James Burman (JB): I’m joined by Gavin Williams, managing director, supply chain – UK and Ireland, XPO Logistics.
We had a bit of a strange year last year, to put it lightly. I’m keen to know, because you work across different verticals, how have different product sectors performed?
Gavin Williams (GW): They’ve all performed very differently. In the food service and drinks sector, people are not eating and drinking out as much. You can imagine in the food and drinks sector we serve, across most of the grocers, we’ve had significant increases in volumes, and it’s literally been a peak every day.
The DIY sector is an area where people have decided to use lockdowns as an opportunity rather than a challenge, using the lockdowns to undertake specific projects at home, so using their time wisely.
And finally, the cosmetics sector. While people have not necessarily been in their place of work, due to virtual calls, consumers have been procuring their necessary cosmetics rather than going to beauty salons. We’ve seen a 200% increase in that sector alone.
JB: Everyone had to adapt a little bit last year, in some cases a lot. I wonder how XPO has done so? Specifically has XPO invested in any new technology for the warehouse or elsewhere in its operations in 2020, if so what, and why?
GW: From a technology perspective, XPO spends hundreds of millions on technology every year. We haven’t just done that because of COVID. Our plans for technology are well developed. What COVID has done is accelerate the need for technology.
The reason for that is technology, where deployed appropriately, creates a more accurate, faster, and more efficient supply chain. I can’t think of a better time to have those things, particularly in some service areas like e-com fulfilment, where volumes have significantly increased. The deployment of technology creates a better return on investment when volumes are higher and gives more certainty.
In terms of the way we’ve changed internally, the main thing is that our employees are made safe in their places of work. After our recent acquisition of most of the Kuehne + Nagel contract logistics operations in the UK and Ireland, we now have approximately 30,000 employees in the UK and Ireland. The vast majority are key workers, which requires them to work from site.
Since the health and safety of our employees is our number one priority, we set up a European health and safety task force to navigate the ever-changing government advice, glean the best practices from our global business, and apply this to keep our employees as safe as possible. There is a long list of initiatives that were deployed, including bio misting, which increases the hygiene of our operations, especially during COVID times, and we segregate, or cohort people, altering shifts where it’s practical.
JB: I understand that XPO Logistics has increased its workforce in the UK & Ireland from December 2020 versus January 2019 by 12.4% in headcount and I’m wondering in detail what internal processes have had to be adjusted to cater for such a large number of new workers in such a short space of time?
GW: There are three or four key things that we’ve deployed to make sure those employees are safest at work. Firstly, we raised awareness in our leadership teams as to the importance of training and onboarding these new colleagues appropriately in our COVID safety protocols.
Next, we do virtual inductions for people whenever possible - trying not to bring them physically into the workplace before they start.
We are also trailing social distancing technology, which enables us to very rapidly identify where we’ve got people coming into contact. Not only does it signal a two-metre warning if an employee does turn out to be a risk, in terms of having tested positive for the coronavirus virus, we can also pull a report immediately that says with whom, and for how long, they have been in contact with.
However, it’s not just about the key workers that are on-site, it’s also about those that are still off work because they’re anxious or vulnerable, or they’re working from home and feeling lonely. For that reason, we’ve brought dedicated mental health training to our employees, which has been really well appreciated and significantly used in the business. It's a different but an important angle even for those that seem to be ok. Working from home for a lot of people, especially those that live on their own, has been pretty daunting.
JB: The next question directly addresses the lockdown element of this year. With limited access to stores during lockdown it’s only natural that customers are more frequently returning products to retailers from their home. I wonder if reverse logistics is a previously strong area for XPO, or whether there has had to be an increase in that focus? How has reverse logistics been impacted?
GW: We are the number one service provider of e-com services in Europe, which means it follows that we are equally strong in our reverse logistics offering. We run both dedicated returns functions, and also return functions sitting alongside our e-fulfilment proposition. Globally, we do about 200 million returns per annum – I hope that gives you a sense of scale, as it’s a big part of our business.
If I bring it down to here and now, in the COVID situation, two things have happened. Yes, we’ve seen a significant increase in returns, because in the end, people are moving towards an e-com channel shift, or if they do go to retail stores, they can’t try things on. When people go into stores, it generally means they have to take goods home, and then return those goods if not fit for purpose. It’s an inevitable outcome that we’ve had an increase in returns.
But the actual percentage of returns has reduced, and what I mean is that people are returning fewer items as a proportion of items that are purchased. For instances, consumers are not tending to buy formal wear as much, and formal wear is where we see the highest percentage of returns. What they are buying as a replacement is more lounge or casual wear. These garments tend to be less tightly fitted, so as a result, the percentage of returns against sales has reduced during the pandemic. Aside from apparel, people are buying many more consumables online, and these have a very low percentage of returns.
JB: There’s been an increasing pressure on logistics businesses to ensure all operations are as sustainable as possible. Does XPO feel that pressure, and if so, what steps is it taking to make progress in this area?
GW: Our focus is on our impact on the environment, which did not change during a pandemic. I haven’t seen any drop in focus from our customers and certainly not from our own business around environmental sustainability. Yes, the headlines have turned to the pandemic, but just behind that will be a return to news about environmental strategies.
The biggest areas of impact are warehousing and transportation. The good thing about environmental initiatives is that mostly they have a benefit commercially, as well as on sustainability.
Telematics in transport is really key for us. The telematics dashboard gives us a fantastic window into a driver’s performance, and the vehicle’s performance, and fuel usage. In our warehouse operations, we have made great strides with energy efficiency and waste reduction, and of course we opened the Nestle Digital Distribution warehouse of the Future in the UK last year. That facility has a number of advanced sustainability features, including ammonia refrigeration and a rainwater harvesting system.
JB: What are your predictions for the retail sector in 2021?
GW: I would be a very rich man if I could answer that question succinctly. I think if you’ve got a pandemic, Brexit, and consumer channel shifting all in the equation, it’s very difficult to forecast the future of retail with real certainty.
What I would say is likely to happen, is some reduction in retail bricks and mortar. We have seen a substantial increase in our existing, and potential new customers for e-com and omnichannel fulfilment solutions.
We’ve got some customers that have either a very limited e-com presence, or they have an e-com presence, but it may not be big enough for the future. As the biggest in outsourced e-com fulfilment platform in Europe, we are in a great position to take customers on a journey that brings them a new fulfilment service, or expands them further in the UK or Europe, and also maybe deliver their e-com fulfilment with a more mechanised or automated solution.
All in all, the retail world is uncertain, but it’s almost certainly going to shift towards a heavier emphasis on e-com, and those that make the earliest and bravest decisions are more likely to win in the e-com channel shift that the pandemic has energised.