AFCOn Sunday night, I dealt with a logistical nightmare. I was fortunate enough to have tickets to the Patriots – Colts AFC Championship game. As a lifelong Pats fan, it was a treat to witness the victory. As a man with a decent amount of common sense, it was a difficult night. First, the rain. I don’t think I’ve spent that much time in sustained downpours before in my life. Luckily I had on many layers and our tent for tailgating had portable heaters. They certainly helped me dry off after the game. Second, the traffic. With 30,000 (give or take) cars leaving the parking lots at the same time, it became a logistical nightmare. We decided to fire the grill back up and wait out the traffic. At one point, we watched a car move 10 feet in a half an hour. By the time we finally got on the road, traffic had let up a bit, but it was still slow going. In all, it took me about 3 ½ hours from the final whistle to get back home; and I live just north of Boston. From a logistical standpoint, I’ll be searching for alternatives for the next game.

Now that the Colts game is over, we’re on to the news.

According to the American Trucking Association (ATA), the amount of freight moved by truck increased 3.5 percent in 2014 over 2013. The seasonally adjusted For-Hire Truck Tonnage Index was unchanged in December, following a jump of 3.5 percent during the previous month. In December, the index equaled 136.8 (2000=100), which tied November as the all-time high. Compared with December 2013, the index increased 5.2 percent, which was the largest year-over-year gain in 2014. Additionally, the ATA announced a strong outlook for 2015. According to ATA Chief Economist Bob Costello, “Overall, 2014 was a good year for truck tonnage with significant gains throughout the year after falling 4.5 percent in January alone. Freight volumes look good going into 2015. Expect an acceleration in consumer spending and factory output to offset the weakness in hydraulic fracking this year.”

BezosAmazon has reported that its Sunday deliveries in the UK have quadrupled compared to the last year. The online retail giant points to the accelerated nature of online shopping. The launch of Sunday deliveries on Amazon products, which is available in most major cities in the UK, has been driven by the company’s Amazon Logistics business. This arm of the company provides the facilities for local and national delivery companies to deliver products on a Sunday. The service is free of charge for Amazon Prime members. In the UK, the Royal Mail is feeling the pressure from Amazon’s Sunday deliveries. However, in the US, Sunday deliveries in the US run through a partnership between Amazon and the Postal Service. It will be interesting to see if things change in the US based on the success of Amazon’s logistics business in the UK.

Of the 6.8 million square feet of warehouse space across Mumbai, Chennai, Bengaluru and Delhi-NCR, about 1.7 million (or 25%) are accounted for by online retailers. The e-tail space is growing significantly, with more money invested across a number of areas. For example, e-tailers raised more $2.2 billion in 2014 for the purpose of building warehouses. Additionally, about 3.5 million square feet of office space had either been leased or was in various stages of negotiation by e-commerce firms across the country, which is about 400 percent year-over-year growth. These stats point to the continued expansion of online commerce in a global economy.

The Postal Service has proposed raising postage rates this spring to adjust for inflation. Under the plan, prices across all classes of mail would increase by an average of 1.966 percent on April 26. The cost of a single-piece stamp would remain at 49 cents, but the rate for letters weighing more than 1 ounce would increase from 21 cents to 22 cents per additional ounce. The Postal Service has estimated that its plan would bring in an estimated $900 million per year for the agency, which still does not account for $5.5 billion it lost last year. These price increases should come as no surprise, considering that even with fuel prices dropping, both FedEx and UPS are raising rates as well.

FEDEX UPSAnd finally, on the lighter side of the news, UPS declined to deliver a package to rival FedEx. Sue Szuch, of Lima, OH, sent a package via UPS to her daughter, who happens to be a FedEx employee in Cincinnati. The package, however, was stuck in delivery limbo. A supervisor said that the driver reserves the right to refuse delivery to a competitor. After a few phone calls, the matter was cleared up and the package was delivered. UPS even refunded her shipping costs.

That’s all for this week. Enjoy the weekend and the song of the week, Won’t Get Fooled Again, by The Who.

TeamworkWhen a shipper is involved in selecting a 3PL, both parties often consider whether there is a business fit between them, however often times they minimize, or simply disregard the issue of a cultural fit. In short, how well will the 3PL and the shipper be able to work together based upon their respective internal business cultures?

Dave Hauptman, the VP of Product Management at OHL, made the point that each party needs to be thoughtful in helping to establish the right chemistry. As an example, prospective clients want to know which managers will be running their warehouse and who they’ll be working with on a day to day basis. OHL thinks about which managers would be the right fit for a shipper and includes them in the RFP meetings. This insures that these managers have a thorough understanding of the client’s objectives upfront versus having to learn it over time, or not at all. Often times OHL hears from clients that involving and getting to know “their” 3PL team up front was a primary reason in choosing to do business with them.

Dave also noted that one part of this fit is related to industry and channel expertise. It is very unlikely that a shipper will be comfortable with a 3PL that does not understand their industry. But industry expertise also happens at the sub-vertical level. For example, it is not enough for a retailer to talk to 3PLs with retail clients because there can be big differences between operations of boutique, luxury brand, and general merchandise retail.

Finally, Dave is a proponent of shippers working with a detailed RFP that has been built before the selection process begins. He pointed out that even qualitative criteria – like cultural fit – can be included and that the different selection team members can score a 3PL on a scale, and those scores can be summed and averaged. Dave pointed out that “A good RFP allows for a quick qualification process for both the shipper and 3PL.”

I also talked to Sean Coakley, a Sr. Vice President at Kenco. Sean pointed out that in examining 3PLs, one cultural issue shippers are concerned about is how will the two companies work through the inevitable issues that will arise? A sales cycle is a highly artificial environment where everyone is on their best behavior. But once the deal is won, and a 3PL enters the second and third years of a contract, are the two companies still effectively working through the issues?

When assessing cultural fit, Sean believes indirect questions will often reveal more than direct questions. Examples include, “Can you give me a specific example of where you invested resources in more advanced material handling equipment to help promote a long term relationship with that customer?” “Can you give me an example of a client that had an issue that was imperiling the relationship and tell us what that issue was and how you overcame it?”

But there are also good direct questions that can be asked. “What percentage of your customers renew after the first contract period ended?” “How do you select the General Manager that will manage a prospective customer’s warehouse?”

But Sean pointed out that the cultural fit question runs both way. They withdraw from bids and renewal opportunities when it is apparent that customers are not truly looking for a partnership or when they make requests that conflict with Kenco’s guiding principles. Experience has shown that these customers can adversely affect Kenco’s own internal culture and rarely generates optimal results for either company.

Sean also pointed out that one cultural issue that shippers should care about is “whether a 3PL has a Lean culture, or whether Lean is a tool that 3PLs pull out of their tool box from time to time to appease customers. Shippers should want to work with a 3PL that lives Lean, whose workers think about continuous improvement every day.”

Finally, I talked to a shipper that went through a 3PL warehousing services selection process about a year ago. For this company, cultural fit was a critical criterion because some of their own employees would be working in a section of the 3PL’s warehouse performing high end value added services on the companies’ own proprietary machines. This executive worked at a private family run manufacturing company, and saw many similarities in attitude and management style with the 3PL they ended up selecting. The shipper’s cross functional team spent a considerable amount of time thinking about whether their employees would be comfortable in the 3PL’s warehouse, and whether their employees would be comfortable working and socializing with the 3PL’s workers.

Based on this conversation, I concluded that two important questions for a manager involved in a selection process to ask themselves are, “Would I be comfortable working as an employee for the 3PL? Why or why not?” If all a shipper cares about is finding the lowest cost provider, shaving a few cents off each shipment, this focus on cultural fit may not matter. But if the shipper is looking for a 3PL that is flexible and responsive, a partner they can grow with, these are the ultimate cultural fit questions.

In 2012, Amazon spent $775 million to acquire Kiva Systems, a distribution center robotics developer with about $100 million in revenues. Yes, that is a valuation multiple of seven times revenues. This is the most succinct way I can express the importance of warehouse automation to the e-commerce channel.

Warehouse Automation TechnologyARC is currently producing a market outlook study on the global warehouse automation & control market. This research project evolved from our interest in the evolution and ongoing convergence of the WMS, WCS, and warehouse automation markets.  The research process includes the analysis of large amounts of information and interviews with executives from numerous warehouse automation and control system providers; and the process concludes with the publication of ARC’s Warehouse Automation & Control Global Market Research Study.

If this research process has confirmed one thing, it is that the growth of e-commerce is propelling no market more than it is boosting the business of warehouse automation and control system providers. E-commerce has placed extraordinary strain on fulfillment operations.  The larger number of smaller orders has increased warehouse activity levels, labor costs, and complexity overall. What used to be pallet orders are now cases, and what was a case order is now a piece pick. Operations with low to medium complexity or volumes continue to use various levels of manual processes. However, those operations with increasing throughput requirements are stepping up technology investments to manage the increased volume and complexity. Some of the key technologies are pick and put-to-light to increase efficiency of labor when managing multiple line item orders, and mini load AS/RS to handle moderate sized loads, shuttle technology to handle smaller loads, and other goods to man automation to facilitate the organization and movement of these order items. However, e-commerce isn’t just increasing demand from retailers. Parcel carriers and 3PLs are also investing in warehouse automation to adapt to the increased volumes and changing requirements driven by e-commerce. Parcel carriers are experiencing increased shipment volumes from e-commerce orders, and they’re also witnessing increased returns processing exacerbated by flexible (free) return policies offered by retailers.

The changing order profile from e-commerce is also “backfilling” to increase demand for other warehouse automation technologies. For example, the ideal profile and geographic location of warehouses is changing from large DCs in rural areas to smaller DCs closer to urban centers. This progression increases the cost per square foot, making high-bay warehouses with stacker cranes more economically feasible and cost justifiable. In addition, the shipping of mixed pallets is becoming more common, increasing the value of technology that facilitates this process.  For example, packaging and palletizing optimization software is being applied to efficiently manage these types of processes. Also, many warehouses manage both traditional store replenishment and e-commerce order fulfillment. Many of these facilities are looking to automate their store replenishment processes along with e-commerce fulfillment. Finally, companies are getting innovative with the use of garment on hanger technology to sort a wide variety of items beyond the standard garment profile.

I find the progression and application of technology in the today’s warehouse to be fascinating, impressive, and exciting. Technology in this industry continues to progress to meet the market’s changing demands. And my discussions with automation and control vendors indicate that they are diligently developing their technology to meet these demands and to deliver capital investments with even greater returns.


ARC is conducting a Warehouse Performance Improvement survey.  Every valid respondent will get a detailed Strategic Report that explains the findings.   Click Here to take the survey

ARC Advisory Group (Logistics Viewpoints) tracks the recent quarterly revenue results of the seventeen most prominent publicly traded 3PLs. The report is published after all the companies on the list release their revenues. The off cycle earnings results by some large 3PLs delays the publication of our quarterly overview. However, we believe the delay is superseded by the benefit of publishing a more comprehensive overview of the 3PL market.

The 3PL market – defined here as non-asset based transportation, warehousing, and integrated supply chain services, experienced moderate growth in the third quarter of 2014.  The growth increased due to the performance of 3PLs in the contract logistics segment, especially in the EMEA region. The overall third quarter revenues across the seventeen public firms covered in this analysis increased by 5.3 percent year over year.  Only three of the 3PLs witnessed decline in revenues. High flyers, 3PLs with double digit growth year over year in third quarter revenues include:

  • Expeditors International of Washington, up 10.9 percent – Growth was mainly due to the increase in volume of airfreight and ocean freight.  Management attributed the growth to disciplined execution and efficient handling of business acceleration.
  • J B Hunt, up 19.7 percent – The growth in revenues was mainly due to increase in load volumes and rates per load.
  • Norbert Dentressangle, up 21.7 percent – This increase was mainly due to the performance of acquired Daher in France and Russia, and the success of the reorganization in China over the past 12 months. Norbert has also finalized the acquisition of Jacobson Companies, on August 29th 2014. The revenues from the acquisition will be reflected in the fourth quarter.

Companies witnessing decline in revenues include:

  • Agility, down 3.6 percent – The decline was because of the winding down of major project logistics contracts.
  • CEVA Logistics, down 1.4 percent – The decline was due to the continuation of challenging market conditions and softness in export out of Asia Pacific and some countries in Europe. CEVA has also focused on terminating low margin or loss making contracts that resulted in reduced revenues.
  • UTi Worldwide (3Q ended in October), down 6.6 percent – The decrease was attributed to the service issues and billing challenges associated with the rollout of the freight forwarding system in the United States.

Our analysis of the 3PL market includes three categories of non-asset based services (referred to as “contract logistics” in Europe):

  • Non-asset based domestic transportation services (brokerage and managed transportation services)
  • Non-asset based international transportation services (freight for-warding and customs services)
  • Warehousing services (warehousing and associated services such as packaging, light assembly, sequencing goods for a factory line)

Warehousing services, in aggregate across providers, experienced growth of 5.9 percent in the third quarter 2014.  This was the highest growth rate among the three categories of 3PL services. Warehousing services represents about 30 percent of the total revenues in this analysis of the 3PL market.

Top performers in this segment include:

  • Hyundai GLOVIS, up 11.4 percent
  • J B Hunt, up 13.2 percent
  • Menlo Conway, up 16.7 percent
  • Norbert Dentressangle, up 17.4 percent

Companies witnessing decline in revenues include:

  • CEVA Logistics, down 1.8 percent
  • Panalpina, down 15.4 percent

Non-asset based international transportation services grew more modestly, with an aggregate revenue increase of 4.9 percent during the third quarter. The international transportation segment is the largest category, accounting for 53.1 percent of therevenues in our analysis.

Top performers in this segment include:

  • Expeditors International of Washington, up 10.9 percent
  • Hyundai GLOVIS, up 10.5 percent
  • Norbert Dentressangle, up 80.3 percent

Companies witnessing decline in revenues include:

  • Agility , down 3.6 percent
  • CEVA Logistics, down 1.1 percent
  • UTi Worldwide, down 11.4 percent

Revenues from non asset-based domestic transportation services were up in the third quarter by 5.2 percent. The domestic transportation services segment accounts for 17.1 percent of the total considered revenues for 3PLs.

Top performers in this segment include:

  • Hitachi, up 6 percent
  • J B Hunt, up 35 percent

Companies witnessing decline in revenues include:

  • Hyundai GLOVIS, down 9 percent
  • Menlo Conway, down 1.9 percent

*Please note, our analysis excludes asset-based transportation revenues from Agility, Hyundai, J B Hunt and Norbert Dentressangle.

If you would like a complete copy of this analysis, including the results of the seventeen 3PLs covered, please contact chanf@arcweb.com.

The next report on 4Q14 and full year FY14 will be released in the last week of March, as UTi’s 4Q ends January 31st and is expected to report revenues by 26th March.

Very often any predictions you can make for a one year period are not about a brand new thing that will occur, the prediction is really part of a larger megatrend that has not only been going on for some time but will also continue for many years to come.

Some of the megatrends affecting supply chain management include:

What I will do is make some one year predictions that fall within the confines of the larger megatrends.

Omni-channel – Omni-channel investments by retailers have been all over the news. ARC’s research shows that distributed order management (DOM) is one of two key technologies that retailers need, but don’t have, to ramp up their omni-channel capabilities. However, in all my years as an analyst, I have heard only one speech by a retailer on how their omni-channel implementation improved their multi-channel capabilities, and this speech talked about the implementation at a very high level.

I predict that this is the year I finally see a good presentation by a retailer that goes into depth on the costs, benefits, and difficulties associated with a DOM implementation.

Relentless Competition – The most brutal competition is currently occurring in the shale oil patch where the cost of a barrel of oil has plummeted by over 50 percent in one year. And yet, from a supply chain perspective, this is among the worst supply chains in North America. Further, shale oil producer’s key partners, the oilfield service companies, also run terrible supply chains. In neither industry are you likely to find practitioners talking about their Sales & Operations Planning processes. Now that times are tough, and cost reduction is critical,

I predict that we will finally see Shale Oil companies and Oilfield Services companies explaining to Wall Street how they are implementing a Sales & Operations Planning to improve operations.

RoboticsRobotics in the supply chain actually took a step backward, as Amazon, the owner of Kiva Systems robots for the warehouse, stopped selling these robots and soaked up all the production. But because of relentless competition,

I predict that this is the year we will see new types of mobile robots for the warehouse emerge from other suppliers.

The Industrial Internet of Things (IIoT) – While the Industrial Internet of Things clearly has great potential, it is also clear is that these technologies are not fully mature. An evolution is continuing to occur and new applications for IIoT continue to emerge. Therefore,

I predict we will continue to hear of new IIoT applications emerging, ways to use remote sensor data to improve supply chain business processes, that never occurred to us.

Big Data – I’m actually stealing this prediction from my colleague David White. It is inevitable that based partially on IIoT and partially on the growing volume of data captured by enterprise applications, big data volumes are going to continue to grow exponentially. Solutions are needed to handle not just the growing volume of data, but also the velocity and variety of data. Complex event processing (CEP) technologies can help to tame data velocity. CEP technologies have been traditionally associated with financial trading.

I predict that this is the year we will hear of good applications for CEP in the supply chain.

wise owl