Logistics Report: Amazon’s Plane Ambitions; Logistics’ Bigger Share; Steeled for a Slowdown
Date: Wednesday, June 19, 2019
Source: The Wall Street Journal
Amazon.com Inc. is investing heavily to get its domestic air-cargo operation moving faster. The e-commerce giant’s agreement to lease another 15 Boeing Co. 737-800 jets will give the company sharply more capacity in its next-day delivery network, the WSJ’s Doug Cameron reports, an important step as it ramps up services for its Prime customers and takes stronger control of its own logistics operations. The converted 737s, which will be purchased by the aircraft-leasing arm of General Electric Co., will link 20 Amazon facilities to smaller cities, extending the company’s reach with its own operations. Amazon already has a handful of 737s, but so far has depended more on larger Boeing 767s take packages to bigger markets. Amazon now expects to have a rented fleet of about 70 planes by 2021, and its investments in several of its own air cargo centers suggests more aircraft are on the way.
Logistics costs have been eating up a bigger share of corporate spending as companies scramble to take advantage of U.S. economic expansion. The latest State of Logistics Report from the Council of Supply Chain Management Professionals paints a stark picture of the soaring freight costs that hit shippers in capacity-constrained networks last year, the WSJ Logistics Report’s Jennifer Smith writes. Analysts say retailers and manufacturers are still coping with the aftermath in a highly uncertain 2019 economic climate. The report says transportation and inventory-carrying costs jumped at a double-digit pace last year, and the logistics-spending 8% share of total economic output matched the highest level reported in the past decade. Several shippers say spending in areas such as warehousing remain high even in a cooling economy, with many still coping with the overhang of last year’s rush to get goods into the U.S. ahead of new tariffs.
U.S. industrial supply chains are pulling back. United States Steel Corp. is cutting production by idling two blast furnaces, the WSJ’s Bob Tita reports, a response to falling demand for steel from a weakening manufacturing sector. The decision marks a reversal from moves last year to restart two blast furnaces near St. Louis after the Trump administration imposed tariffs on imported steel. The duty allowed domestic producers to raise prices, but falling demand for steel has blunted the benefit of the tariff in recent months. U.S. Steel is among the country’s highest-cost producers of steel, however, making the company more vulnerable to falling prices. The sector is sending signals that a broader retrenchment is looming. U.S. Steel and rivals Nucor Corp. and Steel Dynamics Inc. issued downbeat profit guidance this week and U.S. manufacturing output fell in three of the first five months of this year.
Lumber companies are producing less in a bid to drive up prices. West Fraser Timber Co., North America’s largest producer is closing one mill and eliminating a shift at another, joining a long list of Canadian mill owners who are cutting back. The WSJ’s Ryan Dezember and Kirk Maltais report mill owners have curtailed more than a billion board feet of production out of western Canada in recent weeks, a big reason that lumber futures on the Chicago Mercantile Exchange have climbed 33% so far this month. The cutbacks come amid more signs that the U.S. housing market is weakening and that the impact is hitting supply chains that handle construction materials. Lumber transports on U.S. railroads were down 6.2% in May and were off 11% last month on Canadian railroads, according to the Association of American Railroads.