Supply Chain by the Numbers

- July 28, 2016 -

  Supply Chain by the Numbers for Week of July 28, 2016

Amazon Sees Q2 Profits Soar; DHL Making Big Network Investments in the US; Chinese Factory Wages Way too High? US Intermodal Volumes Continue to Tank


$857 Million

That is how much profit Amazon made in the second quarter, according to its Q2 earnings release this week. That's is actually a quarterly record for the historically profit challenged on-line giant, almost double the previous mark. While setting that record caught most of the headlines, Amazon still has very low profitability - that $857 million represented just 4% of its $30.4 billion in revenue for the quarter, though that profit margin is much higher than usual for the company. Profits were just $92 million in Q2 2015. Revenue in fact grew by 31% in the quarter, as Amazon simply continues to defy what had before seemed to be a law around large numbers.  And it was an even better story when it comes to cash flow. Operating cash flow increased 42% to $12.7 billion for the trailing twelve months, compared with $9.0 billion for the trailing twelve months ended June 30, 2015. Free cash flow increased to $7.3 billion for the trailing twelve months. Despite all the enormous spending and free shipping in recent years, it looks like Jeff Bezos may indeed have the last laugh.




That's by how much US intermodal rail traffic dropped in June versus 2015, according to a report from the Intermodal Association of North America. That follows a sharp 31.2% decline in May. For the first half of the year, intermodal volumes are down some 26%. What is going on from the once hot intermodal marketplace? Falling deisel prices and truckload freight rates are simply swinging the pendulem back towards trucking, it seems clear. Rising ecommerce volumes may also play some role in terms of how to best get inventories into distribution locations. Noting the trend, Norfolk Southern Chief Executive Jim Squires said in he company's Q2 earnings call this week that trucking spot rates have been rising sequentially of late, and some trucking companies are scaling back fleets in the face of excess capacity. He and other rail execs hope that turns the move away from intermodal back around.


That's how many of his Chinese factories - out of 5 total - that businessman Chan Kei Biu has closed there in recent years, because wages are too high in the Guangdong province compared to countries such as Thailand and Vietnam. His workforce is China is down 85% from its peak. The Chinese government, in fact, is asking local authorities to be "steady and cautious" about approving raises to the minum wage in each province, afraid disappearing manufacturing jobs could lead to social unrest. But there is unrest related to wages being too low as well. In Guandgong alone there have been 173 strikes - officially not allowed by law - over such issues as unpaid wages and the level of benefits a company offers in the first six months of the year alone, according to the China Labor Bulletin. So, the government is really caught between a rock and hard place when it comes to factory workers right now.


$137 Million

That's how much Deutsche Post's DHL unit now plans to invest in the US, with an expansion of its ecommerce delivery network. This week, DHL announced plans to build eight new ecommerce distribution centers and expand two that it is already operating in the US. While DHL famously gave up on the US domestic parcel market in 2008 after heavy losses, it has continued to offer services for cross border shipping into and out of the US - and that market is growing. Earlier this year, the US made a change in trade rules that allows Americans to import up to $800 at a time of most foreign goods without having to pay import duties or tax, up from the previous exemption of $200. Delivery companies have said that change has caused an increase in cross-border on-line orders, according to the Wall Street Journal. DHL has made other recent investments in the US, including a new $1.3 million Express service center in Chicago and a $35 million distribution center for its global forwarding network. When all this is done, will DHL someday re-enter the US domestic parcel market? Stay tuned.