Archive for Global Trade

Bob_Dylan_-_The_Times_They_Are_a-Changin'The times they are a-changing. This week’s news reflects some major changes, especially in the retail world. The West Coast port work stoppage has come to an end with a formal agreement in place after 9+ months of discussions. Major retailers are branching into new, and often unlikely spaces, as the global e-commerce market soars. The commercial drone industry finally has an initial set of regulations in place, which now opens a 60 day comment period. Amazon, for one, is none too happy with the proposal. And finally, this weekend marks the end of February. For those of us in the frozen landscape of New England, it means that the end is in sight. Spring will be here soon, and we can finally move on from a record-setting winter. Yes, the times they are a-changing.

And now, on to the news.

wcpAt least for now, the West Coast port labor fight has come to end. The owners of the 29 West Coast ports and the dockworkers union have reached a tentative deal for a new contract. As a result, the port can begin to work through the backlog of stalled goods waiting on the docks and out at sea to get operations back to normal. While this is good news for retailers, manufacturers, and agricultural exporters, the road to recovery will not be quick. Analysts predict it will take months for operations to normalize, and the flow of goods through the ports will be slow going for the foreseeable future. All parties involved in the deal know that this is certainly not the end of worry over future confrontations.

remote droneThe FAA revealed a proposal over the regulation of commercial drones in the US. The proposal would allow commercial drones up to 55 pounds to fly within sight of their pilots up to 500 feet high at speeds as fast as 100 mph. The remote pilots must be at least 17 years old and would have to get certificates by passing a test of aeronautic knowledge and a vetting by the Transportation Security Administration. Many people are happy with the proposal. Brian Wynne, CEO of the trade group Association for Unmanned Vehicle Systems International, called the proposal a milestone toward remote-controlled aircraft sharing the skies with passenger planes. Amazon and Google however, are not so happy.

“That means we really are not talking about unmanned aerial vehicles. We are talking about something that has to have a person. It defeats the whole purpose,” said Michael E. Drobac, executive director of the Small Unmanned Aerial Vehicle Coalition, of which Amazon, Google and GoPro are members.

In Hyderabad, India, the logistics side of e-commerce has been a challenge. Local convenience stores and gas stations are stepping in to try to save the day. Third party logistics providers are working with local shops to establish e-commerce hubs in neighborhoods in smaller cities. Rather than developing complicated supply chains to ensure home delivery across the region, retailers can now deliver goods to small local stores for convenient pick-up by the customer. This plan allows the local business to serve a major role in the last mile of delivery while enabling retailers and logistics players to save money on their supply chain operations.

FarmersMarketOnline food shopping has been growing at a rapid pace in the last few years. And now, an unlikely retailer is entering the space: Overstock. Known for selling surplus and returned items through its e-commerce site, is now a player in the online grocery space. But instead of working with traditional supermarkets like other retailers, Overstock is taking a different approach. Overstock is working directly with farmer’s markets to deliver “locally grown, farm fresh food.” The program works with local farmers to deliver food directly to customers. Overstock handles the delivery of the order to customers and uses a profit-sharing program to compensate farmers. With an increasing focus on local and sustainable food sources, Overstock has put itself in a great place for growth in the grocery space.

waffleTwo more retailers are entering new business ventures as well: Waffle House and Woolworths. Waffle House, a breakfast restaurant based in the US, is entering a new business – delivering mail. The restaurant chain is attempting to compete with the USPS, FedEx, and UPS. The plan is take a page from Uber’s playbook and use its restaurants as drop-off locations. Using an app developed by Roadie Inc., customers can find drivers already heading towards their package’s destination. The drivers will then deliver the package to Waffle House locations, where customers will retrieve it. Rather than getting paid, drivers receive a free waffle when they download the app and free drink when they make a delivery.

At the same time, Australia based retailer Woolworth’s has inked a deal with eBay to serve as pick-up locations for orders. The service will initially be available to eBay buyers living in Sydney and Tasmania. They will have the choice to collect their orders from more than 90 Woolworths and Big W stores located across both cities. eBay and Woolworths predict that up to 12,000 sellers will be involved in the new click-and-collect service, based on Woolworths’ claim that 91 percent of Australians currently live within 10 kilometers of one of its stores. These two agreements show the changing nature of supply chain logistics. Click-and-collect is becoming a larger portion of businesses for retailers, and will only continue to grow as the global e-commerce market does as well.

That’s all for this week. Enjoy the weekend and the song of the, The Times They Are A-Changing by Bob Dylan.

On Friday, the Pacific Maritime Association (PMA) and the International Longshore and Warehouse Union (ILWU) announced a tentative agreement on a new five-year contract covering workers at all 29 West Coast ports. This announcement comes after months of labor negotiations and West Coast port congestion that has caused widespread shipment delays felt across the nation and across industries.

Courtesy of Michael Kelley

Courtesy of Michael Kelley

My colleague Chris and I have included ongoing updates on the gridlock in our Friday news posts. This past Friday I referenced a Gizmodo article that included some truly remarkable photos of the congestion at the Ports of LA and Long Beach. This got me thinking about the longer-term prospects for the stakeholders of the West Coast ports.  I have a personal interest in economics and business strategy; so I almost automatically look at the dynamics of these situations from the perspective of Porter’s Five Competitive Forces.

Michael Porter -  The Five Forces That Shape Industry Strategy

Michael Porter – The Five Forces That Shape Industry Strategy

Existing Competition Among Ports
I consider the West Coast ports to be one entity in this situation, since the ILWU is established along the entire coast. Therefore, other ports outside of ILWU territory can be considered alternatives, or “competitors.” I found it interesting that the ILWU chose to disaffiliate itself from the AFL-CIO (since the International Longshoremen’s Association is affiliated) back in 2013, as I always thought that “strength in numbers” was a key tenet to collective bargaining. Anyway, it is clear from the press and from statistics that a notable amount of shipments are being diverted away from the West Coast ports to more reliable alternatives such as Gulf and East Coast ports. (In fact, The Panama Canal has been another beneficiary of these ship diversions because the ships coming through have a greater number of loaded containers, generating greater fees for the canal operators.) There is evidence that discretionary West Coast cargo has been getting diverted for some time. A PMA annual report states that East Coast and Gulf ports have gained market share at the expense of the West Coast. And they point to reliability concerns after the 2002 coast-wide port shutdown as the likely cause. With the Panama Canal expansion, the Gulf and East Coast ports will become an increasingly viable alternative for the West Coast going forward.

The diversion of shipments to alternative ports is driven by the importers’ desire to receive the goods in a timely manner and on a reliable basis. Diversion causes an increase in shipping distance and cost. But at this time diversion is providing time and reliability advantages. Importers are likely to continue to shy away from the West Coast until they obtain sufficient confidence in the reliability of the ports.

Threat of Substitutes to Labor
Aside from the reduction in work caused by diverted shipments, the ports are becoming increasingly automated due to general modernization, capacity constraints, and the increased use of containers that lend themselves to standardized processes. In 2013, when the ILWU disassociated with the AFL-CIO, the Seattle Times referenced  a letter from the ILWU president stating that they faced the “challenge of the ports soon being run by robotics and computer-operated machinery over the next five to ten years.” This is likely to be true, as the ports need to stay competitive and increase throughput. But I also think that while some jobs will be replaced by automation, others will be created to support the new technology and processes in use.

Technology is currently being deployed across the West Coast ports. The recent TracPac container terminal at the Port of LA is the West Coast’s first to be completed terminal automation project, according to PMA. It is a $510 million upgrade that is composed of 10 projects and includes the construction of an automated intermodal container transfer facility and equips each terminal with on-dock rail. West Coast terminals are reportedly also considering the deployment of additional automation including automated guided vehicles and automated stacking cranes. An example of the use of AGVs in terminals is APM Terminals new facility in Rotterdam that will use battery-driven lift AGVs for container transport within the yard and eight STS cranes that will be controlled remotely.

So the shipping lines are being pressured by volumes and economies of scale; the West Coast port operators are being pressured by the alternatives being created by the Panama Canal and alternative ports; and the ILWU is being pressured by the port operators. It sounds to me like competitive forces are alive and well on the Pacific.

Things are certainly changing in the trucking industry. Even though demand is rising, the industry is facing a monumental challenge in its shortage of qualified and licensed drivers. The driver shortage has been at the forefront of trucking news for some time, and we have certainly covered it here at Logistics Viewpoints. With the ongoing investments in research and development for driverless vehicles, could this be the solution to the driver shortage?

driverless trucksDriverless cars have been receiving the lion’s share of buzz lately. But they are not the only vehicles out there. In fact, driverless trucks are already operating at iron ore mines in Pilbara, Western Australia. The trucks were brought in to alleviate safety concerns for drivers, while increasing efficiency. These trucks are mostly operating on deserted dirt roads, not driving through crowded cities. But that could all change soon.

DriverlessTruck2Pretty much every car and truck company out there is testing driverless trucks, and it is only a matter of time before they hit the road. Not only could driverless trucks combat the driver shortage, there a number of other tangible benefits that can be felt. First, current regulations dictate the number of hours a driver can be behind the wheel. These regulations vary by country, but the bottom line is that each driver can only log so many hours a day or week. With driverless trucks, the trucks could drive 24 hours a day, while only stopping to re-fuel. There would be no mandated work stoppages or rest times. There would be no time lost to meals and snacks. There would be no time lost to sleep. The trucks can just keep going. This will cut down on the transit time to deliver goods, which will reduce overall costs.

Second, safety concerns of fatigued drivers will no longer exist. Driver fatigue is a serious issue in the trucking industry. For that reason, regulations exist to limit driving times. With smart trucks, there is no chance of human error on the road. In fact, there is not even human interaction. The trucks will not need to rest or reset themselves. Instead, they can continue to drive through the night.

Third, resources can be dedicated to other tasks. Freight turnover will increase due to shorter transit times. As a result, money can be invested in other areas of labor to speed up the loading / unloading process. The quicker trucks can be loaded and unloaded, the quicker they are back on the road. However, the increased use of automation could eventually lead to driverless trucks delivering goods to staff-less warehouses, with conveyors and scanners for unloading the trucks.

The looming question, however, is whether or not a driver needs to be in the driverless truck “just in case.” As driverless trucks become a reality, this will be a key question. If human drivers are needed in the trucks, the driver shortage will still be felt. However, drivers could use the time in the truck to complete other tasks for the company. This essentially gives the “driver” double duty, which will also save the company time, money, and resources. For example, drivers could complete invoices and send them out while the truck drives itself. Conversely, if human drivers are not needed in the truck, it can be the solution to the driver shortage. Then the question becomes, what about the drivers?

truck dayAnother week, another winter storm in the Northeast. It is a seemingly endless onslaught of snow, with another potential blizzard on the horizon. Last week I wrote about e-commerce grinding to a halt with the back-to-back storms, and Clint Reiser wrote about the weather’s impact on the supply chain (and his pursuit of a roof rake). Well, things are just going to get worse. I have nowhere to put the snow anymore, nor do any of my neighbors, surrounding towns, or major cities. Aside from the visibility issues of 10 foot tall snowbanks, delivery trucks have nowhere to park. I’ve seen countless delivery trucks “parked” in the middle of the road, blocking the flow of traffic. While this is something that would normally irritate me, these drivers have nowhere else to go, and no other alternatives. The result is traffic congestion, delayed deliveries, and a sense of longing for spring. Luckily, yesterday was truck day for the Red Sox. Only 52 days until opening day.

And now, on to the news.

west coast portAs of yesterday, West Coast ports are shutting down for four days as a result of the ongoing labor standoff. The ports on the West Coast run from Seattle to Los Angeles, and account for half of the imports into the United States. Previously, there had been worker slowdowns which resulted in massive gridlock and a slow flow of goods from the ports. But this shutdown could be devastating. According to National Retail Federation and National Association of Manufacturers, a shutdown of ports in cities like Los Angeles, San Francisco, Portland and Seattle would cost the U.S. economy almost $2 billion per day.

“The last prolonged port shutdown of the West Coast ports was the 10-day lockout in 2002 which some estimate cost the U.S. economy close to $1 billion a day and took months to recover from. The NRF-NAM estimates that a five-day stoppage would reduce GDP by $1.9 billion a day. This would increase exponentially with a 20-day stoppage resulting in a loss of $2.5 billion a day.”

walmart workerWalmart is jumping into grocery pick-up service. The retail giant is testing the service at three Arizona stores, as well as one in Bentonville, AR and Denver, CO. The retailer is offering thousands of items, from fresh produce and dairy to electronics and toys. Unlike other online services, which typically include a $10+ delivery fee, Walmart’s pick-up service is free to customers provided they place a $30 order. Customers choose a delivery timeframe at check-out and receive a call when their order is complete. Upon arriving at the store, they call a designated telephone number and a store associate will load the groceries into their car. This service could have a big impact on working parents, as they can place an order in the morning and pick up the groceries on their way home from work. Depending on how successful it is, there could certainly be labor implications of picking and running groceries all day.

sidecarSidecar, a ride-hailing start-up in competition with the likes of Uber and Lyft, announced plans to use its fleet of cars to introduce a package delivery service, delivering items like food and groceries for partner companies. The program will use drivers that are already picking up and dropping off customers. This move will put Sidecar into same day delivery category, competing with the likes of Amazon and Google, as well as other smaller companies like Deliv and GrubHub. This is an interesting move by Sidecar, as it is combining two increasingly popular services – same day delivery and crowdsourced delivery. It is probably an easier transition for an established company than for a new start-up to just compete in the delivery market.

Another winter storm as brought the e-commerce world to a halt. Monday’s storm in Boston dropped another twenty inches of snow on an already snow covered world. As a result, UPS canceled all pick-ups and deliveries in Boston. FedEx also warned of significant delays across the region. With so many e-tailers dependent upon their delivery network, since they do not have their own private fleets, this news was devastating. E-tailers are warning shoppers that their orders will most likely be delayed, costing them both money and customer satisfaction points. Just how costly has the winter been? According to Adobe, a storm on January 27 cost retailers an estimated $35 million in sales.

The Cass Freight Index report points to continued growth in 2015. The report noted that the economy was “much stronger” in 2014, with the year representing the best year for the supply chain sector since the recession. But even with a strong performance, strong GDP seen during the second and third quarters tailed off in the fourth quarter in the form of more modest growth, coupled with the ongoing issues at West Coast ports centered around labor and capacity issues and also negatively impacting late December shipment volumes. January freight shipments—at 1.027—were up 2.7 percent annually and down 4.7 percent compared to December.

And finally, steady job gains in the trucking industry have brought employment levels back to pre-recession levels. For-hire trucking companies added about 2,400 jobs in January, which is a 3.5% growth over last year. The for-hire trucking industry nearly doubled its hiring rate in 2014, expanding payroll by 46,000 jobs, compared with 24,900 in 2013. But even with the continued growth, the driver shortage is still a concern, as driver demand cannot be met. Many trucking companies are looking at cost-effective incentives to bring in new drivers, but there is still a long road ahead.

That’s all for this week. Enjoy the weekend and the song of the, California Dreamin’ by the Mamas and the Papas.

TBIt’s been a crazy week around these parts. Still dealing with the aftermath of the Blizzard of 2015, the Boston area was pounded by another major snow storm. These two storms set a record for most snowfall in a 7 day period. With the roads and rail systems a mess already, the latest snow made local deliveries that much more difficult. It slowed commerce to a near halt; people were too busy shoveling out to even shop online. Although snow blower sales probably went through the roof. Fortunately, the New England Patriots were not delayed in their travels to Arizona. The snow did impact their travel back to Boston with the Lombardi Trophy, and pushed the victory parade back a day. But it was all well worth the wait. This year’s Super Bowl was probably the most exciting I’ve ever watched. It featured an improbable comeback, another circus catch that looked like the deciding factor, and then the most exciting football play I’ve ever seen. Check out the field view of Malcolm Butler’s interception. Just unbelievable.

And now, let’s move on to the news.

Amazon PurdueAmazon has officially opened its first fully staffed physical location. The store, Amazon@Purdue, opened at Purdue University and allows students to order, rent, buy, pick up and drop off books and other items required for college. Most items will be eligible for free one-day pick-up with a Prime Campus badge when using Amazon@Purdue as their shipping address at checkout. When the orders arrive to the store, customers will be notified via email or text, and can scan a barcode at the location for pick-up at a service desk or self-service locker. The move puts Amazon more in touch with college customers, who are already using the online giant. It also puts more pressure on Barnes & Noble, as it is a major supplier of college textbooks. Amazon has similar arrangements with the University of California, Davis and the University of Massachusetts, Amherst.

Amazon has also made it easier to reach the free shipping threshold of $35. Traditionally, the $35 threshold had to come from a specific seller. Now, however, with so many retailers selling through Amazon, items old by third-party sellers that offer free shipping can be combined with Amazon-fulfilled products to achieve the minimum $35 order. This is a big move, as more consumers will likely look to combine products from multiple sellers to reach the free shipping threshold. Amazon said at the end of December that 100 million more items shipped free during the holiday season compared with 2013, saving customers more than $2 billion. But it also helps to drive incremental sales for Amazon and could possibly make people wait the 5 to 8 business days for standard shipping. This move can take some of the pressure off shipping time constraints for Amazon.

ecommerce-chinaChina is the world’s largest e-commerce market and is continuing to grow at a rapid rate. In 2014, China’s e-commerce transactions expanded 20 percent year on year to hit 12 trillion yuan ($1.96 trillion), while online retail sales grew 41 percent, ringing up transactions of 2.6 trillion yuan, data from the Ministry of Industry and Information Technology (MIIT) showed. And while a lot of the focus has been on large cities, the largest online retailers are betting on rural areas for expansion. Alibaba, for example, announced that it will invest 10 billion yuan over the next three to five years to build 1,000 “operating centers” in county seats and up to 100,000 “service outlets” in villages in order to expand its presence in the rural market. This is a massive undertaking to build up warehouse space and operations to streamline delivery times. As shipping to rural areas becomes more efficient, the opportunity grows for these companies.

Per-mile rates on the spot market fell again in January, according to data released by Internet Truckstop. With diesel prices continuing to drop, carriers have been forced to change fuel surcharge rates, which are changing the gross spot market rates. Greater truck availability, combined with lower load volumes, are putting downward pressures on spot market rates. Rates across all three segments (reefer, dry van, and flatbed) fell from December. Reefer rates fell 20 cents, flatbed rates fell 9 cents, and van rates dropped 16 cents. However, the linehaul portions of rates have been increasing.

DHL HelicopterWith traffic congestion a major problem in many cities, DHL is taking matters into its own hands. The company launched a helicopter delivery service in London in an effort to beat congestion. With a daily flight connection from DHL’s Heathrow Hub to the center of London, the helicopter will bypass traffic and cut the journey time into Canary Wharf and the City of London by up to one hour. A DHL Express courier will meet the helicopter, providing final mile deliveries to financial services, consulting and legal businesses. According to DHL, “the new service will significantly enhance the connection between key financial centers in the USA and the UK, in particular.” While the helicopter can cut down delivery timeframes, the courier allows for the personal touch of the delivery that many people expect. It also beats attempting to drop packages with parachutes at the appropriate door…

And finally, the West Coast port congestion is continuing to be a problem. Since the contract between the PMA and International Longshore Workers Union expired July 1, the two sides have been operating under the terms of the old deal. But slowdowns that began in October have continued. James McKenna, chief executive of the Pacific Maritime Association, said the association members will quit ordering longshore laborers to work on the docks within 10 days to two weeks unless the union and the association can reach agreement on a multi-year contract. This statement basically threatens complete gridlock at the port, which could be disastrous to the overall economy. Unless a deal is reached soon, the flow of goods into the country could be drastically reduced, which would be bad for shippers, retailers, manufacturers, and consumers. Or to put it another way, it would be bad for everyone.

That’s all for this week. Enjoy the weekend and the song of the week, in honor of the Super Bowl Champion Patriots, We are the Champions, by Queen.