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Supply Chain Flexibility in a Post Coronavirus World

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The many effects of the Coronavirus continue to change on a daily basis.  While reports of new cases in China have been declining, (and that is certainly good news), that is not the case in many other countries, including the United States.

Every country around the globe that has been affected, or could be affected by the Coronavirus is instituting a full court press in an effort to not only contain the spread of the virus, but to ensure the safety of their citizens as well as its economy.

Looking at the business side of this crisis, Global Supply Chains must now address the elephant in the room.  And, what is that elephant in the room? Can companies that rely solely on China, or any other foreign nation for that matter for their businesses life support, continue to do so in the future? 

Several years ago, there was an awful lot of noise about the need for companies to begin re-shoring efforts and bring manufacturing back to the United States.  And, what wonderful benefits that would be for the US workforce and therefore for the US economy. If only it were that simple!  

Simple or not, the best time for companies to take a hard look at their global supply chains to protect them from future global disruptions is between yesterday and tomorrow.  Yes, that’s right, today is the day to act!

And, let’s be honest here, simply moving our suppliers and/or manufacturing from foreign countries to US suppliers and manufacturers does not by itself guarantee there will no longer be any supply disruptions.  

But what companies must do, if they haven’t already done so, is analyze how they can make their supply chains more flexible, giving them immediate options to shift suppliers and/or manufacturing, if and when necessary.  Having said that, no one is saying it will be an easy task to achieve, but it certainly is one that must be analyzed.  

Another area global supply chains must look at now is where can a company achieve reductions in operating costs to help offset the loss of revenue companies will definitely experience.   Remember, operational cost reductions immediately fall to a company’s bottom line and therefore will have a positive impact in helping offset the loss of revenue from declining sales.

Transportation and logistics expense are an area a company must continually look into to see if they are leaving any money on the table.  This is never a one and done process and should be looked at continually throughout the year, every year. Here are some cost reduction areas a company should be continually evaluating.

Comprehensive Invoice Audit Processes

All companies must ensure they have a comprehensive freight invoice audit processes in place.  These processes should include an invoice pre-audit process, where invoices are audited prior to payment.  This can be done of course in-house or through the services of a Third Party invoice audit firm.

Whether a company audits their invoices internally, or outsources that function it should always engage a post-audit firm that will “audit the auditor.”  In other words audit the invoices after they have been audited the first time.

A comprehensive pre and post audit process can yield savings of 2-5% of a company’s annual freight expense, so this can have a significant positive impact on the corporate bottom line.

Comprehensive Freight Cost Benchmarking Services

All companies negotiate with their transportation and logistics service providers usually on an annual basis.  But very often the rates they receive are the rates the service provider believes the shipper will be happy with.  Being happy and ensuring your company has the most competitive rates for the services being offered are two separate and distinct things.

Without an independent third party benchmark analysis no company can ever be completely assured they will pay the most competitive rates with each and every one of their transportation and logistics service providers for the services actually provided. 

The financial impact on a company’s bottom line by having their rates benchmarked by an independent third party can yield enormous savings in excess of 10-40% of a company’s annual shipping expenses.  These independent third parties are not necessarily better negotiator. They will ensure however their clients will now be able to negotiate from a position of strength based on providing the comprehensive analytics necessary to ensure “the best deal.”   

So, the big question global supply chains must answer today is, is your company doing everything it can to soften the financial blow of the current Coronavirus outbreak?  If not, you’re company is definitely leaving money on the table. Call us today and speak with one of our logistics experts and we will help you “find the money you never knew was missing!” 

Do You Hear What I Hear? How Will the “Noise” of 2019 Impact Your Business in 2020?

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Every year at this time, business leaders take a look back at their plans and goals for the current year to see how well they were able to stick to those plans and how successful they were at attaining their goals.  Some years they hit home runs and some years they completely strike out. In any event, the exercise of taking a true “no holds barred” assessment of their company’s performance is most critical.

In addition to this insightful business assessment, these same business leaders should evaluate how “noise” from the current year impacted their 2019 business decisions, and, if this “noise” will impact their 2020 plans and goals as well.   

A look back at 2019 presents a variety of “noises” that may have impacted many business decisions, some perhaps for the short term, some for the long term, and some not at all.  

In 2019, there were a number of major “noise” events, including many trucking failures that impacted both the Truckload, as well as the LTL segment of the industry.  At first blush these business failures brought fears of the “R” word returning…..RECESSION. That’s because the transportation industry has traditionally been a bellwether of things to come.  When the industry is in a downturn, which trucking closures would surely indicate, it sends signals that the economy is about to slow down.  

However, the actual trucking failures we experienced in 2019 apparently came about due to several carriers over extending themselves financially; several having unprofitable contracts with major shippers and, even some trucking business owners just wanting to move on and do other things.  

Actually, the numbers of trucking closures in 2019 were in fact significantly higher than they were in 2018, so it appeared these carriers were dropping like flies, when in reality the industry remained fairly stable.  

Another loud “noise” heard in 2019 was the “trade war” between the US and China.  This was an almost daily, up today, down tomorrow and vice versa effect on businesses around the world.  And it obviously did impact many business decisions and it certainly did impact many company financials as well.  

Now, there is word that an “initial” trade deal between China and the US has been agreed to by both parties, and the imposition of new tariffs that were supposed to go into effect last week are now on hold, perhaps temporarily, perhaps permanently.  We’ll know the answer to that question sometime in 2020 for sure.  

The “noise” heard on this front was and is a very complex one for all businesses involved in the Asia/US trade lanes, and what company isn’t impacted.  We suspect there will be a lot more trade war “noise” in 2020 and perhaps even beyond 2020.  

And what about the “Retail Apocalypse” or the “Amazon Effect” how have these “noises” impacted business decisions in 2019 and how will they impact business decisions and business goals in 2020?

And last but not least is the new USMCA trade agreement between the US, Canada and Mexico.  This is the trade agreement that is scheduled to replace NAFTA. From what we hear, (at least at this point), this new trade deal is in fact a real win for all countries involved.  Now that will truly be an amazing fete, if it is finally implemented.  

What all this “noise” means is that all businesses are operating in a new daily business disruption environment that constantly challenges the status quo.  Businesses need to listen to the “noise” they hear, try to assess if the “noise” is really something that will impact their businesses either positively or negatively and then make wise business decisions based on their own gut feelings of the facts, not the “noise.”  

How will your company react to the “noises” it will hear in 2020?  Will you make business decisions based purely on the “noise” of the day, or will you attempt to wait and digest the various messages coming from the “noise” and make sound business decisions based on facts.

At this time of year, we want to wish you a Very Happy Holiday Season and a New Year filled with health, and happiness.  

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The State of Logistics Report

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Each year A.T. Kearney authors “the State of Logistics Report” which is sponsored by the Council of Supply Chain Management Professionals and presented by Penske Logistics. The current report which is the 30th year of this annual report contains some interesting facts and figures which are worth pointing out.

  • U.S. Businesses’ logistics costs rose 11.45% to reach $1.64 Trillion or 8% of 2018’s $20.5% Trillion Gross Domestic Product, the most since 2014
  • The report states that 2018 was among the most challenging of years for shippers. Tight capacity which lead to significant and in some cases multiple rate increases to secure capacity
  • Logistics professionals were “forced to adjust their business models to maintain capacity” and control costs, including implementing dedicated fleets to assure service and adjusting their operations to become “shippers of choice”
  • Overall supply chain costs rose due to several factors including;
    • retooling supply chains to allow for increased on-line sales which increased 14.2% last year; the need for smaller, more costly warehouses
    • “extremely high” utilization of existing truck fleets, driving up rates
    • Increased government regulations on driver’s Hours of Service causing smaller trucking firms to close operations or consolidate with larger firms
    • Tight US labor market and higher wages for truck drivers and warehouse labor forces

It’s interesting to point out that some of the trends experienced in this 2018 report, (especially tight capacity and higher rates), actually may not be trends the industry will experience in 2019.  Already there are signs that truck capacity is opening up giving shippers an opportunity to negotiate lower rates with their freight carriers.

On the import side of the picture, some experts believe that the Import Peak Shipping Season, (soon to be upon us), might result in just a tepid spike in import volumes unlike we’ve experienced in the past few years.

Much however remains to be seen, as economists and business executives continue to try and make sense of the impact of the current “booming” economy and how long it will last; the impact of potential lower interest rates; the continued growth of on-line sales; the need to speed up delivery to customer while at the same time attempting to make a profit for providing these delivery time enhancements; and let’s not forget whatever it is the continuing “Amazon Effect” will have on tomorrow’s businesses.

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Third Party Logistics Trends

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According to Armstrong and Associates, 2018 will go down as a truly outstanding year for Third Party Logistics (3PL) in the US.  Recent information reported by Armstrong and Associates, provides some very interesting insight into the 3PL industry’s expected growth and trends for 2019.  Here are some of the report’s highlights:

  • Two main growth drivers were an extraordinary buildup of inventories that shippers implemented in an effort to stave off the impact of the implementation of any expected new import tariffs, as well as a strong domestic economic expansion.  
  • A tight domestic carrier capacity drove up rates and allowed for increases in fuel surcharge revenues.  There is also the impact of the tremendous growth in the e-commerce sector, (NO SURPRISE HERE!)
  • Armstrong estimates that the US 3PL market net revenue, which it describes as gross revenues, less purchased transportation, grew at a rate of 12.1% to $86.4 billion.  Overall gross revenues increased by 15.8% to a total of $213.5 billion for calendar year 2018. These results were so strong that the last time the industry saw this level of gross revenue growth was in 2010 when the 3PL market bounced back 19% from the “great recession.”
  • The Domestic Transportation Management segment, including freight brokerage, managed transportation services as well as freight matching services led all other 3PL segments with increased gross revenues of 20.7% to $86.5 billion.   
  • The Domestic Transportation Management sector is also experiencing new competition from the likes of various digital freight brokers, such as Uber Freight, Convoy and Transfix.  These new 3PL services have created a whole new world by digitizing the freight broker market by no longer relying on manual carrier sales/and back office processes.
  • The International Transportation Management segment posted a 15.4% growth in 2018 totaling $61.9 billion.
  • The Dedicated Contract Carriage Segment grew an estimated 15.8% to $17.8 billion, led by J.B. Hunt Dedicated Contract Carrier Services, (DCS).
  • And finally, Value-added Warehousing and Distribution actually had the lowest rate of growth in 2018 of a mere 8% to $43.3 billion, (still not shabby growth numbers).

These statistics certainly represent a very vibrant 3PL business market sector and one that most industry experts believe will continue to grow in 2019 and beyond.  There are however, the naysayers out there who believe our current economy is ripe for a new recession and may just be around the corner. And, if a recession does come to pass all of these business sectors could be giving back some of their record growth in the later part of 2019, but probably more likely in 2020.  

The reality is however, without a crystal ball it’s anyone’s guess.

The complete report and other market research can be purchased at 3PLogistics.com/Product-Category/Guides-Market-Research-Reports.

A FedEx truck is parked next to a UPS truck as both drivers make deliveries in downtown San Diego

FedEx to Make Sunday Home Deliveries!

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Well, we knew it wouldn’t be long before Seven day a week package delivery services would become the “new norm.”  Paul Ziobro, writing for the Wall Street Journal reports that FedEx will make that very bold move starting in January of 2020, right after the peak holiday shipping season.

FedEx president and COO, Raj Subramaniam said in an interview, “Online shopping is seven days a week.  So there is increasing demand from online shoppers and e-commerce shippers for seven-day service.” He did not however say whether FedEx plans to add staff to operate these Sunday deliveries, but we suspect that will become a necessary by-product of this bold Sunday delivery plan.  

Also worthy of noting is the fact that FedEx, at least at this point in time, states that they will not charge shippers an extra fee for making these Sunday home deliveries.  FedEx also does not currently charge extra for their Saturday home delivery services.

This Sunday delivery plan will also result in FedEx delivering less packages through their Smart Post hybrid delivery product with the US Postal Service for last mile delivery.  FedEx will now be making these deliveries themselves. FedEx’ goal is obviously to continue to build delivery density to reduce operating costs which is music to the ears of any freight carrier.

So, what will the impact of this change be on the US Postal Service?  FedEx estimates they will be taking approximately 2 Million packages daily out of the USPS delivery network and that will surely have a negative financial impact on the US Postal Service.  So what else is new; more negative financial news for the USPS.

As FedEx makes this Sunday delivery announcement, we believe UPS cannot be far behind in making a similar announcement regarding Sunday delivery services, so stay tuned for that.  And when UPS does make that announcement, what further negative financial impact will that decision have on the US Postal Service? Or might we suggest that the US Postal Service become more aggressive in direct solicitations with online retailers for more direct delivery business and truly compete head to head with the big boys.   

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“Survey Says” – Shipper’s not Happy with Ocean Carriers Performance

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A recent survey conducted by Drewry and the European Shippers’ Council and reported by Logistics Management, reveals a large gap between what shippers believe is acceptable service and the actual service they receive from their ocean carriers.

300 survey respondents gave an overall rating of 3.1 on a scale of 1- 5 with 1 (very dissatisfied) and 5 (very satisfied). This is the third annual survey conducted and the score results were 0.1 lower than last year’s survey; certainly not heading in the right direction.

So what did the survey results actually say?  Here is a snapshot:

  • “The survey results reinforce the opinion that more transparency is needed from maritime carriers.  Service levels, performance targets, market improvements, and price structuring should be set with a focus on clarity and an open observation analysis,” according to Jordi Espin, ESC’s maritime policy manager.
  • Shipper satisfaction was reported “least favorable” for clarity on prices and surcharges, transit times, and reliability of booking cargo shipped, ranking between 2.8 and 3 on the survey.
  • On the positive side of the ledger, the carrier attributes that scored highest in the survey were carrier financial stability, documentation accuracy, and availability of equipment which received scores of between 3.2 and 3.4.
  • A total of 4% of shippers were “very dissatisfied” with the ocean carrier services and only 6% were “very satisfied.”
  • Shippers expressed concern that carrier performance levels had deteriorated between 2017 and 2018 in the following areas:
    • The range of different available carriers
    • The range of different available services
    • The price of service, (no surprise here)
    • And the overall carrier service quality
  • And finally, according to Philip Damas, head of the logistics practice at Drewry, “in the long term, carriers need to address their shipper’s growing needs for predictability and visibility of carrier performance.”

So what do these survey results actually tell us?  Ocean shippers have been and will continue to be concerned about transparency of carrier pricing.  This concern has been around forever and we suspect will not improve anytime soon.

Secondly, Ocean carrier performance levels will also continue to be questioned and challenged.  What if anything will the ocean carriers do to improve shipper’s concerns?

The real impact of a survey such as this would be a collaborative effort between the carriers and their customers to map out a plan to improve the areas that need improvement and create a compelling vision for the future.  So will this actually happen – only time will tell.