Supply Chain by the Numbers

- Feb. 15, 2018 -

  Supply Chain by the Numbers for Week of Feb. 15, 2018

Growing Transportation Costs Hitting Corporate Profits; China Trying to Lock Up Cobalt Essential for Batteries; Georgia Considering Expensive Truck Only Lane; Tesla, China, Battling over Possible Factory


$200 Million

That's how much more food giant Tyson expects to pay in freight costs this year versus 2017, as rates continue to soar, and capacity gets tighter by the day. Kellogg  says itslogistics costs will rise nearly 10%. McCormick & Co. blamed increased shipping expenses for its failure to achieve a profit target, among a growing number of such stories. It reminds SCDigest of 2005-06 , when US companies regularly blamed quarterly earnings misses on rising transportation and distribution costs. Surging transportation demand is spurring trucking companies to charge as much as 30% more for long-distance routes compared with prices a year ago, as the long-standing shortage of drivers keeps a lid on capacity increases. The existing labor scarcity is getting worse because of new federal rules to prevent big-rig operators from exceeding limits on their hours behind the wheel by mandating ELDs. Industry observer Mike Regan forecasts truckload rate increases of an amazing 8-15% in 2018.



That is the likely share of refined chemicals made from the mineral cobalt that will be controlled by Chinese companies in the near term, up from 67% in 2012. That according to a recent estimate from commodities research firm CRU Group. Why is that a big ideal? Because refined cobalt is an essential component in making the lithium ion batteries that power cell phones, electric cars and more – and China is clearly winning the cobalt supply chain wars, according to an article this week in the Wall Street Journal. And the demand for cobalt is exploding: About 1,300 metric tons of cobalt were used in electric vehicles in 2014, Morgan Stanley estimates. The total is expected to rise to 11,320 tons this year and an incredible 62,940 tons by 2025. Meanwhile cobalt prices are soaring with the demand, up more than 230% since the end of 2015. The potential good news: some companies and battery experts say technological shifts to make rechargeable batteries with less cobalt—or none at all—could make cobalt less important in battery production in years ahead.



That is the current duty on imports of US-made Tesla electric cars into China, putting the local price to something like $132,000 for its most popular model – too much for even most well heel Chinese consumers. The obvious answer: start making Teslas in China itself. But after many months of negotiations with the Chinese government, a deal has not been reached – because as usual China wants its companies to own a significant part of the business – and the technology that comes with it. According to Bloomberg, China's central government says a proposed new plant near Shanghai must be a joint venture with local partners, while Tesla wants to own the factory completely. Currently, all foreign automakers must partner with Chinese companies in order to manufacture locally. As a result of all this, Tesla currently only has about a 3% share of China's fast growing electric car market – by far the world's largest.




That's the estimated cost of a "truck only" lane the Georgia Department of Transportation is proposing to be built for 40 miles from metro Atlanta to Macon. It would give trucks their own separate roadway, which would have its own exits and entrances. State transportation officials say they expect truck traffic to double by 2040. The truck-only lanes are being proposed as a solution to reducing congestion for drivers of non-commercial vehicles on Georgia interstates. Governor Nathan Deal has praised the idea – but others in the state are unsure it is worth the tremendous costs. Georgia would ask for federal funds, but if the government doesn't come through, Deal said the project could still move forward with state money. The state transportation department's study projects that the truck-only lanes would reduce delays on Interstate 75 North by 40%. If this project goes forward and is a success, it will surely be looked at in other high congestion areas in other states.