Supply Chain by the Numbers
   
 

- Aug. 31, 2016 -
   
  Supply Chain by the Numbers for Week of Aug. 31, 2016
   
 

Where have are all the Containers Gone? China Orders Lower Logistics Costs; Food Prices Continue to Fall; Target Reduces Out-of-Stocks by 50% Through Vendor Management
   
 
 
 

2.2%

That is the expected growth in container imports this year - the slowest rate of growth since 2011 and down from around 5% in 2015, according to Hackett Associates. That as it appears for the second straight year there will really not be a "peak season" at US ports, in which volumes surge from late summer to early fall as retailers and brand companies gear up for the Christmas season. The lower container traffic to many is the result of retailers reducing their inventories in general and more specifically hold more goods at their DCs for ecommerce fulfillment versus packing the brick and mortar stores with goods. For example, J.C. Penney is placing "slightly smaller orders…or holding back quite a bit" to reduce inventories, Mike Robbins, the chain's EVP, told investors in June. This was not the plan for many US ports, most of which have spent billions of dollars to improve throughput capabilities for a volume wave that has yet to materialize.
 
 


 
 
 

1.6%

That is by how much overall average US food prices are down over the last 12 months ending in July, according to government data. What's more, The current food-price slump soon could beat the nine straight months of year-to-year declines seen in 2009 and 2010, which was the longest stretch since 1960. Here are some example price changes year over year in July: ground beef, down 12%; whole milk, down almost 11%; and eggs, down almost 40%. On top of that, corn futures, which peaked in 2012 at more than $8 a bushel, recently closed at $3.11 a bushel, a seven-year low. What's going on? Good old supply and demand as usual in commodities, with robust output by farmers, exacerbated by reduce demand from China due to the stronger dollar. In addition transport and refrigeration prices have also fallen sharply of late, putting further downward pressure on food. All this is great for consumers, but tough on farmers, grocers and equipment makers like John Deere.

 
 
 
 
 
 
50%

That's by how much Target stores has been able to reduce its out-of-stocks after working with suppliers over the last six months to reduce lead time variability. "In the past, an unacceptable number of vendor shipments were received by our DCs either too early or too late," says Target COO John Mulligan. "This variability drove a lot of extra workload in the DCs while reducing our reliability downstream. As a result this year, we have been collaborating with our vendors to increase the percent of shipments that arrive on the correct date and we have already seen meaningful progress. The percent of shipments that arrive on time has more than doubled and we expect to see additional improvement as we roll out new processes to additional vendors over time." In addition, thanks to changes in the prioritization of inbound processing, the time it takes to unload shipments into Target DCs has been trimmed by over 50%.
 
 
 
 

16%

That's the level to which China plans to reduce its domestic logistics costs as a percent of GDP from about 18% currently. That's much more than double the 7.86% percent of GDP in the US, and even substantially more than developing country rivals such as India. That goal is included in a new six-year plan to reduce domestic logistics costs to make China's economy more competitive. Another goal of is to reduce the proportion of logistics costs to the total value of goods carried by the sector by 0.5 percentage point, from the current 4.9% to 4.4% in the next three years, according to the Ministry of Transport. "The traditional [Chinese] logistics model is no longer sustainable," the Ministry said. How will this happen? The plan urges cooperation across different regions and between modes of transport, the cutting of red tape and toll fees, vertical integration of transport and warehousing service providers, and better synergies among seaports, airports, railway lines and expressways. It is also encouraging mergers among logistics service providers as well, and greater use of 3PLs.
 
 
 
 
 
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