Kelly Sanchez:

Hello everyone. I'm Kelly Sanchez and welcome you to today's webinar. How to successfully navigate the new world of cold chain e-commerce fulfillment. I would now like to introduce our presenters.

Toby Rush is CEO of Smart Warehousing. He is a serial entrepreneur and investor with 20 years in the technology sectors. He started and successfully exited multiple companies. One of those in the warehousing and logistics sector. His last company sold to Alibaba where he spent three years as a senior member of the management team, seeing firsthand the next generation of e-commerce and logistics at China scale.

Joining him is Kevin Ahrens. Kevin leads the solution design team at Smart Warehousing and works with hundreds of clients each year to optimize their omnichannel supply chain. He leverages his knowledge of domestic LTL and small parcel shipping to provide clients with the lowest possible cost per unit, while still meeting the service requirements that retail vendors and e-commerce customers have grown to expect.

And last, but not least, is Alicia White. Alicia is our cold chain expert and General Manager of our Missouri warehouse, located in the caves. She's been with Smart Warehousing for six years, starting as an Account Manager, then moved to a Warehouse Supervisor, then to the Warehouse Manager, and is now filling the General Manager role. When she started with Smart Warehousing, there were only three frozen pick pack accounts. We are currently at 30 frozen pick pack accounts and continuing to grow.

Before we get started, I'd like to go over a few items so you know how to participate in today's event. You have the opportunity to submit text questions to today's presenters by using the Q&A tool in your control panel. You may send in your questions at any time during the presentation. And without further ado, I'll give the floor to Toby.

Toby Rush:

Awesome. Thank you Kelly, and thank you everybody for joining us today to talk a little bit about cold chain and its various facets, and how it impacts both the sellers, merchants, fulfillment and logistics, all the way through to the customer. To kind of backup at a little higher level, I want to share a little bit of some market trends that we're seeing. No surprise, e-com is becoming a larger and larger force in how we look at the world around us. I think in 2018, about 10% of all goods purchased were done via e-commerce, or via the online web. They're estimating 2020 to end right at 15%, which again, the amount of volume that we do in United States, that is a lot of volume. They're expecting by 2024 that that would be closer to 21% of all goods being purchased online. So what COVID has really done is accelerated what we expected to take about five years, and compressed that into about six months.

With COVID and the various strands, and the economic, the global impact and the disruption to the supply chain, we think that's going to continue to push e-com faster. And as people get comfortable with it, as they begin to see that. I joked to myself, when my mom is more comfortable ordering from Costco online than handling the hassle of going in, we know we've turned a corner on e-com and the sustained impact it will have on a lot of our businesses. Some of the things that have been interesting around the e-com world is, again, some of the major investments, right? So as we see a lot of e-com, the complexity, kind of what we're doing here, is a fairly old school model. And one of the things that we're seeing is a lot of investment coming into this space. Over the past four or five months, we've seen almost $500 million poured into just a handful of companies.

When you see that much venture capital and private equity money coming into a space, you know you've got something where you've got a major shift in a market. You've got a lot of disruption. That's also going to mean it's going to be pretty confusing. It's going to be really noisy. Venture capitalists and private equity really want folks to grow at all costs, so you're going to see some anomalies and a lot of promises being made, and a lot of things being put forward that will be very challenging for folks to actually fulfill on. So it's going to be a crazy and wild ride.

Omni Channel is becoming really fractured. It almost needs almost a new name. It's online, it's offline. I've talked a little about this on the next slide. Just the way in which we think about purchasing goods is no longer, am I going to go e-com or am I going to go in my store? Kind of, what does that end up looking like? And COVID's impact is really much bigger than just how we buy. COVID impacting even its containers overseas, it's import export, it's logistics, it's train, it's trucks, it's delivery on parcels. Everywhere you can think of. We're seeing not just constrained, but a lot of variability in those supply chains. And that kind of variability is pretty disruptive.

We've done a pretty good job, over the past 10 to 15 years, leaning out our supply chain, really getting just in time delivery across each one of those points. And when we have a hiccup that COVID is having us experience with the increase demand on those systems, we're really seeing where we're fragile. And that that impact is severe and will continue.

Now, so as we think about some of the market challenges, not only am I trying to keep up with demand, think about evolving, and things are always evolving, but the number of marketplaces alone that we've seen come online in the past few years and the rate at which they're growing is staggering.

Of course the biggest and the baddest is Amazon. The volume of scale those guys have gotten to is really impressive. So if you're a seller and a merchant and you're not at least thinking about Amazon, that's a really important. Today, they don't do a ton of frozen. They do their own Whole Foods. But again, a lot of these platforms are looking more and more about how do they not just do the traditional stuff of ambient consumer goods, but really broadening that into food and frozen.

So there's not only Amazon, there's Wayfair, eBay. Walmart and Target now have marketplaces that look a lot like Amazon marketplace. Where they're not buying your product, you're simply allowed to list your product. You get new entrants, like GoldBelly, which has a marketplace specifically for food and frozen, where they're specializing in that front as being able to provide sellers and merchants a broader platform specifically for their types of products.

And not only do you have the marketplace, you have social media. You got Facebook stores, Instagram, Snapchat, TikTok. How do you access and kind of put product placement, and find your customers, and serve those customers, on the social media platforms? Not to mention your own website. So you want your brand. Your brand is more important than ever. So e-commerce channels, whether it be a Shopify or WooCommerce, or a number of the other e-commerce shopping carts that are out there. And in addition to all that, you still have brick and mortar. People are still going to go to the store. Those don't go away overnight. And so being able to do all those things at the same time is really challenging across the board. It's challenging for consumers. It's challenging for sellers and merchants. It's challenging for logistics providers and third-party providers in the backside of that. Thus is where you're seeing a lot of the shifting landscape that we're on right now.

So not only is it more difficult to find our customers and be able to target them, to know who our market segmentation and ideal customer profile. And then once we find those consumers, their expectations continue to get more and more advanced and aggressive. Much of this is thanks to Amazon really pushing that consumer experience. So the Amazon experience is now the default experience. They're really expecting these things. Where you used to go into your grocery store, you wanted to some Coke. You're going to get a six pack, a 12 pack, or a two liter bottle. Well, now you go online, I can get a single can. Maybe I want a multi pack. What about a variety pack? I want my regular Coke, a vanilla Coke and a diet Coke, but packaged in a six pack or a 12 pack, or a 30 pack, or a 70 pack. They really expect it in any way, shape and size.

What about subscription boxes? Right? This is kind of another big push of, how do we get someone hooked into that monthly subscription so it's always showing up? It's more convenient for the user. It gives that long-term buy-in, it's a more predictable revenue stream for sellers and merchants. So we see folks wanting to be able to support all of these various product mixes across lots of different channels. And they want it any size, any temp, any weight, and they want it now. It's today, it's free shipping, it's perfect accuracy, easy returns, seven days a week. So the challenges and complexity that we're seeing from sellers and merchants, the folks in this webinar, as well as the overall landscape is fairly staggering.

And with all of this convenience and complexity, it's a double edged sword. So the back of the house and the front of the house mirror themselves in complexity. So the front of house being the sales. How do I find my customers? How do I market to them? How do I know when they're about to buy? When are their buying windows? How do I make sure my product is placed front and center when they're ready to buy? And it's positioned in a way that fits my brand? Well, the complexity on the back end, the warehousing, the fulfillment, the logistics, thinking about the national footprint, being able to handle the returns, being able to handle the expectations on delivery, being able to have that brand put forward to your customers, is every bit as complex on the back end as it is in the front end. And it's getting harder and harder for customers to be able to do all these things at the same time.

So they're looking for partners that can come in and say, "Hey, I need to focus on what I do best, and that is understanding my product, understanding the product market and market placement, my ideal customer profile. If there's a partner that I can turn to, to handle that back end logistics, especially at the scale and the delivery timeframes." They're looking more and more for those partners that they can bring on. As the seller merchant looking at, man, I've got a lot of different options. I have an Amazon FBA, or through Whole Foods. Shopify is coming out with their own fulfillment network. Very small today, but that will be growing over time. They're an asset light, a 4PL model, which is relatively new. It's kind of an Airbnb for warehousing.

Where they're trying to go to a warehouse and say, "Hey, give us a little bit of your space and we'll manage the customers. We'll bring customers to you." And that works for pretty simple stuff. We think they're really going to struggle with more complex. And especially cold and frozen, definitely have a lot more complexity than the typical 3PL. So we think those who will struggle in particular with complicated complex, with cold chain, definitely falls into that bucket.

They need tech enabled. The more volume we do, with the more channels we bring on, there is a high expectations you've got to have these highly integrated, highly tech enabled service platform, with a national footprint. And a little bit more vertically integrated. Smart Warehousing would actually fit into that, that fourth bullet of tech enabled and vertically integrated. And then you have your old school, 3PL that are doing things like they've always done.

They're two or three facilities in a small region. They've always done a great job, but again, they're going to struggle a little bit, that national footprint, and being able to meet some of the delivery times that we're seeing out in the market.

So I'm going to turn it over now to Kevin. So Kevin spends a lot of his time really working with customers as they're coming in. They're trying to figure out, hey, I've got a pain point, I've got these challenges, how can you guys help? So I'm going to have, Kevin, would you share a little bit? So what are some of the common challenges that you're hearing from folks as they're beginning to explore that 3PL, in particular towards, an eye towards the cold chain in refrigerated world?

Kevin Ahrens:

Yeah, absolutely. Thanks, Toby. We've identified six big challenges that we typically hear from folks when they start looking at outsourcing their warehousing and fulfillment. The first, and probably biggest one in the last five years, has been the shift for two day national coverage on standard ground, or home delivery shipping options. So being able to meet 99% or more of all of the United States population in two days is very important. The consumer wants everything, as I say, freer and faster. So how inexpensively can I receive it? If you're going to charge me shipping at all, how inexpensive is it going to be? And, how fast is it going to arrive? And then also the growth of cold chain. About 30% of everyone that I talked to is in some kind of a cold chain industry.

Whether it be food or pharma, or beverage or something along those lines. And everyone's trying to figure out how to get cold chain directly to the consumer without having to really go build out their own warehouse, or at least their own space, because it is expensive real estate compared to traditional warehousing. The third is the brick and mortar operations. So whether it be shipping for Walmart or Target, or even some smaller retailers, regional retailers, who have specific labeling requirements or shipping requirements, whatever that case may be, being able to find a provider who can meet those compliance requirements and reduce the chargebacks.

The next one is product restrictions. I think the biggest one I hear a lot of is aerosol. So if your product has aerosol, typically in the ambient world, finding a partner who is able to handle low class hazardous materials, or in some instances, where they've got chemicals or high class hazmat. Saw a lot of PPE and hand sanitizer coming through the market last summer, obviously. So finding a place where they could have a drum of hand sanitizer was tough.

And then the big one is on the customer service side. So one singular voice for the customer. So what we've found is that some of the asset light providers who end up just brokering that warehouse out to a traditional 3PL, the communication is like playing a game of telephone. So the customer needs something, they go to the asset light provider who goes to the warehouse. He goes back to the asset light provider and then back to the customer. And that, that game of telephone has just been tough and the customer feels like they're the ones left out to dry. And then the last one is the need for value added services. Whether that be processing returns, kitting variety pack, special labeling requirements, poly bagging, whatever those special requirements are, there's a growing need for that in the warehouse.

So with that, I'll kick things over to Alicia. Alicia will really focus in on the cold chain and what she's seeing in that market.

Alicia White:

All right. Yeah, so I've been here for just over six years and the growth and changes have been tremendous. So here's what's happening in the industry. American consumers have increased their preference for fresh and frozen goods, mainly meats and product resulting in a growth of subscription meal services. I know I use that myself. A dominance in specialty pharmaceuticals that require unique storage conditions and growth popularity of e-com grocery, and it's expecting to increase by 20% by 2025. With that, cold storage warehousing has experienced a 43% increase in capacity, largely due to the investment in large scale facilities exceeding 2.5 million cubic space. According to a survey reported in the Global Cold Chain Alliance magazine, cold storage warehouses reported 34% demand in the growth of e-comm, and this was before the COVID-19 pandemic. We've seen massive growth ourselves in the e-com business over the last few years. For Smart, it's just been crazy. In 2018, we did 40,000 orders and just finished 2020 with just over 130,000 orders resulting in a 225% increase.

So, what to look for when shopping for a 3PL to manage cold chain products? Well, there's three things. You've got your location, your experience and your flexibility. So location, location, location. Consumers are getting used to receiving their online orders within days. The average order fee is $5 with shipping costs averaging about $30 due to the size of the box, and the amount of dry ice needed, making that weight heavier. This has led to 3PL's having multiple fulfillment sites for packages, and are able to hit your doorstep within two days. Having locations in two day delivery zones helps drive down the shipping cost, making you happy with the cost savings, but ultimately making that consumer happy with the speed of the service. You're looking for experience. Cold chain fulfillment is a niche market. When looking at 3PL, with experience provides you the comfort and confidence in the consumers overall online shopping experience.

Is there flexibility? Dry ice is in high demand. It's always in high demand. With that comes potential carbon dioxide shortages. We experienced that ourself here. Being able to react or adapt quickly is crucial. As we all know, perishable products, it's time sensitive. And what to watch out for, trends. Social media is huge right now. Everyone has a cell phone. It's probably in your hand right now, or it's sitting right next to you. Consumers are recording their unpackaging experience. I myself, get on Instagram and when I receive a present or something from one of our customers. I like to, that's me thanking them and throwing them out there for my friends to see, and for everybody else to see. So tagging you in there, tagging your business in there, ultimately is driving up your sales.

And then common questions. So carriers and shipping methods. Carriers have come a long way from delivering only five days a week to seven days a week. You have your FedEx and your UPS. Your method range from ground service to overnight delivery. You pay a little bit more with the expedited shipping, but you have that guaranteed delivery date. Whereas the ground service doesn't have that a guaranteed date, but is your cheaper cost. The consumer experience. It's important that a 3PL keeps your brand as a business. Packaging, your custom boxes, or do you have custom labels? Custom tape? Adding an insert in that box so when the consumer opens that box, it's kind of a personal message to them, thanking them for purchasing their product, or even like reheat guide. So it gives them a guide to how to cook your product. As well as multi-region fulfillment, as mentioned earlier.

It's important that your business has a national coverage. And a 3PL that can cover you from coast to coast, ideally, that is one 3PL that can handle that for you. They can own the end to end process. Having the locations, having the people and essentially having the technology under one WMS system is ideal. Able to really track your inventory. Multi storage temp facility really gives you the opportunity to house your frozen, your refrigerated and your dry product all under one roof. So instead of having to ship a box out of one warehouse for your frozen and another one for the ambient, you can do that all in one roof and have one package, one tracking number, and one cost.

We're planning for spiked volumes. You have your normal holiday spikes. Your Valentine's Day, Mother's Day, Father's Day. And then, what we call, peak season, for us is November and December. We start planning supplies, staffing. Planning on multi shifts. That starts in early August just to get us through the peak season. Then you have your unpredictable spikes where it's more of a reaction than being able to plan, like the Chiefs going to the Super Bowl. Last year was insane. It spiked five times then normally what we were used to seeing, but this year we were able to plan for it. So we were able to have enough labor, have enough supplies. And then with the pandemic, nobody saw that coming and the volumes were crazy, but we're learning from of those experiences, and being able to do that, it just helps make a better 3PL. And that's it.

Toby Rush:

Awesome Alicia. Sorry, I was unmuting myself. Appreciate just some of those perspectives and looking forward to diving in a little bit deeper during the Q and A. Again, if there are questions that you would like, in particular Alicia or Kevin or myself to hit, don't hesitate to throw those in the Q and A section, and we will hit those here towards the end.

So at Smart Warehousing, I'm relatively new to Smart Warehousing, I joined in 2020. And as I began to look at the market, the cold chain and refrigerated is just fascinating. I see it as unique, it's interesting. There's not a lot of folks that are able to handle that space. I would have said, coming into this large-scale fulfillment industry, that cold would have been, e-com, specifically e-com cold chain, would have been many years behind ambient and rest of world.

And in some ways it was, but the rate at which it is catching up has been staggered. Alicia talked about the rate of growth that we've seen with our existing customers, with the new customers coming on, and others that are trying to figure that out as well, being able to deliver ready to cook food, the grocery. We didn't really touch a lot on with the grocery delivery. Instacart is doing that manually today, that's eventually going to be moving more and more towards kind of a micro fulfillment, and full scale fulfillment distribution. So the blend between refrigerated, what we typically consider grocery, what you would consider frozen, even going to ambient world.

One of the things that it kind of reminds me of, it was mentioned earlier in my bio, the company I was with before was acquired by Alibaba. So I got to spend three years really over in China, up front and center with some very sophisticated, very advanced e-commerce logistics, last mile retail e-com. And one of the things that really stuck with me was the way they thought about it wasn't is it e-commerce, or is it retail? They had is O to O strategy. O to O is online to offline, but it's also offline to online.

So if I want to order product on my phone, or food, then great. If I want to go into the store and maybe finish my order in the store, or maybe I order in the store, I put my grocery bag together, or whatever my goods are. I have it set at the front. It's scheduled to be delivered to my home at a certain windows, a 15 minute window. I get back to work, maybe I think, oh I should have added these extra three things either to my grocery order or to other, it's ambient or consumer goods, or more grocery. They're able to make that blended experience. So I think about where the US is, I do think we're going to see an acceleration of the frozen, the refrigerated, the grocery, the standard goods, you would see on the ambient Amazon world, become much more blended. People will have an expectation across the board for each of those. So as we think about Smart Warehousing having a footprint that can span across the country.

So we've got a very large facility here in Kansas City. We've just opened some facilities up in Pennsylvania. Within the next few weeks we're going to have facilities open up in Reno as well, being able to handle that kind of two-day coverage at a 98 and 99% coverage. And we're going to continue to push in as a company strategically. This is such a very important area and one that's kind of fun. It's interesting. It's unique. It leverages the 19 years of experience we have in traditional 3PL world handling complicated and complex customers. We're able to do that now in the cold chain.

So I'm going to open it up now, if a Alicia and Kevin want to come off mute. And Kelly, do we have any questions we want to take on?

Kelly Sanchez:

Yeah. We've got a couple of great ones that came through. So the first one here reads, can you give a couple examples of some of the different items you've stored in your cold storage facilities?

Alicia White:

Yeah. Currently we range from serum to truffles, to barbecue, to seafood, to cat food, to wings. We'll store anything in the freezer.

Toby Rush:

I'm curious Alicia, is there anything that you think that was particularly strange or, I never thought we'd be storing that? Was anything random or strange?

Alicia White:

Yeah. The dog food or cat food is a little strange, but it works.

Toby Rush:

Yeah. I can see the dog and cat food being as good as human food. I guess it would need to be refrigerated and frozen. It makes sense.

Alicia White:

Yeah.

Kelly Sanchez:

All right. And we've got another good one here. It reads, how do frozen boxes stay cold enough while waiting on dock for shipping pickup?

Alicia White:

So by the time the package makes it to the dock, it's already got the dry ice, or the gel packs, in there. So it's currently staying cold because we put enough dry ice or gel packs in there to sit on the dock and actually make it through that full transit time.

Kelly Sanchez:

Perfect. I've got another one here. It says, can you give a couple examples of cold chain complex kitting that you've done in the past?

Alicia White:

A lot of, I guess websites, will just have different flavors or products, and sometimes the customer's going to want a variety pack. Or a lot of the times we will do some kittings to be able to kind of put those all in one box and they're able to sell a variety pack online because their manufacturer doesn't do that for them.

Kelly Sanchez:

All right. Thank you Alicia. Another good one here. Do you broker out warehousing?

Toby Rush:

No. Something that we've really thought of from a kind of a Smart Warehousing perspective of being able to, just having our people, our software, our buildings, being able to provide the customer service that we feel is important, especially because we like to go after a little bit more of a complicated world, we need to be able to make a promise that we know that we can keep. So we feel it's a difficult to do when you're in that 4PL model where you're trying to broker out that extra warehouse. So our customers have that direct line access to the warehouse managers or those account managers that are in the warehouse to go provide that service. So our strategy is to be more vertically integrated.

Kelly Sanchez:

All right. And this is our last question. It says, so does the manufacturer need to have stock in all three locations in order to have complete two day delivery?

Kevin Ahrens:

Yeah. So I'll tackle that one. So we can tackle, we can get two day delivery from Kansas City using the ground network and the express network. Alicia and her team have some logic around when they want to ship that product out. However, if we're going to stick with the ground or home delivery network, then we'll want to be in all locations. Alicia, can you give us a quick overview on what your guys' logic is on ship dates and when you release orders here in the Midwest?

Alicia White:

Yeah. So every zip code translates to the transit day from our zip code that we're shipping from. So we base, Mondays and Tuesdays are very heavy on three-day transits to make sure it gets there by Thursday or Friday. And then it kind of dwindles down throughout the week to your two days and one day transits. Obviously your shipping method, if you upgrade that two today or overnight, we can continue to do that throughout the week. But our system is able to actually tell us how many blocks of ice, or how many gel packs to put in based on the transit dates.

Kelly Sanchez:

All right. Awesome. Thank you so much, Toby, Kevin and Alicia. That is all the time we have for our webinar today. If you have any further questions following today's discussion, please reach out to Kevin at kevin.ahrens@smartwarehousing.com. Please look for our follow-up email, which will include the recorded video from today's webinar. Thank you all for joining us and have a great rest of your day.

Toby Rush:

Awesome. Thank you everyone.

Kevin Ahrens:

Thanks everyone.