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  First Thoughts

    Dan Gilmore

    Editor

    Supply Chain Digest



 
Jan. 5, 2017

Supply Chain Year in Review 2016: Top Trends and Themes


From Trump Election to Relentess Amazon Assault on Everything, We Identify the Year's Most Impactful Trends

 

It was as always a news-filled and fast moving supply chain world in 2016.

Below are what I see as the top and/or most impactful overall supply chain themes and trends in 2016. This is not meant to list individual events (that will come next week), but rather broader developments that indicated or drove major changes to supply chain practice.

Donald Trump Elected President: What will be the impact of Trump on the economy and the supply chain? We don't yet know of course, but it will be a very different direction from what we've had, that seems certain.

Gilmore Says....


Put simply, 2016 may have been the most tumultuous year in history of the container shipping industry,

What do you say?

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In November, I suggested the supply chain likely will be affected in multiple areas from a Trump administration: successful shaming of companies offshoring production/jobs (already of course happening); pull back of environmental mandates and greater push for US energy development, with possible adjustment to the never legally binding 2015 UN Paris climate accord; significant change over time to the aggressively pro-labor National Labor Relations board seen under Obama; and possible heavy tariffs on some imported goods (which now looks like it may take the form of an unusual thing called a border adjustment tax).

We will see.

Continued Amazing Advances in Robotics: The robots are coming, and coming fast. It is almost hard to keep up with the news, which arrives literally daily. As just one of hundreds of examples, a robot from a company called Starship that sort of looks like R2D2 from Star Wars started making grocery and restaurant meal deliveries in a few Euro metro markets last summer, with many more to follow. Later in the year, US retail giant Lowe's introduces the LoweBot, a smart little fellow that can help customers more effectively navigate the store to find products and assist employees with inventory scanning.

Of course, many of the robots are being deployed in the supply chain, and IDC predicted in November we will soon see the rise of the Chief Robotics Officer at companies.

Some say the robots will actually create more jobs than they eliminate - wish I believed that were true.

The Relentless Amazon Assault on Everything: The Amazon machine continued on in 2016, growing merchandise sales roughly 30% quarter after quarter, taking share from everyone, and having many retailers and even manufacturers plenty worried. But there was a lot more from Amazon in 2016 that could roil the existing supply chain world order.

Early in the year came reports that Amazon was working aggressively on "Project Dragon Boat," an aggressive global expansion of the company's Fulfillment by Amazon service, which provides storage, packing and shipping for independent merchants selling products on the company's website. Amazon is said to envision "a global delivery network that controls the flow of goods from factories in China and India to customer doorsteps in Atlanta, New York and London," Bloomberg wrote. As part of that strategy, Amazon was said to have plans to take on freight forwarding and brokerage services directly, eliminating a set of middlemen. It acquired various licenses to make the capability possible in both the US and China.

But Amazon of course wasn't done. In September, the Wall Street reported Amazon was working on project "Consume the City," involving Amazon's plans to build its own massive parcel delivery network that would eventually compete with UPS and FedEx, as it leases cargo aircraft and buys thousands of truck trailers.

Meanwhile, Adobe Digital estimates that Amazon had a dominant 36.9% share of all US on-line sales in the 2016 holiday season. There was much more from Bezos and company. I ask again, can Amazon be stopped?

Continued Growth of eCommerce and the Impact on Brick and Mortar: Statistics from the US Dept. of Commerce showed ecommerce growth of 14-15% in quarters 1 to 3 in 2016, and no doubt Q4 will show similar growth. That means ecommerce sales will doubly roughly every 5 years or so.

But that has been true for many years running - so why call it out in 2016? Because the impact on brick and mortar stores was more noticeably felt last year. A number of major retailers announced significant stores closing in the year, including Macy's ( an ecommerce leader which just announced additional closings), Walmart (though there was more nuance to the closings here), Aeropostale, Ralph Lauren, The Limited, Finish Line and more.

That is just inevitable when ecommerce sales are growing 15% per year, right?

But the impact of ecommerce on retail is even more profound. For example, almost all of Walmart's CapEx spending is going into ecommerce capabilities and fulfillment centers. In March, news that Target is writing its own new supply chain applications for assortment planning, digital merchandising, store ordering and forecasting, supplier ordering and demand forecasting for this new Omnichannel age. The clear message: the traditional linear, DRP driven supply chain capabilities in retail going away, with major ramifications.

Tumult in the Ocean Shipping Sector: Put simply, 2016 may have been the most tumultuous year in history of the container shipping industry, as the level and pace of alliance forming, mergers, acquisitions, failures, and restructurings was perhaps unprecedented.

Key events include the formation of two new alliances - the Ocean alliance and THE Alliance - and the resulting break up of existing networks; a series of acquisitions in the sector; and the complete bankruptcy of South Korea's Hanjin Shipping Company, which caused huge supply chain disruptions when tens of thousands of containers it had couldn't move for weeks. The Hanjin failure ended the notion that container carriers would somehow always be able to somehow literally stay afloat no matter how bad the financial times became.

All this in large part due to rock bottom container rates and continued massive red ink for carriers.
What will all this change mean for shippers in 2017 and beyond, especially with the two new alliances set to begin operations in April? Your guess is as good as mine.

Continued Tension in the South China Sea: In a very important but mostly unnoticed story, China continued to provoke the US and regional neighbors such as Japan and Vietnam with its continued - and in 2016 even more aggressive - claim to a series of tiny rock formations far off the Chinese mainland.

China even more aggressively expanded the rocks into larger and larger artificial islands in 2016, later adding runways, and in December, placing antiaircraft weapons and other arms on all of them.

The US. and its Asian allies are afraid - and probably will directly challenge - Beijing's plans to use its expanding military power to enforce its territorial claims in the area and to take control of shipping lanes that carry more than $5 trillion of world trade annually.

In October, a US navy destroyer sailed near islands claimed by China in the South China Sea on Friday, drawing a warning from Chinese warships to leave the area.

This is real geo-political and supply chain powder keg, and scarily the fuse burned shorter in 2016. Do some scenario planning on this now.

Other important supply chain themes/trends: traditional packaged food manufacturers - so prominent in supply chain history - under pressure from consumers and grocers as market moves away from processed foods; great progress in both drones (Walmart demos inventory-taking drones inside a DC) and autonomous trucks (and even container and cargo ships), but many, many barriers remain, though one pundit says last week that children being born today will never have to learn how to drive a car; the US dollar continues strong rise, showing confidence in US economy but making exports more expensive and imports cheaper, a likely barrier to Trump's goal of reviving US manufacturing.

Next week, our popular look at the year in supply chain 2016 in numbers and charts here in this column, plus a month by month list of the top news stories in 2016 on our home page and/or OnTarget newsletter.

What did I miss? Would love to hear your perspective.

What is your reaction to Gilmore's list of the top theme and trends in supply chain for 2016? What would you add? Let us know your thought at the Feedback section below.


Your Comments/Feedback

 
 
 
 

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