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Supply Chain by the Numbers

- Oct. 27, 2016 -

  Supply Chain by the Numbers for Week of Oct. 27, 2016

Reebok Latest Shoe Maker to Shift Production to the US; Best Buy Goes for Free Shipping Again this Year; Scary Economic Projection on When US Budget Goes Bust; Suez Canal Says Pay Me Now



That is the percent of shoe production from Reebok (a division of Adidas) made currently in Asia, but a figure likely to change as the company opens up a new high-tech laboratory in Rhode Island to make sneakers by pouring liquid plastic. If all goes well, Reebok says it will be making shoes by the thousands there - modest volumes compared to its Asian production - but numbers that could really ramp up. The news this week from Reebok is part of a broader trend, with parent company Adidas plus Nike and Under Armour all recently announcing major plans for US production, primarily in an effort to be more responsive to market demand. You may not know that Boston-based New Balance Athletic Shoe never left the US, and still makes its sneakers in Massachusetts and Maine. All these efforts, as you might expect, will be heavily automated, creating jobs in the hundreds, not thousands. The Reebok lab is scheduled to open early next year as a partnership with nearby footwear plastics company AF Group. A Reebok executive says that an industrial robot will draw ribbons of liquid that quickly harden into an outsole, and that this equipment is all programmable, so you can change from one type of design process to another on the fly.




In some far from cheery economic news, that is the year - less than 14 years away – in which ALL US tax revenues will be consumed by just three major social programs and interest on the US debt. Those three programs are Medicare, Medicaid, and Social Security, and include the cost of Obamacare and CHIP, a health insurance program for children. That is based on tax revenues comprising 18.1% of GDP in 2030, about where it is today. If this were in fact to occur, it would mean there is no money, outside outrageous borrowing, for defense or any other spending programs, from highways to the park system. All that according to highly respected economist Jason Schenker, during a presentation at the MHI annual conference in Tucson, AZ last week, based on his analysis of government data. We guess even this bad news is based on fairly conservative assumptions relative to interest rates, and if they rise higher than expected could move that threshold date up several years earlier. "Entitlement reform is a must," Schenker said. Odds of that happening before a crisis? Probably very small.

That is how much electronics retail giant Best Buy will be charging for shipping for on-line purchases during the Christmas shopping season for the second year in a row. Normally, the threshold for free shipping is an order value of $35, but this shipping promotion went live on Sunday. It will end on Dec. 24, about a week earlier than last year when it ran through Jan. 2. It is certainly a move to keep pace with Amazon and its Prime service, but given that many orders for Best Buy exceed that $35 threshold it is not clear how big an impact the free shipping really has on revenue. Last year, on-line sales accounted for 15.6% of Best Buy's US sales in the fourth quarter, including the holiday period. We'll just say that for those under-$35 orders, that free shipping will make it hard to make a profit, though Best Buy has increasingly been shipping orders from its stores rather than a DC to reduce shipping costs and speed delivery.


$3.18 Billion

That is how much revenue the Suez Canal generated in tolls in the first half of 2016 from both container ships and bulk vessels hauling oil or other commodities, according to figures from the Egyptian government. That was actually up about 4% from 2015 - not bad in a period of weak container volumes and falling oil shipments - but not so good when considering the Canal Authority spent $4 billion last year to deepen the waterway, introducing two-way traffic in August 2015 and vastly increasing the Canal's capacity. It was hoping for a greater return on that investment. We were interested in that number on 1H toll fees, because we really had no idea what the Canal’s revenues were. But also interesting is that the Canal Authority confirms it is in talks with the world's biggest container shipping operators to receive payments for future tolls now - 3-5 years in advance - in exchange for something like a 3% discount in rates. Maersk Line, MSC, and CMA CGM are said to be involved in the talks. SCDigest says it would take more than a 3% discount for us to fork over all that cash now. The Canal is looking to lock up business in the face of the threat from the expanded Panama Canal.

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