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    Dan Gilmore

    Editor

    Supply Chain Digest



 
July 13, 2017

What Happened in Supply Chain in 1H 2017


From Ecommerce Wars to Trump Rejecting Paris Climate Deal, the Top Supply Chain Stories of the First Six Months of the Year

Wow - what a first half of 2017 in supply chain it was.

I am back as usual every six months with a look at the key trends and news in supply chain, and again it was a very noteworthy half year.

From a big picture perspective, the big theme was the Trump administration, with promises to bring US manufacturing back, pulling back business regulations, and getting tough on trade. Most controversial was a proposal for a "border tax" that would tax imports at perhaps 20% while reducing overall business taxes.

Gilmore Says....

That's my list of the top stories in supply chain so far this year. What did I miss? Let me know.

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If adopted, this would have a major impact on supply chains, with winners and losers, and likely retaliation from trading partners. No action thus far. Threats of big tariffs or other barriers to Chinese steel imports, but no action so far. Some regulations have in fact been rescinded, and there are indeed hopeful signs for US manufacturing, with much good news, though jobs by the millions are unlikely to return.

As for several previous years, Q1 US GDP was weak, initially estimated at just 0.7% real growth, later revised to a better but still lackluster 1.4%. Expectations for Q2 are in the 2% range, while the IMF now forecasts annual US GDP to rise 2.1% in both 2017 and 2018.

On a global basis, the consensus forecast is for 3.5% GDP growth in 2017, compared with 3.1% in 2016. Europe's economy is bouncing back a bit, with 2017 growth for Eastern Europe forecast at 2.45%, and 1.7% for Western Europe - weak, but better than recent years. Growth for Asia is forecast at 4.9%.

As for the past several years, ecommerce and efulfillment took center stage, but with some new twists. Brick and more store closings have accelerated, with Credit Suisse now projecting more than 8000 closures for the year, and saying that as many as one-in-five shopping malls across the country are expected to close over the next five years. The face of retail is changing before our eyes.

The second change is the battle has now to an extent become focused on Amazon versus Walmart, with each company taking shots against each other in terms of shipping policies (e.g., Amazon Prime at a discount for customers on public assistance), and acquisitions (e.g., Amazon-Whole Foods, Walmart acquiring several dot com retailers such as Bonobos.) It's a death match, and fun to watch.

The overall freight market remained weak, with truckload rates largely down or flat for first half of year but spot rates recently up. Air freight has made some nice recovery, while volumes and rates in rail have been up modestly. Ocean container volumes have been up, in the US as imports continue to rise, and there has been recovery in rates over the past few months and well off the bottom in mid-2016.

The market for distribution center space in the US remains red hot, with vacancies at near record lows and rates soaring, though we may be near a top.

Robots continue to advance at a mind-boggling pace and may soon take over the world.

With that brief 1H overview, here are the top news stories by month thus far in 2017.

January

Procter & Gamble announces it will make additional investments in recycling and beneficial reuse that will eliminate all manufacturing waste from its global network of more than 100 production sites by 2020.

Amazon raises eyebrows with announcement of plans for major $1.5 billion air shipping hub at the Cincinnati airport, with more than 200 flight departures and landings per day to be scheduled. Amazon denies it plans to enter parcel in a big way, saying facility is just to meet peak demand requirements. Sure.

Alibaba CEO Jack Ma says 1 million US jobs could be created by making it easy for small US companies and even farmers to sell goods into Asian markets. Ma says there is an increasing preference for American products among the young and the growing middle class in Asia.

February

Mars announced it would invest some $900 million in existing factories across the country. The move ensures that more than 95% of Mars' chocolate products for the US are made in the country, and improve sustainability.

In surprising move, Kellogg says it will end its direct store delivery (DSD) model for the supply chain of its snacks business (crackers, etc.), moving to shipments to retailers' distribution centers instead. As a result, Kellogg said it would close 39 distribution centers, which will all shutter by the fourth quarter of 2017.

Maersk says the fourth quarter of 2016 was the first quarter since 2010 where the demand for container shipping outgrew supply growth.

After the idea is seemingly dead, a new group called Americans for Modern Transportation is formed to push for allowing twin 33-foot trailers on US highways - versus 28-foot limit currently - as group hopes Trump administration may be more open to change sought by the parcel and LTL industry.

In probably the biggest labor action of the year, workers at Boeing's aircraft factory in South Carolina handily defeat a vote to join the International Association of Machinists and Aerospace Workers (IAM). 74% say no, continuing the unbroken trend of unions losing major votes in Southern states in recent years.

Missouri votes to become the 28th right-to-work state, where union dues cannot be compelled, joining Kentucky earlier in the year, and several other Midwestern states in recent years.

With ecommerce pressures, UPS announces it will begin Saturday ground deliveries in select markets that will reach more than 50% of U.S. residents in 2017.

March

Kraft Heinz pulls back from announced plans to acquire giant Unilever, after Unilever says it is not interested in the deal. But the move illustrates challenges faced by traditional CPG companies as consumer demand changes.

The US DOT has formally notified Congress that a required study on 2013 hours of service regulations pertaining to 34-hour restarts revealed those restrictions provide no safety benefit. This in effect will eliminate the regulations that were adopted under the Obama administration but suspended in late 2014 pending a study.

The American Society of Civic Engineers released in quadrennial study on the state of US infrastructure, and as usual it painted a dismal picture, giving the nation's overall infrastructure a grade of D+. Roads earned a D, bridges C+, ports C+, and perhaps surprisingly a B for rail.

It's back to the future, with news that a Maersk tanker ship will be fitted with two large vertical rotor sails (they look like tall cylinders) as part of a project seeking to test wind propulsion technology's potential to reduce fuel consumption in modern day shipping.

PwC report says that 38% of US jobs could be at high risk of automation by the early 2030. The good news - wages should be up for those that manage to find a job.

Walmart files a patent for an in-store drone system that would fetch items from the back area of the store to consumers up front, such as for order on-line, pick up in-store applications. Drone would largely fly directly over merchandise shelves.

Amazon announces a new program to battle counterfeit goods, involving a "brand registry" meant to identify non-authorized sellers, in move to attract high end consumer goods companies to the Amazon Marketplace platform.

Start-up Natilas announces plans for an autonomous flying air cargo ship it says can reduce air shipping costs by almost 50%, hitting a sweet spot between air and ocean shipping. The company plans a small prototype by this summer, production drone aircraft by 2020.

Pizza giant Domino's says it is making real pizza deliveries over the roads in Hamburg, Germany using the six-wheeled robots that sort of looks like R2D2 from Star Wars with a storage compartment. The delivery robots are made by Starship Technologies, which has several tests going around the world.

Amazon postpones the opening of its first "Go" convenience store in Seattle, in which consumers literally "grab and go" with items without a stop at a point of sale register, using a combination of smart phone apps and unspecified technologies in the store. Reports are the store system has problems with more than 20 shoppers at once.

April

The new Ocean Alliance and TheAlliance container shipping consortia begin operations, with shared operating assets among member carriers, joining the Maersk-led 2M agreement to leave three major alliances.

Third Party Logistics provider DHL says it will begin testing a robot from Locus Robotics this summer in a DC it runs near Memphis. The LocusBots are sort of a new take on the Kiva Robots Amazon acquired in 2012, and which it has rolled out by the tens of thousands in recent years.

Truckload carriers Knight Transportation and Swift Transportation announced plans to merge in a $6 billion deal. New company to be called Knight-Swift Transportation.

Tesla shocks the truck manufacturing sector when CEO Elon Musk announces in a Tweet that company will unveil its design for an all-electric big rig in September. The vehicle will include autonomous driving technology as well, though details remain vague.

Amazon Q1 profit up 41%, to $724 million, on sales growth of 23%. Stock soars, eventually surpassing the $1000 per share mark.

Walmart announces that it will offer discounts on products ordered on-line if they are picked up in-store rather than delivered to the consumer's home. Discounts are as much as 5%.

New CSX CEO Hunter Harrison says the rail carrier has already close a number of inefficient "hump yards" as part of an effort to drive major operational efficiencies through what Harrison calls "precision railroading."

Facing huge production numbers for its soon to be released $35,000 Model 3 sedan, Tesla says it is going to skip the usual automotive manufacturing step of beginning with temporary tooling for many parts and moving straight to production tools. The move will save money and more importantly time - but is high risk.

Walmart, saying it can't battle climate change on its own, announces Project Gigaton, which has goal of reducing a gigaton of CO2 emissions from its extended supply chain by 2030, in part by putting pressure on its suppliers. Citing its own efforts on greenhouse gases, Walmart says "We need our top suppliers to take more action."

May


A contract Amazon delivery driver is caught twice in two days on home video cameras rather violently hurling parcels onto a driveway and over a fence. The woman is later let go by Amazon.

Target says it plans to test a next-day home-delivery service that sends "essentials" such as ground coffee and laundry detergent to customers' doorsteps this summer. The "Target Restock" pilot service will start just for its REDcard users and will offer "thousands of household essentials" for an unspecified flat fee, according to the retailer.

Amazon holds a meeting of leading consumer packaged goods companies trying to convince them to sell direct via Amazon instead of relying on traditional retailers. "Times are changing," Amazon says in an invitation obtained by Bloomberg.

UPS announces deal for joint venture with S.F. Express, the largest parcel carrier in China, to create network to deliver goods from small and mid-sized Chinese manufacturers to US businesses and consumers, in market said to be growing rapidly.

Gartner announces it top 25 supply chain for 2017, led by Unilever, followed by McDonalds's, Inditex (Zara), Cisco, and H&M. Procter & Gamble and Apple not on list after again being placed in a sort of hall of fame.

June

President Trump announces the US will not abide by the UN Paris Climate accord, amidst great controversy.


Alibaba says 2017 revenues may rise as much as 50%.

The Owner-Operator Independent Drivers Association says it's not giving up on its battle against mandatory electronic logging devices, despite its failure to get the Supreme Court to review the constitutionality of the ELD mandate that goes into effect this December. OOIDA says it will try to work with Congress and regulators to get the rule changed.

The expanded Panama Canal celebrates its first year of operation and is already having a big impact on global logistics, with volumes and ship sizes up sharply.

Amazon announces its plans to acquire grocer Whole Foods and its 400+ well-placed stores. Speculation is rampant on what the strategy will be, but general consensus Amazon will take big costs out of the grocer's supply chain and use the stores as a platform for ecommerce pick-up and delivery services. Stock prices of traditional grocers fall by almost double digits on the news. Some react to the announcement by calling for Amazon to be broken up.

Consultant Satish Jindel tells audience to SMC3 conference that Walmart is pressuring carriers it uses not to do business with Amazon if they want to keep Walmart's business, based on personal conversations Jindel said has had with carriers. Walmart vigorously denies the claim.

Ocean carrier Maersk Line, FedEx's European TNT units, and several manufacturing plants hit with cyber-attacks they take down their services for a day or more, as efforts seem focus on disrupting supply chains.

UPS announces a 27-81 cent per package surcharge, depending on service type, for a few weeks of peak season deliveries in the US, in an effort to recoup the higher costs that come with managing the peak surge.

Taiwanese contract manufacturing giant Foxconn reported to be in final stage of negotions with several US Midwestern states for new display panel factory that would employ thousands. Decision is expected in July, with Wisconsin thought to be in the lead.

CSCMP releases annual State of Logistics Report, with headline news that 2016 US logistics fell as a percent of GDP for the third year in a row, at 7.5%, down from 7.84% in 2015.

Bipartisan legislation is introduced in US Congress to fund infrastructure improvements with 1% tax on all freight bills. But the measure if approved would only generate some $8 billion per year.

That's my list of the top stories in supply chain so far this year. What did I miss? Let me know.


What is your reaction to Gilmore's summary of 1H 2017 in supply chain? Any top stories we missed in our list? Let us know your thoughts at the Feedback button below.



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