The Supply Chain Year In Review
Date: Friday, December 28, 2018
Looking back at 2018, the most important supply chain stories included the following:
Tariffs were imposed on steel and aluminum in March. A trade war was threatened with Canada and Mexico, but a new NAFTA styltrilateral treaty - more favorable to the US and less favorable to Mexico - was announced in September. The most noteworthy provisions, in terms of protecting US jobs, were changes to auto rules of origin, which dictate that a certain percentage of an automobile must be built from parts that originated from countries within the NAFTA region. Under the new rules, cars must be built with at least 75 percent of parts made in North America, up from 62.5 percent under NAFTA. Also, 40 to 45 percent of an auto will have to be made by workers earning at least $16 an hour.
The US and China also had several rounds of the US imposing new tariffs and China retaliating. President Trump and Chinese President Xi Jinping agreed at a Dec. 1 meeting to a truce that delayed by 90 days a planned Jan. 1 U.S. increase of tariffs to 25 percent from 10 percent on $200 billion worth of Chinese goods. China agreed on December 10th to cut tariffs on U.S.-built cars and auto parts to 15 percent from the current 40 percent as a way of easing trade tensions and contributing to more productive talks. However, the US has not received documentation on the timing of the tariff reductions.
In December, for the fifth straight month, the US trade deficit increased. The Commerce Department announced that the trade deficit increased to $55.5 billion, the highest level since October 2008. The increasing trade deficit is likely linked to the ongoing trade war with China.
Britain Fumbles Brexit
Brexit is the impending withdrawal of the United Kingdom (UK) from the European Union (EU). It follows the referendum in June of 2016 when 52 per cent of those who voted supported withdrawal. On December 11th, after working for the past few years to negotiate a deal with the EU that her party could support, Theresa May, the Prime Minister of the UK, delayed a recent Brexit vote in the face of mounting opposition. The next steps are not at all clear. If no deal is agreed to, EU treaties cease to apply, the UK faces steep tariffs, and the UK, and potentially Europe as a whole, falls into recession. This is what the Brits would call "a cock-up of epic proportions."
With global supply chains, the logistics impacts go beyond just the UK and Europe but affect North America as well. But one example of this is that ships from Rotterdam, Hamburg and other European ports converge on the Port of Felixstowe in the UK which serves as a consolidation point where less-than-containerload (LCL) containers can be combined with other LCLs, and then shipped out as full-containerload shipments to North America. If this becomes a more expensive proposition, freight from Europe becomes more expensive.
Amazon Never Stands Still
Amazon's biggest recent move occurred in 2017 when it acquired Whole Foods. By February of 2018, Many of Whole Foods' in-house brands were available to buy on Amazon's website. But not via Instacart. Whole Foods ended that business relationship with a last mile rival.
By March it was reported that Amazon was searching for bigger Whole Foods locations in cities that could serve as both grocery stores and urban distribution centers for delivering goods to online shoppers. According to sources, Whole Foods was also working with one of its largest landlords on a project to convert parking areas at existing stores into stalls for Amazon delivery contractors to load up their orders.
But Amazon also made efforts to insure a profitable e-fulfillment business. In June, there were headlines with stories of customers being banned for too many returns.
With package theft on the rise, which in some cases causes Amazon to offer rebates, Amazon expanded a program for proof of delivery. In the program, delivery providers take a picture of where they put the package; the photo is included in the notice of delivery received by shoppers, so they know when it arrived and where to look for it.
Amazon has long made news for wacky sounding patents, the aerial blimp warehouse being the most obvious example. They were at it again this year. The company won a patent for robotic arms that can toss items around the fulfillment center. The patent described robotic arms that can use sensors to identify objects, figure out how best to grab onto them, calculate the required trajectories and fling the objects into chutes or bins. The patent reads: "The tossing strategy may be based at least in part upon a database containing information about the item, characteristics of the item, and/or similar items, such as information indicating tossing strategies that have been successful or unsuccessful for such items in the past."
Another 2018 patent, envisioned technology that would emit ultrasonic sound pulses and radio transmissions to track where an employee's hands were in relation to inventory bins, and provide "haptic feedback" to steer the worker toward the correct bin. The aim, Amazon says in the patent, is that through "guidance from a wristband, workers could fill orders faster."
And Don't Forget Uber
Supply chain professionals care about moving freight, not people. Nevertheless, Uber seeks to play in the freight space too. In August, Uber Freight announced the release of Uber Freight for Shippers, a desktop application platform that provides access to carriers and transparency into shipments. The Shipper app facilitates the posting of a load, receiving a quote on the load, and informs the shipper of information such as how long it takes Uber Freight to book the load, and the GPS location of shipment.
Uber Freight also worked to ditch the image of simply being a load matching service. Instead, the company innovated with programs such as "Take Me Home" designed to help drivers find loads that return them to their home bases. Similarly, in October, Uber Technologies announced Powerloop. Powerloop is a trailer leasing program, with trailers rented to participating carriers at $25 per day. This is a trailer pooling program that allows fleets, especially smaller owner-operators, to access pre-loaded trailers in the Powerloop network. A key goal is to cut detention time at shippers and receivers.
Retailers Embrace Rapid Delivery to Compete with Amazon
There were dozens of stories on this. Among the most interesting:
In January, Walmart filed a patent that will allow customers to see fresh items before placing an order. The patent is named "Fresh Online Experience," lets customers look at individual fresh items, such as produce, bakery items, and deli/butcher items, remotely before making a purchase. Once the customer approves the item, a watermark can be added so the customer can see that it is in fact the item they wanted when they pick up the order.
In February, the Sam's Club division partnered with Instacart for same-day grocery delivery at select locations across the country. By the end of October, the two companies this had expanded to Sam's Club deliveries to over 1,000 more zip codes from nearly 350 Sam's Club stores. Delivery is offered in as little as an hour.
Shipt, the online grocery delivery service that was acquired by Target in December of 2017, continued to expand its service in 2018. Shipt, which operates as an independent company, announced mid-year that it served approximately 50 million households with continuing aggressive growth plans.
Target announced a number of initiatives in March to a group of more than 100 financial analysts. Target said they would offer free two-day delivery for items over $35 and to Redcard holders. The retailer planned to utilize ship-from-store capabilities to help meet these delivery timeframes. The company was already actively shipping from 1400 of its 1800 stores. Target also announced expanding its drive-up service. Under this program, customers who prefer to stay in their cars can place online orders in advance and have a store employee load the items into their trunks within a few minutes of their arrival in the parking lot. The program was slated to expand from 50 test stores in the Twin Cities area last year to nearly 1000 locations by the end of 2018.
In November, Pizza Hut announced a partnership with Toyota on a new initiative: a pie-making truck. They seek to create the Tundra PIE Pro, a souped-up pick-up truck equipped with a robot pizza-maker in the truck bed. The truck can cook a pizza in seven minutes while on route to customers' homes. One robot arm grabs a pre-made pizza from a refrigerator and transfers it to a high-speed oven. A second robot arm transfers the cooked pizza to a round cutting board, slices it into six pieces and places it into an open box.
In early December, Walgreens and FedEx expanded their relationship to launch next-day prescription delivery nationwide. In June, CVS has announced a similar delivery service, but it was only available in a select number of cities.
Logistics Labor Costs Increase
In September it was reported that Walmart was offering referral bonuses of up to $1,500 to attract new drivers. Additionally, Walmart was seeking to shorten the on-boarding process for new hires to get them on the road faster. Walmart has historically been selective about its drivers, generally only hiring those who have at least 30 months experience over the prior three years. On average, new Walmart hires were earning about $86,000 a year with as many as 21 paid vacation days. It was reported that driver turnover rates in 2018 reached their highest level since 2015. This was driven in part by aggressive pay raises and drivers jumping to carriers offering better pay.
However, by the end of the year, an the record conversation with an industry expert suggested that driver shortages were easing, demand for transportation was softening a bit, and that industry forecasters were no longer forecasting steep transportation price increases for 2019. The bulge of Baby Boom truckers that are entering retirement age continues to cause concern, however.
The Sustainable Supply Chain
On an almost weekly basis, companies announce plans to make their supply chains more sustainable.
In January, Budweiser switched all of its US brewing to renewable electricity and is adding a clean energy logo to its labels.
In February, the Hershey Company joined the fight to end deforestation in its supply chain. The commitment included two fundamental components: no new deforestation for cocoa through a strict commitment not to source cocoa from anywhere in the world where new deforestation has occurred, effective immediately; and agroforestry to support shade-grown cocoa through tree planting programs.
In June, Mars, announced plans to send a team of experts to Madagascar, the world's largest exporter of vanilla, to support vanilla farmers in increasing vanilla production, but doing it in a sustainable way.
In February, Unilever became the first consumer goods firm to publicly disclose palm oil suppliers and mills that it sources from, both directly and indirectly.
In November, Mondelez put pressure on the palm oil supply chain to improve sustainability.
Several companies, particularly 3PLs, announced plans to add more electric trucks; in September the retailer Ikea announced it will make home deliveries with zero emissions in five cities by 2020. To meet the zero emissions goal, the company has said it will use mostly electric vehicles for all deliveries in Amsterdam, Los Angeles, New York, Paris, and Shanghai. The Port of Los Angeles also has zero emission goals. They have been testing zero-emission hydrogen-electric Kenworth T680 tractors and added a new hydrogen fueling station near the port.
In October, technology startup Flashfood released an app that aimed to help eliminate food waste. For grocery stores, this creates a revenue stream from items that would otherwise be thrown away. The Flashfood website shows pilots going on with Longo's (Toronto), Farm Boy (London) and Buy-Low Foods (Vancouver).
Natural Disasters Impact Supply Chains
Every year there are stories about natural disaster impacting supply chains. This year was no different. Hurricane Florence which hit North Carolina in September, brought what has been described as the 1,000-year flood to North Carolina. The result, other than an estimated $40+ billion in damages, was disrupted freight activity out of North Carolina. This activity dropped by more than 60 percent and traffic patterns took weeks to return to near normal.
The go to source for global risks is the World Economic Forum's World Risk Report. They published their 2018 report in January. The published a trend line for natural disasters that cause over a billion dollars in damage. It has been headed sharply up over the last few decades. 2018's subsequent natural disaster insured that the trend line continues to go in the wrong direction.
"Everybody talks about the weather, but nobody does anything about it" is an old gag. But it is not quite true. In September, Coca-Cola and Mars, Inc. became among the first companies to join the Climate-Resilient Value Chains Leaders Platform. As the name implies, the new digital platform is intended to help companies build more resilient supply chains by identifying and mitigating climate risk.