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Supply Chain by the Numbers

- May 8, 2014 -

  Supply Chain by the Numbers for Week of May 8, 2014

Port Group wants to Sail Away from Tax on Cadillac Health Care Plan for Union; Reshoring Strategy at Otis Elevator Fell Fast; Number of US Start-Ups Now Below Business Closings; Spike in Truckload Spot Pricing Points to Higher Rates for Rest of 2014


$150 million

The approximate cost that the dozens of ports and terminals that collectively form the Pacific Maritime Alliance, which represents those businesses in negotiations with the International Longshore and Warehouse Union (ILWU) among other duties, will be hit with if the same deal on health care is maintained in a new contract after the current one expires July 1. Why? Since union members pay virtually nothing for health insurance currently, their plans fall under the "Cadillac" plans as defined in the Affordable Care Act (Obamacare), and thus subject to a 40% excise tax on top of the cost of the insurance itself. Ouch. The reality is the PMA would be better off even just requiring union members to pay more for their health coverage and making up the difference in wages, as this would at least avoid the the excise tax trigger.




$60 million

The approximate cost of the financial hit the Otis elevator division of United Technology absorbed in 2013 from a reshoring effort gone bad, according to an article last week in the Wall Street Journal. The company planned to move production from a major plant in Mexico and close down two other US factories in favor of a single facility in Florence, SC. Add to that a new supply chain software system at the same time and other changes, and it was all too much. The new plant just couldn't deliver enough volume, and order backlog quickly grew. The costs are a combination of lost orders, keeping the Mexico plant going six months longer than expected, overtime and temporary labor, and more. While the backlog is at last being cleaned up, extra costs will be continuing well into 2014. "We bit of more than we could chew," the company's CFO said.



The percent of new businesses (those less than one year old) out of all business in the US in 2011, the last year for which the Brookings Institute has data. Why does this matter? Because that metric had been falling for 30 years, and is now just about half of its level in 1978. In fact, starting in 2009, the percent of start-ups has fallen below the level of failures and other closings (such as acquisitions) for the first time ever. That of course means the total number US business is shrinking, despite continued population growth. The cause is not rising failures/closings, which have remained relatively constant in percentage terms, but rather the large and continuous decline in the number of start-ups. This trend threatens US economic dynamism, Brookings warns, and will hold back GDP growth.



Approximate rise in spot market truckload rates that JB Hunt was seeing in Q1, according to its recent earnings reports. Other carriers, noticeably Werner, also reported strong spot market rates. That is certainly a sign that the supply-demand balance is moving, perhaps quickly, in the carriers' favor, as spot rates can change much more quickly of course versus contract rates for a given carrier. The factors: an improving freight volume environment, what appears to be a real, large shortage of drivers, a still high rate of trucking firm failures, and Hours of Service rule changes that hit productivity. The bottom line: rates are heading higher in 2014. See Q1 2014 Truckload Carrier Review.

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