Supply Chain by the Numbers

- May 12, 2016 -

  Supply Chain by the Numbers for Week of May 12, 2016

Amazon's Q1 Logistics Costs Remain Very High; Costs of Ocean Containers have Plummeted On Demand, Steel; Continued Legal Assault of Drayage Driver Classification; Delta First to RFID Tag Luggage



That was the percent of its merchandise revenue that spent on fulfillment in Q1, the same number as in all of 2015, according to analysis by SCDigest. The on-line giant also had net shipping costs – which are not counted as part of fulfillment – of 6.8% of merchandise revenue. Rather than comparing those costs to total revenues, which include sales of things like digital media and web services that don't involve physical products, SCDigest compares those costs just to merchandise sales to get a better picture of Amazon's logistics costs. So, together net shipping and fulfillment costs represent 24.7% of merchandise sales, against Amazon gross margins of only about 35%! So it shouldn't be any surprise Amazon struggles to make a profit. In a relatively good quarter in Q1, Amazon had profits of $513 million, but that represented just 1.7% of total sales. The cash flow story was better, however, with operating cash flow increasing 44% to $11.3 billion for the trailing twelve months, compared with $7.8 billion for the trailing twelve months ending March 31, 2015.




That was the average cost in the first quarter for a new 20-foot dry freight container – the lowest level since 2002, and down from around $1,850 a year ago. While the rock bottom rates in the container shipping industry and the toll they have taken on the bottom lines of the carriers is well known, the weak demand for container shipping is also having a big impact on related sectors, such as the container makers and leasing companies. Dramatically falling steel prices are also pushing the cost of new containers way down. New analysis from Drewry Shipping notes that there is a stockpile of new containers at factories in China, with "substantial production from 2015 still awaiting collection." Textainer, one of the world's largest lessors of intermodal containers with a total of asset pool of more than 3.2 million TEU, last week it reported a massive 84% year-on-year drop in net profit for the first three months of the year. It's simply ugly everywhere in container shipping, though that is mostly good news for shippers and importers.


That is the number of complaints that have been filed since 2011 against port-trucking companies with the California Labor Commissioner's Office, alleging drivers were misclassified as independent contractors and denied the wages and benefits afforded to full-time employees. This issue, which never seems to go away, is roiling the drayage industry, causing several trucking firms to go under due to the legal expense of fighting the claims or the settlements ordered paid to drivers by regulatory agencies there. A total of more than $35 million has been awarded to drivers in those cases, according to the Labor Commissioner's Office. Over a dozen class-action lawsuits alleging mis-classification at the port-trucking companies are pending in California courts. And the National Labor Relations Board recently filed a complaint against a California drayage company that is one of the first to include the allegation that drivers' misclassification as independent contractors violates the National Labor Relations Act. While smaller truckers are most affected, giant Hub Group recently closed its Southern California ports operation, a little over a year after converting the local fleet from independent contractors to full-time drivers, citing “unsustainable” costs.


$50 Million

That's about how much Delta is investing in a new RFID tracking system for luggage, in a move that could just about end lost baggage at the airline. Of course, the idea for using RFID to track luggage has been around for about 20 years, but Delta is set to become the first US airline to put the technology in place, as the air industry is at long last profitable enough to make such investments. Delta says it has already deployed 4,600 RFID readers and 3,800 RFID bag tag printers, and will have readers on the belt mechanism that moves luggage into the belly of the plane that will scan each bag tag and verify that it has been loaded onto the correct aircraft. Thus far, the RFID system has achieved a 99.9% success rate in terms of proper routing and loading, Delta says. Lost luggage while travelling - could it soon really be almost a thing of that past? "Perfect logistics" is coming, we continue to say.