COVID-19 and the pursuit of supply chain resilience: reactions and “lessons learned” from logistics service providers (LSPs)

3.1 Research approach

The overall research aim is to categorize and understand the reactions of the LSPs during the pandemic for the survival as well as what actions have been taken to secure LSP resilience. To classify the reactions and actions, we adopt the interpretive research approach from Darby et al. (2019). The interpretive approach allows us to generate meaning and expand boundaries, more as a process rather than with an explanation of an end product achieved by showing associations of variables (Denzin, 1984; Hudson and Ozanne, 1988). As such, the interpretive approach studies a particular phenomenon in a particular place and therefore “particular motives, meanings, and experiences are studied to provide ‘thick descriptions’ that are time-and context-bound” (Darby et al., 2019, p. 398). The research process in this paper follows the interpretive research approach using a part-to-whole process, represented by a hermeneutic cycle (Darby et al., 2019). The beginning of the cycle presents the orienting frame-of-references that explains the self-relevance of the context (Thompson, 1997). In this paper, the orienting frame-of-reference are the following two LSP resilience characteristics:

1. leverage the upsides, i.e. how innovation helped LSPs to survive operationally and financially; and

2. manage the downsides, i.e. how LSPs managed the negative implications of COVID-19 on their operations and business.

These two reference points are used to categorize the downsides and upsides and the associated actions and reactions.

3.2 Selection of context and sample

Unlike the positivist approach, which aims to generalize the findings, the context selection within the interpretive approach is driven by understanding rather than generalizing (Darby et al., 2019; Denzin, 1984). Owing to the emphasis of an in-depth understanding of the context, the selected amount of informant cases in interpretive research approaches is always small, varying between 3 and 20 (Darby et al., 2019; Fournier, 1998; Thompson et al., 1989). Therefore, based on the orienting frame-of-references, the context in this paper are the LSPs. Since the interpretive approach follows a judgment sample strategy, i.e. that the samples are based on the opinion of the expert (Deming, 1990), we selected four LSPs operating in Austria based on the following criteria: First, the LSPs need to have a global presence (i.e. are operating in an international/global market) and thus rely on global supply chains. Second, the LSPs have to provide all modes of transport (land, rail, sea, air), so similarities and differences between transport modes can be revealed. Third, it was decided to focus on two major LSPs as well as on two small and medium LSPs to get a better understanding how firm size influences (re)actions to the pandemic. Although Austria’s LSP competition consists of multiple small LSPs and all major European and international LSPs, we were confident that these four LSPs represent an adequate cross section of the LSPs in Austria.

For the interviews, four informants, each representing one of the four LSPs, were purposefully selected (Yin, 2014) to ensure that the respondents possessed an in-depth understanding and rich experience of the operational impacts and their underlying processes from a LSP viewpoint. The informants consisted of senior operations managers and global sales executives with an international track record in logistics and supply chain as well as strategic and operational management experience. As the aim of the interpretive research is to get in-depth knowledge and the information has been received with a promise of confidentiality, we guaranteed anonymity to the informants. General information about the companies are described in Table 1 below.

3.3 Data collection

Based on data-gathering techniques in interpretive research we collected primary data via semi-structured interviews, interviewing informants from the selected companies described above. Semi-structured interviews were chosen as they ensure that the content of the interview is focused “on the issues that are central to the research question, but the type of questioning and discussion allow for greater flexibility than does the survey interview” (Minichiello et al., 1995, p. 65). Although we used the orienting frame-of-reference as a guide, our questions were not “strictly scripted” (Yin, 2014, p. 134) and we followed a conversational mode to encourage a two-way interaction to better understand the particular actions and reactions and their implications of the LSPs during the COVID-19 pandemic. As such, the questions focused specifically on the COVId-19 impact and comprised four main issues: a) operational performance, b) sales activity, c) personnel capacity and d) upper management decisions.

The interview questions were short and open-ended with the goal to create a circular dialogue influenced by the recurring interaction between interviewee and researcher (Wimpenny and Gass, 2000) to understand the informants “on their own terms and how they make meaning of their own lives, experiences, and cognitive processes” (Brenner, 2006, p. 357). To keep the conversation going, we made use of probes and follow-up questions not only to stimulate the informant to expand upon original comments (Yin, 2014), but also “to hear the meaning of what is being said” (Rubin and Rubin, 2011, p. 7). The interviews were conducted either face-to-face, or via Zoom and all interviews were recorded and transcribed in August 2020.

To expand the information from the interviews we collected data based on secondary data sources. According to Rabinovich and Cheon (2011), the use of secondary data has some unique advantages like less subject to biases, higher internal validity and availability in great quantity, that are valuable to gain deep insights into logistics phenomena. Therefore, we used internal (e.g. documentations, digital records, archival records) and external data sources (articles, reports of agencies, industry reports) of the companies (Parikh, 2002) to gain further knowledge about the implications of the COVID-19 pandemic and the (re)actions of the LSPs. We used the most up-to-date data to guarantee the focus on the implications caused by the COVID-19 pandemic during the beginning in 2020.

3.4 Data analysis

In the data analysis stage, we first analyzed each case intratextual (Darby et al., 2019) using the orienting frame-of-references (i.e. the two LSP resilience key characteristics (a) leverage the upsides, and (b) manage the downsides) for interpretation. By reading and rereading the transcripts individually, we interpreted the text in context for each of the LSPs (Darby et al., 2019; Murray, 2002; Thompson, 1997). This intratextual analysis was concluded by a detailed summary including a list of the major findings for every LSPs to identify the reoccurring and main themes. This analysis stage aimed to provide all information in contextual detail (Prasad, 2017) and produce “thick” descriptions (Geertz, 1973). After that, we analyzed the LSPs intertextual (Darby et al., 2019), meaning across each other to identify common themes. In this step, we searched for shared storylines concerning the reactions and actions for the purpose of achieving a higher level of abstraction (Prasad, 2017). In other words, we performed a thematic analysis and coded the material to identify commonalities or intertextual patterns. This step allowed us to prepare a list of the actions and reactions by the LSPs during the COVID-19 pandemic and to identify overarching themes. Following the approach from Arnould and Wallendorf (1994) we repeated the process of thematic analysis until the orienting frame-of-references, i.e. the reactions and actions, were contextualized.

4.1 Leveraging the upsides: create revenue streams

For LSPs, the interviews and the secondary data showed that the disruption of global supply chains provided an opportunity to create additional revenue streams owing to overall lack of transport capacity, in particular in the air cargo sector. More specifically, in April 2020, “all trade lanes across the world seeing double-digit air cargo capacity decline compared to last year […] with transatlantic air cargo capacity down 44% from the US into Europe, and 58% in the reverse direction” (Wilson, 2020, p. 78) the disruption led to drastic reduction of aircraft belly cargo capacity, which accounts for approximately half of all air cargo (ICAO, 2020).

As a consequence of this “bottleneck,” air freight rates surged up to six times higher than normal, and LSPs were in the unique position to take advantage of their transportation network and offer clients transport capacity through their own or chartered planes. In particular, the major freight integrators such as FedEx, DHL or UPS, having significant capacity, were able compensate the lack of aircraft belly capacity, as C4 confirmed: “With China returning to the ‘new normal’ and starting to produce again, we saw an enormous uptake in demand on our Asian routes.” This demand led to additional revenues streams and “cushioned” the impact from the pandemic for LSPs, with C3 saying “The Asia business saved us [financially].” One major factor was the pursuit of national governments to secure PPE, leading to “record yields” with spot rates out of China reaching US$18 per kilo and prices of a 747 charter selling for US$1.5m by the end of April (Putzger, 2020).

However, sales was not always prepared to deal with these changes: “I suddenly was confronted with requests for airfreight rates and charter deals, a business I was not really familiar with” (C2) and “My focus switched from my usual customer requests and transport demands to this spontaneous, large one-off shipments for PPE” (C1). Nevertheless, the interviewees all suggest that the redirection to more immediate, pandemic-related business not fully compensated the drop in “business-as-usual” volumes, but significantly helped the LSPs to generate much needed revenue. A glance at the results of global freight integrators and LSPs indicates that COVID-19 had an impact on revenues and profits, but no loss was reported. For example, UPS stated in their second quarter earnings on July 30, 2020, “Our results were better than we expected, driven in part by the changes in demand that emerged from the pandemic, including […] COVID-19 related healthcare shipments and strong outbound demand from Asia” (UPS, 2020). Similarly, DB Schenker, a leading German-Austrian logistics service provider, also announced on 30 July 2020 that “DB Schenker […] has done well in the crisis, despite falling revenues, [and] lifted adjusted earnings before interest and taxes to EUR 278 million, an increase of 16.8% year on year” (DB Schenker, 2020).

These reactions indicate a “lesson learned” that can improve the LSP resilience. It seems that John Adam’s quote “every problem is an opportunity in disguise” is also true for LSPs during a pandemic. Our interview data suggests that after an initial shock stemming from the drastic drop in volumes owing to the supply chains disruptions, the strategic transport assets and the associated transport capacity played a significant role to quickly generate revenue through “new” transport requests regarding pandemic related shipments such as healthcare shipments and PPE equipment. This immediate availability of transport assets and capacity and its sales significantly mitigated the loss of revenue during the beginning of the COVID-19 outbreak. However, our interview data also suggests that not all sales, admin and operations workers were fully prepared to deal with the different transport requests, thus contingency training or contingency manuals may help to further drive business and to bet a better understanding what about the opportunities related to a crisis.

4.2 Leveraging the upsides: enhance operational flexibility

The disruption of global supply chains challenged the LSP sector with its very volatile transport demands (Paul and Chowdhury, 2020; Queiroz et al., 2020). In the beginning of the pandemic when global production halted and fleets and trucks were grounded, LSPs had to cut transport capacity drastically. During the recovery phase, LSPs had to deal with a combination of lack of aircraft belly capacity and urgent requests for PPE equipment, reversing the situation as clients, governments and other critical parties asking for transport capacity which was not available on the market (Lund et al., 2020).

One interviewee stated: “It was crazy, in the beginning, we were thinking we will all lose our jobs because there is nothing to transport to, but then suddenly business increased dramatically and we couldn’t handle all the requests. We knew we need to look for solutions for our customers” (C1). As a consequence of the lack of capacity, by mid- to end of April, several passenger airlines established regular cargo flights. For example, Virgin Atlantic provided a 787-passenger aircraft exclusively for the UK Department of Health and Social Care flying three times a week between London and Shanghai for PPE and health supplies for hospital staff. Going even further, Air Canada was the first passenger airline that decided to remove seats to handle the increase in cargo shipping requests (Horton, 2020). However, LSPs also used passenger airlines to increase their transport capacity. For example, DB Schenker removed the seats from three Iceland Air 767 s for regular cargo shipments from Asia to Europe and the USA (DVZ, 2020).

As a consequence of this “unprecedented scenario” (C2), LSPs needed to quickly adapt to this new environment, thus challenging an existing system and incorporating more transport flexibility in the shipping network. On an immediate operational level, our interviews reveal that the change worked well, with C2 stating: “I was quite surprised how quick management decided to create new capacity. I guess they saw the money-making opportunity, but it was also about establishing themselves as a reliable partner in the time of crisis.” C3 stated that “In sales, we changed the indirect reporting lines that means, as our ‘normal’ product demand dropped, we communicated directly with our charter division and we added personnel to handle the requests.”

From a strategic perspective, the LSPs seemed to have examined the current and future network needs and set up calls with their main partners/service providers. From a network perspective, C3 said “It was sometimes really hard to get an overview about today’s network, the changes are really drastic and the usual providers and shippers may no longer be valid,” leading to network uncertainty with regard to reliability of shippers. As a consequence, management set up strategic calls with the main shippers: “We made a list, even with the shippers that are not currently shipping with us, to talk to them and get a realistic idea about their capacity, problems and also what the plan for the rest of the year” (C4).

These findings allow us to draw three conclusions how LSPs can increase their LSP resilience through transport flexibility. First, the deal needs to be closed: the interviewees indicate that sales alignment is key, i.e. it maybe that sales people with different products get requests for a product that they not originally have in their portfolio, however, it is important that this request can be handled. As a consequence, setting up new direct and indirect lines helps to secure business. Second, the deal needs to be handled: because of the lasting change in product demand, e.g. a change from B2B express shipments to air cargo belly freight, operational resources need to be reallocated to respond to these demands, i.e. trained personnel should be added quickly and if required, organizational changes should be made. Third, the deal needs to be transported: to have transport capacity available, management need to examine the network needs and subsequently talk to their strategic partners and providers to forecast the volumes and demands.

4.3 Enforce digitalization and data management

The interviews revealed that the pandemic was a major driver behind IT solutions and a main driver for digitalization, i.e. for LSPs to find ways to digitize certain processes to maintain business critical functions. Studies show that LSP operations, in particular in sea-, rail- and airfreight, are still characterized by limited innovation capabilities and a low level of digitalization (Busse and Wallenburg, 2011; The Economist, 2018; Fruth and Teuteberg, 2017; Yang, 2019). As such, the circumstances and the protective measures that had to be introduced and affected operations and workforce, did not only challenge existing processes but could also be seen as an opportunity to drive digitalization in their respective organizations (Lund et al., 2020). We found that our interviewees saw digitalization as an opportunity to tackle the downsides of the disruptions as well as to push digitalization for further growth opportunities.

To react to downsides and use digitalization to implement basic protective measures to further continue operations comprised two key elements: the operations and the workforce. Overall, all interviewees have observed an acceleration of process digitalization, both for customers, employees and within the companies’ operations. C4 stated: “Instead of telephone and personal meetings, customers and employees are increasingly using Zoom or other video conference tools.” C4 also said that “we saw customers who were originally still expecting a handwritten POD [Proof of Delivery] moving to digital PODs and even digital invoicing.”

The digitalization was also sometimes forced owing to certain restrictions as in some countries as C1 states: “When our truck driver arrives in Italy, he is not allowed to exit the truck cabin, so all his paperwork is with him in digital form”. But the interviewee further commented that “although most EU countries have adopted the use of digital freight documents, some, including Germany, have not,” emphasizing the fragmentation across borders in the European Union and the need for a more holistic approach.

However, all interviewees see digitalization and the associated data management also as an opportunity to better understand market unpredictability and better planning on a purely operational level. “So far, we don’t have any specific tools that can help us to predict volumes in the times of disruptions or crisis. We receive our yearly volume target at the beginning of the fiscal year, but it’s very static and it is too complicated to incorporate dynamic volume changes such as from COVID-19” (C4). The interviewee further states: “although we can get sufficient information about shipments, mainly from the customers’ entries, our legacy system is quite old and cannot imagine how it can be digitalized.” Two interviewees specifically addressed the lack of digitalization stating that “In our warehouse, we can’t digitally measure the dimensions of packages and pallets, which may result in a revenue loss” (C2) and “from a strategic viewpoint, I hardly receive reliable updates from our management about the change in volumes, but when I look at, for instance, Amazon and its data management and their approach to anticipatory shipping, we need to catch up to plan better in the short-term and the long-term” (C1).

As a result, these findings allow us to conclude with two management lessons learned to improve the supply chain resilience through LSPs. First, the adoption and implementation of digitalization for the workforce and on the operational level seem to be rather tied to the unwillingness or resistance to organizational change. However, because of COVID-19, LSPs were under pressure to digitize critical processes; it seems that COVID-19 has raised awareness and has thus accelerated the digital transformation. We could observe differences between large and small companies: large companies seem to have reacted more quickly, while small companies seem to lag behind with regard to digitalization. Second, investments in digitalization for (big) data management seem not to be an “if” anymore, but increasingly a “when” question. On an operational level, LSPs seem to understand that better data management can help to further consolidate shipments and better plan last-mile deliveries. On a strategic level, the use of data and accurate tracking processes can, for example, help to adapt shipping transportation speed (e.g. slow steaming), so that the ‘floating storage’ arrives in warehouses when needed. Three out of four interviewees stated that digitalization is a challenge in their company and with Amazon and Alibaba, which have already filed patents for anticipatory shipping (Gunasekaran et al., 2017) to “predict when a customer will make a purchase and begins shipping the product to the nearest hub before the customer places the orders online” (Lee, 2017, p. 593), the need for digitalization is seen as a crucial investment.

4.4 Optimize logistics infrastructure

The main element for LSPs that has been affected by COVID-19 was related to transport capacity and its drastic reduction owing to the global supply chain disruption (Ivanov and Dolgui, 2020b). Global LSPs depend on global supply chains and the disruption led to two major changes with regard to transportation. First, the abrupt decline in supply chain activity owing to COVID-19 led to uncertainty on a strategic level, as LSPs could neither predict which of their strategic customers would continue shipping, nor to what extent strategic transport partners or providers were able to provide flexibility in geographical and quantity terms. Second, the abrupt decline also led to uncertainties on an operational level, as less material and goods were shipped and or other materials than planned needed to be transported.

To handle the minimized volume, the LSPs mainly relied on usual savings and consolidation measures, which can be summarized in three points. First, trucks driving not with full capacity were consolidated, as Interviewee C1 said “The first thing we did was use only half of our trucks when the shipping volume dropped.” Second, for the last-mile deliveries, the use of sub-contractors that usually transport the excess packages were cut: “We kept all our main transport lines, but made significant changes in the last-mile delivery. We did not only reduce the number of sub-contractors immensely, but also restructured our route planning in order to balance the utilization of the vehicles and drivers” (C3). Third, operations management cooperated with sales to predict the volume and to incorporate special requests, as C4 said: “The most important thing for us was to make sure that we know where volume was going to come from and to find out which big customers have been affected.” The interviews suggest that the cooperation with sales not only played a crucial part for special pick-up and delivery requests, but also in overall transport planning process. From a warehouse perspective, C3 also stated that inventory management need to change on a strategic level, stating “[The crisis] showed clearly that inventory management is not made for a situation like this. In earlier days, an ideal warehouse operation is a 24-hous operation with no excess inventory, but I am convinced that redundant inventory and lights-out warehousing will become the norm.”

We can draw two main management “lessons learned” for the LSPs’ resilience from these findings. First, to quickly react to low volumes that need to be transported, the choice of sub-contractors should be approached in a more strategic way. Our interviews suggest that is not always the case as C2 stated “The drop in volumes happened quite quickly and was somehow expected, so we still had too many [delivery] vans for too less packages,” thus a more strategic approach to outsource transport capacity is recommended. Second, the communication and cooperation between sales and operations was crucial to predict volumes and organize transport capacity accordingly. C3 stated “I know the sales people quite well, so I had no problems to bother them multiple times a day to find out what I need to prepare for this or the next day,” thus more mandatory and frequent communication between sales and operations can help to better plan transport operations.

4.5 Optimize personnel capacity

The disruption of supply chains through COVID-19 had two major effects on employees in the logistics industry: First, the disruption, i.e. the stopping of global material flows dramatically reduced the workload for LSPs, thus leading to personnel overcapacities at LSPs companies mainly on an operational level. Second, employees experienced changes to the workplace, e.g. working from home was an option that was offered or ordered to minimize the spread of the virus.

To tackle overcapacities, i.e. Austrian companies could apply for the so-called “Kurzarbeit,” i.e. short-time work. In simple terms, short-time work refers to a temporary reduction of working hours for employees, but the non-worked hours are subsidized by the state to bring the employee’s income close to their normal wage level (Eurofound, 2020). The main advantage of short-time work is not only to safeguard jobs and know-how, but also to maintain flexibility in personnel deployment, to retain valued employees and preserve the liquidity of companies (Schnetzer et al., 2020).

Three of the four interviewed companies applied for short-time working when the crisis hit: “As soon as we knew that the German automotive manufacturers will shut down, we realized that there was no enough work” (C1). Statistics show that short-time work increased as of April drastically, leading to 1,37 million short-time workers in June (which represents more than 1/3 of the entire Austrian workforce) (Hager, 2020). However, the concept of the short-time work was used only until June as LSPs saw an uptake in businesses, with interviewee C stating “We could see an uptick of airfreight coming from China and the Asia region, so business was running again.” One company didn’t even send their employees into short-time work, saying “Although we are a truly global company, our presence here in Austria is rather small, so kept all people in work and pretended it is business as usual” (C2). At the time this article was written, no LSP company was using short-time work anymore and all have returned or work at normal business hours.

Regarding the workplace changes, i.e. the working from home for admin/sales and office staff, also seemed to pose a challenge for management in the beginning. One interviewee stated that: “It took a while before we found the best way to work for our employees. Some have to work from home because they have children, while others are more productive at home. We had also workers who couldn’t concentrate at home – so, flexibility was key here.” For warehouse workers, courier- and truck-drivers as well as for almost all operations employees or managers, however, working from home was not an option and management introduced protective measures at the workplace against COVID-19. We observed similar policies and procedures among the LSPs, with Interviewee C2 saying: “Safety is of utmost importance, so we developed specific measures for our drivers.” The interviews suggest that management focused on four key areas: First, basic protective measures were introduced, i.e. information signs were put up for social distancing and washing hands. Second, drivers should check before driving whether enough face masks, gloves and hand sanitizer is available and to clean the inside and outside of the vehicle. Third, while driving, open the windows and always ask people to maintain distance. Fourth, the delivery should take place contactless, so communicate with the customer in advance to avoid contact.

The interviews allow us to draw three main points that management can learn from these reactions to LSP resilience. First, it’s safety first, i.e. make employees feel safe by introducing protective measures, offering advice and daily updates and communication. Second, use short-time work as a measure to protect the business, the knowledge and to build loyalty among employees. Third, develop a return-to-work plan for non-operations employees while at the same time engage with HR to discuss more flexible work models in the future.