What have you seen this past year in the distribution market?
I’m pretty excited about the fact that NFI was set up with facilities, systems, and great employees that were capable to continue shipping the goods. 2020 offered an opportunity that albeit we may not have been shipping to a retail store, we were shipping directly to the consumer. Luckily with our tier one systems, many of the different material handling equipment, and systems set up within our buildings, we were able to meet that demand. Now that inventory’s moved a little bit differently, we may have in fact, shipped more products of the same SKU than we did in the past. Customers may have struggled a little bit to build that inventory at the distribution center. Luckily with just under 60 million square feet, we were able to provide the right buildings and the right inventory scheme for our shippers and our customers to get the product in quickly, get it turned, and get it shipped out to the consumers. 2020 was a year of more volume in a shorter window, and we were able to rise to the task and meet demand.
What milestones stuck out that impacted distribution capacity this past year?
Because so much of our import business moves through the distribution centers, we definitely felt the effect of the slow down of imports in that Q1 period as we were really just starting to learn more about COVID, the risks and the impacts of not just our people, as well as our business. That period of uncertainty was scary. The products dried up overseas and more and more were being unloaded, and we obviously saw a slowdown and then we saw all the volume hit at once. As that timeline progressed into Q2, we started to realize the effects of a chassis shortage in our business, and of inbounds being delayed. Quickly into Q3 we started to find demand coming in, orders were being received, and we had to get product out of those doors quickly. We shipped some record-breaking numbers in Q3 for NFI. During these periods of times, folks were staying home and they were just buying products differently, but they were still buying. As we sit here and wrap up 2020, we see a high amount of demand from our sites. And for the most part, volumes were up. A personal word of thanks goes out to all of our frontline workers for making sure that those goods were received and shipped, protecting both our customers as well as our business. Thank you.
Were inventory volumes and capacity impacted differently based on geography?
We continue to rely on the strength of our campus environments. I’m very proud of the fact that during this time we were able to implement enough safeguards to protect our employees. Those campuses saw increased volume and we were able to leverage that labor, the equipment, and the systems expertise throughout the campus. I commend this division for handling the amount of startups that they did in 2020. At the same point, I think that being able to pull off and grow to the record-breaking numbers we did in 2020 with new business is a great example of not only our ability to digest that volume, but to do it successfully during a pandemic. Many of the startups that we had in distribution in 2020, our customers could not be more grateful for the work that was done.
What verticals did we see the most volume moved this past year?
There’s no doubt that our large presence in the home improvement market continues to provide great dividends for NFI. As people stayed home during 2020, they put a lot more effort and money into their homes. We definitely saw a sizable increase in that home improvement category. Obviously in the food and beverage side, people weren’t out in restaurants and they weren’t traveling to hotels, so a lot of that food and grocery business increased in a big way. As I mentioned earlier, if you weren’t taking a vacation you were probably buying something for yourself or for your family, so in 2020 we saw many of those products increase activity. 2020 provided an opportunity for us to help our customers sell more products.
What was the most challenging part of 2020 for shippers?
Most challenging was when we hit these periods of business as usual, then there was a lockdown. Then there was a concern that if we were going to have a breakout at one of our operations, how are we going to have business continuity that would keep us shipping and active in the market? I think as we started to move throughout 2020, the credit goes to our risk management and safety groups for really working with the field and finding a way to keep our people safe. We could protect ourselves, which in turn protected our customer’s businesses.
How has NFI helped distribution customers navigate 2020?
We help them navigate by being completely honest and talking about what kind of cases we saw in the field, shifting resources as needed, and remaining flexible. When retail was shut down and all of a sudden retail was back, having to be realistic about how quickly we could recover for them. Over communicating and really remaining flexible and agile were ways that we helped our customers navigate these uncertainties.
How has 2020 shaped the distribution market for the future?
I think the distribution market has changed forever. When customers run out of inventory, they’re missing a sale. I think that the world will always think about, “do I have enough products in the right location?.” We may have been moving towards an environment of many more distribution centers, full of the same SKUs in many different markets and urban city center warehouse locations. Now, when you think about how many shippers are going to overcompensate for inventories in the event of another pandemic, how many are going to want to make sure that they plan their inventory levels to meet consumer demands? I think that distribution will continue to see an increase in need. There will continue to be a shortage on the industrial real estate side, in many markets, which has driven up lease rates as well. And I think that the competition for labor is going to really drive where the distribution centers are and how large they are. We have obviously grown comfortable with ordering online. We’ve grown comfortable with getting home delivery for those that may not have done that before. Omnichannel will be first and foremost on the front of everyone’s minds, as they think about where the distribution center needs to be and how they’re going to deliver those goods to the ultimate customer.
How tight is the warehousing market and how does NFI navigate that?
With the scale of almost 60 million square feet, we obviously bring some economic and financial buying power to the space. As a developer and a builder of industrial real estate space, that provides us the opportunity to help our customers probably get access to space that they can’t get access to on their own in that roughly 60 million square feet. Many of those operations are in shared environments. So it really allows customers to scale with growth, but also remain somewhat flexible as the seasonality of their business just changes their needs. That’s where I think our customers would tell you that we’re unlike the competition and truly stand apart.
Were there any scenarios where NFI had to evolve our solutions to respond to a shift in a customer’s inventory needs?
The ordering pattern has changed from being a couple of truckloads that go to retail to all of a sudden if the retail store was closed the customer would say, “please ship these 500 orders direct-to-consumer.” We had to change our strategy nearly overnight. Order sizes got smaller, order patterns got more frequent and NFI had to respond to that challenge. I think from an inventory perspective, consumers were still ordering and shippers may not have had the product they needed in the right location. So we may have seen some surges and inventories where we run four distribution locations for one customer, but all of a sudden all the inventory was coming out of Ohio and less was coming out of Texas, or vice versa. So we saw a lot of changing dynamics. If someone had been closed and then they were reopened, it wasn’t that all the volume that just went away from the period. Most of that volume still showed up and it still showed up at the same time, just a little bit later. We had to react to that as the customer did not want to lose that sale.
How has engineering, the use of technology, and data played a role in navigating the challenges of 2020 for customers?
We’re constantly trying to find a way to increase productivity, find a way to meet that demand. Direct-to-consumer volumes continue to explode, and I think that productivity opportunity is going to help our customers grow their business. And in turn, that’s going to grow ours. So innovation and really finding a way to do it faster, better, cheaper is something that NFI focuses on. We’re constantly talking to our clients on a daily basis of what type of systems we can bring to the table and what type of material handling equipment solutions we can bring. It’s going to be the continuing focus for us in 2021 and well into the future.
Joining the company in 2001, Bill Mahoney is the Senior Vice President of Sales and Account Management at NFI. He helps to design comprehensive supply chain solutions for existing and prospective customers.