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Supply Chain by the Numbers
   
 

- Feb. 15, 2019 -

   
  Supply Chain by the Numbers for Feb. 15, 2019
   
 

Amazon Revenue Heads Higher and Higher; Ocado Automated DC Goes Up in Flames; Bulk Shipping Rates have Tanked; Manufacturing Wages at Last Seeing Real Growth

   
 
 
 
 

$233 Billion

That incredibly was Amazon's global revenue in 2018, according to the company's recent Q4 and full year 2018 earnings release. That was up a strong 31% from 2017. But what is driving that growth? Growth in Amazon's on-line sales were up 13% for the year, great news for most companies but way down from the 20-30% growth we're used to seeing from Amazon, as the law of big numbers at long last seems to be impacting Jeff Bezos and company. Sales at physical stores – mostly Amazon's Whole Foods outlets – were down 3% year-over-year. But Amazon's AWS web services unit saw revenue rise 45%, to $7.4 billion. And its Marketplace sales, in which Amazon facilitates the transaction for third-party sellers but does not take any ownership of the inventory, were up a robust 27%, to $13.3 billion. Keep in mind that figure represents only Amazon's commission from those marketplace sales, not the full sell price. And Amazon is really starting to make some money at last. 2018 net income was about $10 billion, up from $3 billion in 2018. But Amazon warned that profits in 2019 may be constrained by – what else – lots of spending on new fulfillment centers, data centers – and more employees.

 
 
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$1 Billion

That was the drop in market cap for UK on-line grocer turned automated distribution system provider Ocado, after fire broke out in the company's flagship distribution center in Andover, Hampshire. The savage blaze burned for 48 hours, required 200 firefighters to bring it under control, and reduced the 45 million pound building to a twisted, smoldering hulk. Andover was not just any old distribution center - it was the prototype for Ocado's robotic vision, with an army of 600 robots swarming over a 3D frame called the "grid" to locate goods and deliver them for orders. Kroger has committed to a number of eCommerce DCs that will not only use Ocado's system, but Ocado will also run the facilities for Kroger. While Ocado's stock price has somewhat recovered, the market concern is that the blaze was somehow cause by the Ocado system, with the official cause of the fire still unknown.


 
 
 
 

3.9%

That is the 12-month moving average of manufacturing wage growth – the highest such level since May 2008. That according to the Federal Reserve Bank of Atlanta's wage growth tracker. January saw wages remain at this very elevated level. Manufacturing wages have been rising since the end of the Great Recession starting in early 2010, but not much above inflation for several years. Wages began rising more rapidly in 2014, and really took off in mid-2018. Does that have anything to do with US tariffs and trade policies? Hard to say, but it could be a factor. But it seems likely very low unemployment is at long last forcing manufacturers to increase pay to attract and keep workers, with more than a million US manufacturing jobs unfilled and the amount of job openings still exceeding the number of unemployed – a situation rarely seen. Will the upward wage pressure cause inflation to rise? The US hasn't seen that since the 1970s – but we're sure economists are keeping an eye on that possibility.

 
 
 
 
 

$8,200

That is about the current spot price to charter a capesize vessel, large ships that move bulk commodities such as iron ore, coal and aluminum, for a day. That's big trouble when the daily operating costs can be about $15,000 per ship. In most of 2018, lease rates were around $20,000 per day. The Baltic Dry Index, which tracks the cost of moving bulk commodities and is considered a leading indicator of global trade, is down more than 50% just since the start of the year. What is going on? It looks like a combination of a slowing global economy, weak demand from China over the Lunar New Year and more generally, and the recent Vale iron ore disaster in Brazil. That refers to a January incident in which a mining dam burst, triggering a flood that killed at least 150 people and left close to 200 more missing and feared dead. As a result of the tragedy in Brazil, Vale has suspended production at a number of sites, removing 40 million tons of annual output that normally is shipped on bulk vessels. "If you are a bulk owner, you can no longer depend solely on China to make money, and that's a seismic shift," a London ship broker told the Wall Street Journal.

 
 
 
 
 
 
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