What Happened in Supply Chain in 1H 2017?
Wow - what a first half of 2017 in supply chain it was.
I am back as usual every six months with a look at the key trends and news in supply chain, and again it was a very noteworthy half year.
From a big picture perspective, the big theme was the Trump administration, with promises to bring US manufacturing back, pulling back business regulations, and getting tough on trade. Most controversial was a proposal for a "border tax" that would tax imports at perhaps 20% while reducing overall business taxes.
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That's my list of the top stories in supply chain so far this year. What did I miss? Let me know.
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If adopted, this would have a major impact on supply chains, with winners and losers, and likely retaliation from trading partners. No action thus far. Threats of big tariffs or other barriers to Chinese steel imports, but no action so far. Some regulations have in fact been rescinded, and there are indeed hopeful signs for US manufacturing, with much good news, though jobs by the millions are unlikely to return.
As for several previous years, Q1 US GDP was weak, initially estimated at just 0.7% real growth, later revised to a better but still lackluster 1.4%. Expectations for Q2 are in the 2% range, while the IMF now forecasts annual US GDP to rise 2.1% in both 2017 and 2018.
On a global basis, the consensus forecast is for 3.5% GDP growth in 2017, compared with 3.1% in 2016. Europe's economy is bouncing back a bit, with 2017 growth for Eastern Europe forecast at 2.45,%, and 1.7% for Western Europe - weak, but better than recent years. Growth for Asia is forecast at 4.9%.
As for the past several years, ecommerce and efulfillment took center stage, but with some new twists. Brick and mortar store closings have accelerated, with Credit Suisse now projecting more than 8000 closures for the year, and saying that as many as one-in-five shopping malls across the country are expected to close over the next five years. The face of retail is changing before our eyes.
The second change is the battle has now to an extent become focused on Amazon versus Walmart, with each company taking shots against each other in terms of shipping policies (e.g., Amazon Prime at a discount for customers on public assistance), and acquisitions (e.g., Amazon-Whole Foods, Walmart acquiring several dot com retailers such as Bonobos.) It's a death match, and fun to watch.
The overall freight market remained weak, with truckload rates largely down or flat for first half of year but spot rates recently up. Air freight has made some nice recovery, while volumes and rates in rail have been up modestly. Ocean container volumes have been up, in the US as imports continue to rise, and there has been recovery in rates over the past few months and well off the bottom in mid-2016.
The market for distribution center space in the US remains red hot, with vacancies at near record lows and rates soaring, though we may be near a top.
Robots continue to advance at a mind-boggling pace and may soon take over the world.
With that brief 1H overview, here are the top news stories by month thus far in 2017. The full list is far longer than I have room for in this space, but can be found here:
January
Procter & Gamble announces it will make additional investments in recycling and beneficial reuse that will eliminate all manufacturing waste from its global network of more than 100 production sites by 2020.
Amazon raises eyebrows with announcement of plans for major $1.5 billion air shipping hub at the Cincinnati airport, with more than 200 flight departures and landings per day to be scheduled. Amazon denies it plans to enter parcel in a big way, saying facility is just to meet peak demand requirements. Sure.
February
In surprising move, Kellogg says it will end its direct store delivery (DSD) model for the supply chain of its snacks business (crackers, etc.), moving to shipments to retailers' distribution centers instead. As a result, Kellogg said it would close 39 distribution centers, which will all shutter by the fourth quarter of 2017.
Maersk says the fourth quarter of 2016 was the first quarter since 2010 where the demand for container shipping outgrew supply growth.
In probably the biggest labor action of the year, workers at Boeing's aircraft factory in South Carolina handily defeat a vote to join the International Association of Machinists and Aerospace Workers (IAM). 74% say no, continuing the unbroken trend of unions losing major votes in Southern states in recent years.
March
The US DOT has formally notified Congress that a required study on 2013 hours of service regulations pertaining to 34-hour restarts revealed those restrictions provide no safety benefit. This in effect will eliminate the regulations that were adopted under the Obama administration but suspended in late 2014 pending a study.
The American Society of Civic Engineers released in quadrennial study on the state of US infrastructure, and as usual it painted a dismal picture, giving the nation's overall infrastructure a grade of D+. Roads earned a D, bridges C+, ports C+, and perhaps surprisingly a B for rail.
PwC report says that 38% of US jobs could be at high risk of automation by the early 2030. The good news - wages should be up for those that manage to find a job.
Pizza giant Domino's says it is making real pizza deliveries over the roads in Hamburg, Germany using the six-wheeled robots that sort of looks like R2D2 from Star Wars with a storage compartment. The delivery robots are made by Starship Technologies, which has several tests going around the world.
Amazon postpones the opening of its first "Go" convenience store in Seattle, in which consumers literally "grab and go" with items without a stop at a point of sale register, using a combination of smart phone apps and unspecified technologies in the store. Reports are the store system has problems with more than 20 shoppers at once.
April
The new Ocean Alliance and TheAlliance container shipping consortia begin operations, with shared operating assets among member carriers, joining the Maersk-led 2M agreement to leave three major alliances.
Truckload carriers Knight Transportation and Swift Transportation announced plans to merge in a $6 billion deal. New company to be called Knight-Swift Transportation.
Tesla shocks the truck manufacturing sector when CEO Elon Musk announces in a Tweet that company will unveil its design for an all-electric big rig in September. The vehicle will include autonomous driving technology as well, though details remain vague.
Walmart announces that it will offer discounts on products ordered on-line if they are picked up in-store rather than delivered to the consumer's home. Discounts are as much as 5%.
New CSX CEO Hunter Harrison says the rail carrier has already closed a number of inefficient "hump yards" as part of an effort to drive major operational efficiencies through what Harrison calls "precision railroading."
Walmart, saying it can't battle climate change on its own, announces Project Gigaton, which has goal of reducing a gigaton of CO2 emissions from its extended supply chain by 2030, in part by putting pressure on its suppliers. Citing its own efforts on greenhouse gases, Walmart says "We need our top suppliers to take more action."
May
A contract Amazon delivery driver is caught twice in two days on home video cameras rather violently hurling parcels onto a driveway and over a fence. The woman is later let go by Amazon.
Amazon holds a meeting of leading consumer packaged goods companies trying to convince them to sell direct via Amazon instead of relying on traditional retailers. "Times are changing," Amazon says in an invitation obtained by Bloomberg.
Gartner announces it top 25 supply chain for 2017, led by Unilever, followed by McDonalds's, Inditex (Zara), Cisco, and H&M. Procter & Gamble and Apple not on list after again being placed in a sort of hall of fame.
June
President Trump announces the US will not abide by the UN Paris Climate accord, amidst great controversy.
The expanded Panama Canal celebrates its first year of operation and is already having a big impact on global logistics, with volumes and ship sizes up sharply.
Amazon announces its plans to acquire grocer Whole Foods and its 400+ well-placed stores. Speculation is rampant on what the strategy will be, but general consensus Amazon will take big costs out of the grocer's supply chain and use the stores as a platform for ecommerce pick-up and delivery services. Stock prices of traditional grocers fall by almost double digits on the news. Some react to the announcement by calling for Amazon to be broken up.
Ocean carrier Maersk Line, FedEx's European TNT units, and several manufacturing plants hit with cyber-attacks they take down their services for a day or more, as efforts seem focus on disrupting supply chains.
UPS announces a 27-81 cent per package surcharge, depending on service type, for a few weeks of peak season deliveries in the US, in an effort to recoup the higher costs that come with managing the peak surge.
CSCMP releases annual State of Logistics Report, with headline news that 2016 US logistics fell as a percent of GDP for the third year in a row, at 7.5%, down from 7.84% in 2015.
That's my list of the top stories in supply chain so far this year. Again, longer list here. What did I miss? Let me know.
What is your reaction to Gilmore's summary of 1H 2017 in supply chain? Any top stories we missed in our list? Let us know your thoughts at the Feedback button below.
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