount of pressure to get product out the door what's really been going on has been more communications than ever before between the customer and the DC on prioritization.
Bruce Krebs: In other words, we have to make joint decisions with our customers on what takes priority receiving or shipping, based on the orders, based on the factory needs, based on the consumer need. So we are still doing triage, and we're still trying to determine where we focus our efforts to deal with the late and the expense of crisis. So I think we have been... And there's always going to be trade-offs because of the labor shortages. There's just simply not enough excess labor to get everything you want to get done in a DC.
Chris Parker: And, for the labor that is there, do they have the right tools to get the job done?
Bruce Krebs: One thing that we saw early on in the pandemic was the support from either internal or third-party IT resources. And we know almost all DCs are all high volume DCs are very heavy when it comes to systems.
Bruce Krebs: And so, I mean a down system, a down PC impacts orders. So we're not seeing those challenges anymore. But we did early on, we addressed those, but what's important about IT and resources that I think all customers need to think about is that medium to large distribution transition will come with IT needs. Typically more EDI messages than any other product and critical as well because we're dealing with customers' assets. So I would just caution any customer looking to embark on a very large or new deployment of a new system or a new warehouse. Think through that and make sure that you have the adequate IT resources. And the other thing that's been very challenging over the last year has been on the equipment side. Typically, pre-pandemic, if we needed a forklift, we could have a forklift within an hour. If we needed a new forklift, we could have a new forklift within a day. What we're seeing now is on lead times for forklifts, we're talking months. Let's talk racking. I mean, let's talk pre-pandemic racking, and let's talk pre-
Chris Parker: To make room for all the freight that's coming in. Right?
Bruce Krebs: I think the big sticker shock, too, for ourselves and for any of our customers that have stood up their own DCs has been just the inflation when it comes to just imagine racking. Racking steel, the majority of the racking came out of China when the Chinese tariffs hit, we saw a huge spike in the cost, but racking now cost double of what it did pre-pandemic. And the lead times, depending on how much you need or want, lead times can be six months.
Chris Parker: But still a necessity.
Bruce Krebs: Exactly.
Chris Parker: You still need it. No matter what.
Bruce Krebs: Right now, we've seen through Q3 500 million square feet of absorption over the last 12 months, just in North America alone. In other words, there is almost no... There's less than 4% of available industrial space. So there have already been, there's been people moving into 500 million square feet-
Chris Parker: The growth happened.
Bruce Krebs: The growth happened, and it is still happening. Just imagine the resource challenges that everyone is having in terms of getting the equipment, in terms of getting the racking in terms of getting forklifts or rollers, but most importantly, think about the need to have people on-site at a DC that are configuring your scanners, everything, even the security alarms, things like that. Just know that things are not moving nearly as quick as they used to when you wanted to stand up a DC.
Chris Parker: One of the things I was curious about is the behaviors of consumers moving up the supply chain. How was distribution impacted by lockdowns?
Bruce Krebs: So, I think the biggest challenge we have is that everybody on this call has probably acquired much more than they ever have on E-commerce. They have an expectation that if they click online, they can have it delivered within 24 hours. So that same expectation has shifted into the B2B world as well.
Chris Parker: Right. Materials?
Bruce Krebs: Materials. "Hey, if I can get it within 24 hours to my doorstep, why can't you get it to my factory within 24 hours?" and again, that gets back to the type of the operations that you're dealing with, the staffing levels, where they're located. Certainly, there are pockets around the world that are being more severely impacted than others due to COVID. So I think it's very important that everyone adjust and have realistic expectations and don't assume that your same-day delivery or your 24 hour delivery from your online purchase is going to be the same on the B2B. It should be if you have agreed upon that metric or that KPI with the service provider, but unless that metric's been agreed to-
Chris Parker: Get in line.
Bruce Krebs: Get in line because everybody's got challenges.
Chris Parker: Of course. I want to turn back the clock here a little bit and look at where distribution was, five or ten years ago. You were saying earlier that there's a lot of changes happening, a lot of innovations, a lot of investments in kind of improving operations. What's significant about what's going on now, and how does it differ from what would've been seen five years ago?
Bruce Krebs: I think this is similar to the overall question about logistics in general. Up until pre-pandemic, how often were CEOs ever involved with the supply chain? And actual deliveries. The CEO would... Maybe an issue got escalated because their largest account was being impacted. And then they spoke with their logistics manager. "Hey, we've got an issue with this customer. Take care of it." It got taken care of, and then CEO moved on, didn't talk about logistics for another 12 or 14 months till another issue appeared. Well, what we've all seen since COVID is that pretty much every CEO around the globe has gotten involved with the logistics. For the first time, we're seeing CEOs that are actually reading logistics publications. For the first time, we're actually seeing logistics in the news every single day.
Bruce Krebs: We're seeing it both on the regular news, whether you're consuming that through your television or your iPhone or your device or printed or published. So there is now an interest in logistics. And what has also happened because of the pandemic is that the discussion about automation over the last 22 months gets louder and louder every single day. What are we doing as an organization? I'm just talking about a hypothetical CEO. What are we doing as an organization, so we're not so dependent on labor? What are we doing so that we're insulated from the labor challenges if this pandemic is to endure or we have another one? The discussion around automation and reducing reliance on labor is the big discussion now. And, five years ago, there were discussions. And there were companies that got into robotics. But what we're seeing now is every week, there's a new entrant into the robotics arena. And we're also seeing robotics as a service or RaaS...
Chris Parker: This is new one for me.
Bruce Krebs: Yeah. You've heard of SaaS, software as a service. Now we've got RaaS. In other words, we don't have to drop a multimillion-dollar CapEx now to get robots in our facility. We don't have to sign a check upfront.
Chris Parker: We're bringing a partner now.
Bruce Krebs: Yeah. We've got a partner, and we can actually lease robots now, just as we can a forklift. So I expect that trend will continue. I expect that everyone around the globe is going to continue to find ways to become less dependent on labor. And I believe that the ones that use automation properly and they go in it eyes wide open and have a solid plan versus just, "Oh, we need automation. Let's do it." Unless you have a clear plan, you're just throwing money away. The biggest change has been just overall awareness of the DCs at the C-suite and discussions around automation and less dependency on labor.
Chris Parker: What does a balance look like between automation and labor? I mean, labor, it strengthens the economy by keeping people employed, but automation obviously increases productivity and efficiency by a whole bunch. What does the balance look like for that?
Bruce Krebs: There's always going to be those that are anti-automation, anti-CapEx, more focused on labor. Every automation opportunity is slightly different, and the right balance is obviously don't overdo it on the front end because I think one of the things that we do great as an organization is determine our return on investment for ourselves. And more importantly, for our customer when it comes to automation. What we've found is that we've actually consciously not deployed automation that has a 10 year ROI for a customer that is not potentially going to have that same business for the next 10 years. Their patterns might shift. They may not need automation in one location, but they're going to need it in another. So we're going to be strategic about it. And what is the immediate short, medium, and long term need?
Bruce Krebs: And we will determine the balance, but a fully automated warehouse will never exist because you're always going to need staff on site maintaining the machinery. And trust me, I have seen some incredibly automated facilities. I've seen one of our customers in Europe that at one point at a peak, they had over seven hundred full-time employees, they're down to 35 producing the same amount. Now, mind you, that came with a 45 million Euro CapEx. So, it really depends. You want to find the right balance, and you want to find the right return on investment. And I think the company's that focus on the highest ROI first and aren't trying to boil the ocean are going to have the most successful deployments.
Chris Parker: It's not about going for the shiniest, newest thing and assuming that, that's the one model that'll work. It's like a strong labor-management strategy.
Bruce Krebs: That's right. And quite frankly, you need both, you need systems and tools to manage the labor, but more importantly, you need great people that are managing that labor. That's more important than a great tool is having great people. Especially now. I think, fortunately, our company strategy has always been to treat our employees and service providers with the respect that they deserve and pay them more than what the industry is probably paying. And that will ensure that we're always going to be successful. But I think where I've seen the biggest failures are the organizations that are just focusing on how low can they pay their service provider or their employees. It just doesn't work.
Chris Parker: What other kind of areas of continuous improvement are happening in distribution, aside from automation?
Bruce Krebs: I think the most interesting aspect over the last 22 months has been reinforcing the need for continuous improvement in our operations. So, in other words, early on in the pandemic, we were just trying to get through the day. The first few months, we were just trying to get orders out the door.
Chris Parker: Triage.
Bruce Krebs: Once we got through the triage, once we stabilized. And once we did have adequate resources, in some ways were still in triage mode and weren't looking as aggressively as we were pre-pandemic to the KPIs. So I think what has been very important for me personally and for our teams globally has been back to the basics in COVID. In other words, our continuous improvement has started with... "Let's take a look at our KPIs. Let's look at them daily, let's look at them weekly, and let's look at them monthly and make sure that we are continuously improving in our operations despite the labor challenges".
Bruce Krebs: So what's been born out of some of our challenges have absolutely been new processes and procedures to try to make things easier. Because we have had turnover in our facilities and we will always be onboarding new staff to support. So I think it's very important to talk about continuous improvement in terms of making sure that you haven't lost focus on the KPIs, making sure that you have not lost sense of the basics because you've said, "well, basics and KPIs are thrown out the window because of all the challenges". No, you have to stick to those. And it requires strong leadership. And so I think more so than automation, our focus on just overall continuous improvement and having those discussions and not taking our eye off the ball has been what's been most important for us.
Chris Parker: It sounds like automation is this great new thing that's happening. And it's great. We'll learn to work with it and to develop it more and more, but it sounds like what you're ultimately talking about is the power of your word to customers.
Bruce Krebs: - Power of people. For all the products. We will always have the highest headcount, and we're always going to have the most personnel challenges. And therefore, I think it is more critical than ever, especially during pandemic times to have the best people managers in your DC operations. I would say people have become more important than ever. And I think it's going to stay that way for at least the next few years. I think we're going to be dealing with labor challenges for a couple more years.
Chris Parker: Kind of bringing this down to a close, as we look forward into 2022, what lessons would you say have been learned this year that you would want to kind of pass on to folks who are listening, what can be done to prepare, plan, and kind of continue to power through?
Bruce Krebs: 2022. Prepare, plan, power through. That would be-
Chris Parker: That really is it, huh?
Bruce Krebs: Yeah. That is it. In other words, look, we all know how difficult it is for most companies to forecast. We know that, and it hasn't changed. It's probably gotten a lot harder, actually. But forecasting for your DC operations so that you've got to have realistic key performance indicators that can actually be executed upon and you need to manage those every single day, week, and month, and you need to constantly adjust, and you need to be realistic. And you need to make sure that you understand that your DC and your DC managers and your DC operations, they are the last before that shipment gets delivered to the customer. So work in partnership, communicate, understand their challenges, work together, and power through, like you said.
Chris Parker: What does a successful customer look like then, in next year?
Bruce Krebs: The most successful customers that we see are the ones that have... They have a good idea on their volumes that they are realistic and taking the example of the one container a week that now has not gotten out of the port. And then all four of them come in on the same day. Plan for that, understand your priorities, understand which of your end customers will receive the priority first, and communicate that. And don't wait until the shipment is already on fire and your CEO's involved. So I think just transparency, openness, measuring together, working together to resolve challenges, understanding that the customer is probably short on IT resources. While I wouldn't say we're short, we're definitely tight.
Chris Parker: Yeah. So, and everyone is.
Bruce Krebs: Everybody is. So just be realistic.
Chris Parker: And I think another thing that comes to mind is constant knowledge and exposure to the logistics world. I mean, you said, CEOs are now getting more involved. They're rolling their sleeves up. They're having more and more conversations. So that constant exposure and understanding just what is going on in supply chain is going to be crucial to that success.
Bruce Krebs: I would say that would be one other recommendation I would have that, where possible, where you're not exposing yourself or others, and you're not going to create a risk or a concern for the DC. If you've never been to a DC that's tight, that's at capacity, that's above 90%.
Chris Parker: Book a tour now.
Bruce Krebs: Book a tour now, because then you'll understand. People just realize, "Why can't you get the freight out of the warehouse?" It's like, "Well, come look and see." It's very difficult for me to explain why product that's in the corner of that warehouse, we can't get it out. It's no different than what's happening in the seaports. If you've got an ocean container at the bottom of that pile, it could be weeks before that pile gets unburied. And unfortunately, when you're in a tight DC, it's no different. So, now is the opportunity to learn. And especially if you've got an irate CEO or an irate COO, book a tour with them and book a tour with them, and maybe you can hit three things at once. Maybe you can get to a seaport and airport in a DC all on the same day, and that will hopefully educate everyone on the need for transparency and planning because it's very difficult to put into words why it's so hard to pull freight out of a corked warehouse-
Chris Parker: Until you see it.
Bruce Krebs: Until you see it. I would recommend that if you have the opportunity. If you don't understand it or if somebody on your team doesn't understand it, because it's really difficult to put into words why it's so hard. Hey, there's a reason why we had quite a few of our execs driving forklifts again. We got to see it, got to be part of the solution, and we've got to all work together to figure this out.
Chris Parker: Incredible. Bruce, thank you so much for the time. And thank you for walking me through this. This is so much to take in, but I know that I'm actually going to go back and listen to this a couple of times through just to like really understand because you're right. A picture's worth a thousand words being in there in person is going to be worth millions.
Bruce Krebs: That's right, it is. But Hey, the pleasure's been mine and anytime you know where to find me.
Chris Parker: Yeah. And where can people find you? Actually, if they're interested in getting of contact, if they've got questions or just want to talk to the distribution team, what can they do?
Bruce Krebs: Yeah. If anybody wants to talk to me, they can on my information on LinkedIn, I'm based here in our corporate headquarters, they can dial the main number at corporate, and they can get to me. And my email is email@example.com. That's K-R-E-B-S @expeditors.com. Be more than happy to have a conversation with anybody.
Chris Parker: Excellent. Thank you again for the time, Bruce.
Bruce Krebs: Thank you, Chris. Have a great day.
Chris Parker: Thanks for listening to today's episode. If you've got any questions or want to learn more about today's topic, check out the show notes for more information. And before you go, make sure you're subscribed on whatever podcast app you're using so you won't miss the next episode. To learn more about Expeditors, you can find us on LinkedIn, Facebook, Instagram, and Twitter, or simply visit us at expeditors.com. Take care, and I'll see you next time.