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  First Thoughts

    Dan Gilmore

    Editor

    Supply Chain Digest



 
Jan. 11, 2019

2018 Supply Chain Year in Review

We Look at Key Themes and Top Supply Chain Stories by Month

 

As always, it seems, it was a very interesting year in the supply chain 2018. Here were what I view as the top themes and trends:

The top story without question was the growing trade wars, with the US slapping tariffs on a wide variety of imports from China and on a few specific products from Europe. US trading partners retaliated, with the possibility still this could really spiral out of control. Oh, and the NAFTA agreement is almost on the scrap heap, to be replaced – maybe – by something called U.S.-Mexico-Canada Agreement.

Gilmore Says....


What did I miss? 2018 in numbers and charts next week.

What do you say?

Click here to send us your comments
 

The trade moves have already caused companies to shift sourcing strategies, move some production back to the US, and even led to the formation of a cottage industry looking to find ways illegally avoid the new tariffs.

The impact to the economy has been minimal so far, but 2019 is going to be a critical year for where this heads.

Number 2, soaring transportation costs. With rebounding freight volumes and carrier capacity restraint, generally forced by a lack of drivers, transportation rates were up substantially in 2018.

The Cass Linehaul Index, which measures US truckload rates, was up at least 6.5% year over year every month of the year, and was up at least 9% from May thru September.

Rising transport and oil costs, plus the strong global economy, are in fact re-introducing inflation into the supply chain for the first time in many years. For example, the Prices Index from ISM has been well above the 50 mark that indicates a more neutral pricing environment all year, and ended the year indicating costs were up for an amazing 34th consecutive month.

 

Our next theme is the continued growth of ecommerce and the woes of brick and mortar retail. It was a good Holiday season for retailers, with sales up 5.1%, making it the best season in the last six years. But that growth includes on-line sales, which were again up a robust 19%, according to preliminary data.

Iconic retailer Sears is on the brink of bankruptcy. The Bon-Ton department store chain, which includes many well-known store banners, permanently closed its doors last year. JC Penney's stock price has fallen below one dollar. All the investment in grocery retail and beyond is going to ecommerce and efulfillment.

The change we're seeing not only in supply chain but in society is going to be mammoth.

With that, here are what I see as the top supply chain stories by month in 2018.

January

Amazon received US patent for a system that uses ultrasonic communications between storage locations in a DC and special wristbands worn by workers doing putaway and picking activities to automatically verify locations and picks. News generates criticism in some quarters for "big brother" aspects, with a New York Times article on the patent headlined "If Workers Slack Off, the Wristband Will Know."

China unveils plans for a "Polar Silk Road" across the Arctic by developing shipping lanes opened up by global warming and which could significantly reduce transit times versus going through the Suez Canal on some routes. The news draws concern from some countries in the region over China's long-term strategic objectives.

February

KFC in the UK forced to shutter some 700 of its 870 outlets in the country for one of more days after a supply chain snafu – caused it appears by switching to a new single food distributor the re versus a less decentralized approach in the past. The new DC just couldn't get chicken out the door and to the restaurants.

Amazon announced new "Shipping with Amazon" (SWA) services, where it will take shipments directly from the facilities of its Marketplace customers into its network for delivery. Expectation is this will lower shipping costs by leveraging Amazon's network and scale, and gives Amazon added benefit of keeping additional SKUs out of its maxed out fulfillment centers.

March

UPS London announces some form of breakthrough in recharging electric delivery trucks simultaneously overnight without requiring an expensive revamp of its electric grid. As a result, UPS says its fleet of electric route trucks will grow for a current 52 to some 170 over the next few years. UPS said that this marked the "beginning of the end" of the reliance on internal combustion engines.

Walmart says it will expand the number of US markets with same day grocery delivery from the current six to 100 by the end of the year. After Walmart packs the order, it will be handed off to a third-party delivery company or startup that uses contract workers to ship orders to homes.

Reports that that apparel retailer Zara is piloting an automated system that will enable shoppers who have ordered items on-line for pick-up in store where the consumer scans or enters a code, triggering a behind-the-scenes "robot" to search for the customer's package in a small warehouse, and then deliver it quickly to a drop box on the outside of the store.

April

The International Maritime Organization announces new rules for sulfur emissions from ocean cargo ships that will require ship owners to either move to a much more costly low sulfur fuel or install very expensive scrubbers by January, 2020. Either way carrier costs will go way up, with the CEO of one Japanese carriers saying some carriers will go bust as a result.

The Federal Motor Carrier Association begins real enforcement of its mandate that all truck drivers use electronic logging devices to prevent cheating on hours of service rules possible with manual logs. Estimates on effective US trucking capacity vary from minor to significant.

An advisory panel of the National Academies of Science, Engineering, and Medicine (NAS) issues an interim report outlining the substantial additional research it says is needed before heavier and/or longer trucks are allowed on US highways, likely meaning it will be years before either change is again considered.

May

News that Target is piloting a new distribution center in New Jersey that will ship smaller quantities to stores more frequently, seeking to reduce the DC to store replenishment cycle from days to hours and reduce inventory at stores at the same time, especially at its new small-format stores in urban markets. Target calls this a "flow center."

In move to spur US research, the US Department of Transportation announces 10 winners of permits for more advanced commercial drone tests, many involving supply chain-related applications and most partnerships between drone technology developers and other businesses/organizations. Notably, Google and Uber are in and Amazon is out of this round of testing

Gartner releases it Top 25 Supply Chains list for 2018. After putting Apple, Procter & Gamble, Amazon and McDonald's in a sort of hall of fame category, Unilever tops the list for third year in a row, with Inditex/Zara, Cisco, Colgate-Palmolive and Intel rounding out the top 5.

June

CSCMP and ATKearney release the 2018 State of Logistics Report, with the headline news that absolute US logistics spend was up 6.2% in 2017, to $1.49 trillion. But with decent economic growth last year, logistics costs as a percent of GDP were up just a tick to 7.7%.

Home Depot announces plans to create 170 new more local distribution points in US over next 5 years, at a cost of $1.2 billion, to support same day or next day deliveries for ecommerce orders.

Google makes $550 million investment in JD.com, China's second largest ecommerce platform, showing it intends to become a major player in on-line retail.

UPS and the Teamsters agree on a tentative new 5 year contract, pending a full union vote, seemingly ending the chance for a strike when the current pact ends July 31. Union get a decent pay hike over the contract term, while UPS gets a new class of drivers that can work weekends. Meanwhile, earlier in the month labor and management at East Coast and Gulf Coast ports reached tentative agreement on a six-year contract renewal.

July

 

ATA chief economist Bob Costello tells a conference the US trucking industry is enjoying its best business environment since deregulation in 1980, and the good times will continue in the near term unless trade disputes hinder economic growth. "This has been the best time in trucking history, I'd say. The question is, how long is it going to last?" he said.

 

Iconic jeans maker Levi's says that it will eliminate 40% of its total supply chain CO2 emissions by 2025. To reach that target, Levi's will obviously have to work closely with suppliers in its almost totally outsourced supply chain, since it can't just set mandates and hope to get compliance.

 

The company's retail stores, distribution centers, offices, and the two remaining factories it still owns only account for 1% of its total carbon footprint. Growing cotton is 10% of the footprint. But making fabric and sewing clothing, respectively, are 31% and 9%. Without working with suppliers, the company is obviously limited in the amount of its emissions it can reduce.

 

August

 

Maersk Line says it has set the a world record for the highest-ever load of containers carried on a single ship. The second generation Triple-E vessel Mumbai Maersk left Tanjung Pelepas Port in Malaysia sailing into Europe with a load of 19,038 TEU.


According to Maersk, that sailing has raised a new bar by surpassing Madison Maersk, a first generation Triple-E class vessel, which reached 18,215 TEU in 2015
.

 

In an odd story, UK retailer Houee of Fraser shuts its web site, right after filing for bankruptcy protection, after its 3PL, XPO Logistics, refuses to ship products unless it is paid what it says it is owed. XPO later implies it has a claim of the retailer's inventory, but the matter is resolved in a few days.

 

September

 

Despite offering high pay and a decent lifestyle to its private fleet drivers, Walmart says it plans to double its spending on attracting and retaining drivers by year-end. The retailer it says it will offer referral bonuses of up to $1,500, shorten the on-boarding process for new hires by more than a month and broadcast its first national TV ad focused on its 7,500 truckers.

 

Walmart just recently said it hired 1400 new drivers in 2018.

 

Well known supply chain organization APICS becomes the Association for Supply Chain Management. ASCM says it is "the new, all-encompassing supply chain organization built on the foundation of APICS."

 

With the APICS certification focus, its no surprise the organization says it will offer "the first comprehensive corporate designation that enables organizations to assess their supply chains in key areas for maximum sustainability, scalability and competitive advantage."

 

October

 

Grovery chain Kroger says it will construct 20 high tech, robotic distribution centers over the next few years from a UK company called Ocado, putting details behind a deal announced earlier in the year. That will start with an order for three automated DCs by the end of the year.

 

Ocado is actually an on-line grocer that developed this automated system for its own facilities before marketing it to other grocers. In fact, Ocado will not only develop but also operate those sites in the US. Ocado said the terms and fee structure of the Kroger deal are similar to those for its other transactions to-date, combining up-front fees and ongoing capacity fees.

 

The United Nation's Intergovernmental Panel on Climate Change announces a new target for the acceptable rise in global temperatures of just 0.9 Degrees F.

 

That's down from the previously globally agreed-upon goal of 1.8 degrees F, which was the basis for the 2015 UN Climate Accord in Paris, in which most nations in theory agreed to reduce emissions by amounts that models said would meet that goal. With many saying the 2015 commitments were really not sufficient and/or almost impossible to monitor, the new lower target for the acceptable rise in temperatures will require even more draconian steps to get there, the report says.

 

November

 

Amazon to tell financial analysts that it may change the way it reports its fulfillment center assets.
In its recent Q3 earnings call, Chief Financial Officer Brian Olsavsky says that Amazon could start using cubic feet, instead of square footage, to measure its fulfillment center footprint. That would change the measurement from one of sheer size to one of volume, and give a clearer picture of how Amazon is becoming more efficient or not as its inventory grows.

The US Becomes a net oil exporter for first time in 75 years for the week ending Nov. 26. The shift to net exports is the dramatic result of an unprecedented boom in American oil production, with thousands of wells pumping from the Permian region of Texas and New Mexico to the Bakken in North Dakota to the Marcellus in Pennsylvania. U.S. crude shipments reached a record 3.2 million barrels that same week.

 

December

 

Somewhat oddly, FedEx CEO Fred Smith said on a call with analysts he does not believe the "prospects" of FedEx will be "disrupted" by Amazon Air [or new Amazon Delivery Partners program].


In response to analyst questions, Smith said "We look at Amazon as a wonderful company in service and they're a good customer of ours. We don't see them as a peer competitor at this point in time for many reasons. We think it is doubtful that that will be the case."

 

German chemicals giant BASF says it will take a $227 million hit to its Q4 profits due to low water levels (the result of a drought) in the Rhine River that impacted logistics.

 

What? Turns out this is just the latest example for how the Rhine's low water levels have taken a toll on companies that rely heavily on one of Europe's most important waterways. The low water levels forced BASF to change to higher cost transport modes, and also grapple with resulting delivery issues for raw materials, leading to shortfalls in production that are now eating into profits.

 

What did I miss? 2018 in numbers and charts next week.

 

Any reaction this 2018 timeline? What did we miss? Let us know your thoughts at the Feedback section below.

Your Comments/Feedback

 
 
 
 
 

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