backtoschool-2015-cheat-sheet-2-1024Where has the summer gone? I am having a very difficult time wrapping my head around the fact that summer is basically over. And my oldest child, now 5, will be starting kindergarten in just over two weeks. And I also can’t believe that I haven’t given a single thought to back to school shopping. Sure, my wife and I decided he probably needs a new backpack, but neither one of us has gotten around to looking for one, let alone buying one. And he probably needs some new shoes, and maybe some new clothes, but it is still summer. My mind will not let me believe that fall is just around the corner.

So while I may be behind the eight ball, many consumers are not. The National Retail Federation (NRF) has released its annual back to school survey, and US consumers are expected to spend $68 billion on back-to-school and back-to-college items this year, down 9.3% from $75 billion last year. This reduction in spending is most likely a result of a dramatic drop in electronics sales, which according to NRF President and CEO Matthew Shay, is not surprising. “As seen over the last 13 years, spending on ‘back to school’ has consistently fluctuated based on children’s needs each year, and it’s unlikely most families would need to restock and replenish apparel, electronics and supplies every year.” So cue the buses (and the tears) for most people, but I’m not going to think about this until Labor Day. Then I’ll let summer be over.

And now, on to the news.

amazonpublictransit2Amazon is always looking for new ways to deliver products to its customers. In a patent application made public this week, Amazon describes a plan for delivering packages via public transportation. The company will turn trains, buses, subways, and other vehicles into roaming pickup locations. One scenario described in the patent is essentially an Amazon Locker on wheels. The locker would be installed inside or attached to the outside of a bus, train or other form of transit. Customers who ride a particular route regularly could opt to have a package delivered to their preferred bus, to retrieve while they’re riding. Or those in a specific area could choose to pick up their package at a bus stop, receiving a text message when their item is approaching. While Amazon has experimented with subways as part of Prime deliveries, this would be a whole new method for all customers. Combined with drones, bicycles, and private fleet, Amazon is looking to use every possible means of transportation to deliver packages.

late mailThe USPS is making direct mailers and catalogers worried about their business operations. That’s because in the first half of 2015, late mail has increased by 494 million pieces of mail, or a 48% rise over the same time period in 2014, according to a management alert from Office of the Inspector General (OIG) of the U.S. Postal Service. Due to changes in service standards implemented in January, a rise in delays was expected. But the volume of late mail has been alarming, to say the least. Winter weather conditions played a role in the delays early in the year, but the last three months still have an average of over 50 million more packages delayed this year than last. This is certainly not going to raise consumer confidence.

At the same time, the USPS is ramping up new services as it tries to compete with FedEx, UPS, and Amazon. In New York City, letter carriers in the early morning hours load boxes of fresh and frozen seafood from Fulton Fish Market onto mail trucks and deliver them to local restaurants by 11 a.m. The new postmaster general, Megan Brennan, is pushing same-day delivery as well. She cites consumer demand for this service as a prime motivator. To keep the postal service more competitive, she is also pushing Congress to green light the shipping of alcoholic beverages, expanding grocery delivery, and wants to offer more Sunday delivery.

methane burnMethane leaks in the natural-gas supply chain are far exceeding estimates, according to a new study. Natural-gas gathering facilities, which collect from multiple wells, lose about 100 billion cubic feet of natural gas a year. That’s about eight times as much as estimates used by the Environmental Protection Agency (EPA), according to the study, which appeared in the journal Environmental Science and Technology. The newly discovered leaks, if counted by the EPA, would increase its entire system-wide estimate by about 25 percent. According to the Environmental Defense Fund, methane is the main component of natural gas and has a more potent short-term effect on climate change than carbon dioxide. The effect that the newfound emissions would have on climate change over 20 years, the Environmental Defense Fund said, would be similar to that of 37 coal-fired power plants.

BK IndiaBurger King is rolling out delivery service in India. This marks the fifth country that the fast food chain has rolled out the service, joining the US, Spain, Korea, and China. The move was prompted by the changing habits of Indian consumers, specifically the use of mobile apps for ordering food. Burger King had initially launched a program that allowed customers to order food through an e-commerce engine driven by eBay, which essentially put a Whopper on hold for them. Now, by partnering with three tech firms (LimeTray, FastOx and Grab in India), the company is ready to start its home delivery business.

East Coast portsThe growth in shipping volumes at some East Coast ports appears to be slowing as West Coast ports continue to rebound. Growth in shipping container volumes at the Port of Savannah, for example, slowed to 10.3% year-over-year in July, compared with 23.2% in June, according the Georgia Ports Authority. This is mainly due to the increase in imports that began with the port delays on the West Coast. Now that import and export traffic is normalizing out West, ports of the East Coast can expect shipping volumes to continue to decrease.

WalmartWal-Mart is holding inventory longer at distribution centers to increase flexibility. This is mainly a response to meet e-commerce demands and expanded competition. Wal-Mart reported that inventory grew 2.2% from a year earlier, slower than its sales, which grew 4.8%, or by $3.4 billion, in line with its goal of shedding excess inventory. The company is keeping smaller amounts of a wider variety of items at distribution centers, allowing it to make more products available to consumers without having to stock them in stores. Less physical inventory in stores can be a growth driver for e-commerce business, as customers will need to have items shipped, rather than purchased in stores.

And finally, while spot load availability increases, rates fall. Van and reefer load availability increased for the third consecutive week but so did the availability of equipment, contributing to lower national average spot market rates for van, refrigerated, and flatbed loads, reported DAT Solutions. The total number of loads posted on DAT load boards rose 2.5% during the week, nearly matching the increase in the number of equipment posts (2.6%).

That’s all for this week. Enjoy the weekend, and the song of the week, Cruel Summer by Bananarama.

Categories This Week in News
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Global WMS Market

Global WMS Market

Earlier this month, I published a Logistics Viewpoints article discussing the prevalent factors affecting the global WMS market. I mentioned that the research process leading to the publication of ARC’s WMS Global Market Research Study includes interviews with executives from numerous WMS software companies. However, the interviews are only one part of the data gathering process. We also utilize trends from our many years conducting this research and complementary ARC research such as our Warehouse Automation & Control study. Finally, there is much third-party research that provides valuable context for our analysis. This includes macroeconomic data and research on complementary markets. Warehouse and logistics property investment is among the most complementary to the WMS and warehouse automation markets.  CBRE and Prologis are global organizations that publish insightful logistics property research for regions across the globe. I find trends in this market to be especially effective at providing color to the developments in warehouse technology markets.

Globalization and International Trade
Prologis recently published a paper on logistics property obsolescence, the causes, and the implications of the process. This report provides useful Globe-trottinginsight into property dynamics and points out structural shifts in the global demand for warehouse capacity. For example, Japan’s economic transition from manufacturer to large importer of goods has led to insufficient quantities of institutional distribution warehousing to support imports. Prologis quotes CBRE research that estimates the Japanese institutional logistics market grew almost 200 percent, or an annual rate of over 10 percent, from 2006 through 2014. So, although the Japanese economy is growing slowly, this shift in supply chain networks and distribution patterns is supportive for warehouse and distribution investments and I believe it will likely spur investment in warehouse automation as well. Similarly, European trade growth has been substantially higher than the region’s GDP growth. This growth has led to warehouse property development in northern European port areas and inland hubs such as Lyon France and areas of Poland.

The E-Commerce Impact
CBRE has identified “technology” as one of three long-term structural shifts affecting industrial property markets (the others are globalization and WMS Todaydemographics). The firm published a report discussing results from polls and discussions about technology’s impact on industrial property.  The results, obtained from its Power of Three conference in Paris, show that e-commerce and online retailing is the factor expected to have the greatest impact on logistics occupancy decisions in the near future (50% choosing it as the technology likely to have the greatest impact). This is consistent with ARC’s research on the WMS and Warehouse Automation markets, showing that investments to support e-commerce and omni-channel fulfillment is still the predominant dynamic stimulating growth of these markets as well.

CBRE also publishes quarterly Marketview reports that provide updates on the regional industrial real estate markets. In its US Industrial Q2 2015 report, CBRE further notes that the structural changes of omni-channel retail and e-commerce will drive logistics US Canadafacilities investment in markets of all sizes to enable quick delivery access to as many customers as possible. The growing demand for warehouse space in secondary markets in the US is partially driven by this e-commerce competition to deliver orders same day or next day. Amazon’s fulfillment center expansion into smaller facilities closer to population centers is probably the most frequently noted example.

The strength of the US dollar was noted a transitional factor. I agree, as exchange rates typically adjust over time unless they’re constantly pegged in a similar manner to China’s policies in the past.  In contrast to US logistics property demands, Canada is coming off a situation-specific downturn in logistics property demand resulting from Target’s former facilities coming onto the market after the company’s retreat from Canada.  Target Canada’s warehouse automation stock is likely to affect the warehouse automation market in Canada and the US as well.

APACCBRE’s recently published Asia Pacific Market Outlook noted much of the same factors impacting that region, stating that demand for logistics warehousing space will remain strong due to organized retail in emerging markets and strong growth of e-commerce. Similar to the US, e-commerce providers in China, India, and Japan are also locating fulfillment properties closer to population centers to reduce delivery times. Other factors positively impacting the region include increased use of 3PLs to achieve efficiency improvements and China’s gradual transition to increased consumption. Notable exceptions to the region’s growth include Thailand, due to political instability, and Singapore, due to labor shortages.

ARC’s ongoing research on the global WMS market recorded a post-recession uptick in WMS revenue growth. Although signs of this rebound appear to be moderating, numerous secular changes are contributing to ongoing investment in WMS and warehouse automation. Since the warehouse technology markets are clearly complementary to warehouse property, it is useful to monitor developments in this segment of real estate. The structural changes impacting the global industrial real estate market are consistent with the major contributors to growth in warehouse technology adoption. These changes, notably globalization and e-commerce, are contributing to warehouse space and technology growth rates above those of global GDP.

Global currency fluctuations have impacted trade and financial markets significantly over the last year. However, these foreign exchange rate effects typically have only temporary impacts on global imports and exports. Regardless, the logistics sector is likely to obtain a net benefit from increased outsourcing and trade. Meanwhile, investments in logistics technologies are also likely to increase as planning tools will be required for distribution network planning and facility reconfiguration will stimulate additional investment in WMS software and warehouse automation.

I wrote previously on this blog about how Singapore’s superior infrastructure has helped to make it a stand-out performer in logistics in the Asia region and, indeed, globally. But you don’t have to go very away from the Lion City to find a country that is conversely hampered by inadequate infrastructure and poor logistics performance.

I am talking about Indonesia, the fourth largest country in the world by population (250 million), the biggest economy in Southeast Asia ($888 billion GDP in 2014), and comprising 17,000 islands stretching across almost two million square miles (although less than 10 of those islands have significant populations).

The flight time to Jakarta’s Soekarno-Hatta International Airport from Singapore in just one and half hours. But it can often take double that time for your taxi to travel the 18 miles into the city because of the severe congestion on the Indonesian capital’s highways. Frequent heavy rains and inadequate drainage often lead to flooded roads across the city, worsening the already bad conditions for drivers and truckers.

While these traffic woes are perhaps the most visible symptom of Indonesia’s lack of modern infrastructure, the deficiencies also extend to railways, ports and airports, and not surprisingly, result in the low quality and unsophisticated nature of logistics in Indonesia.

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Jakarta Traffic Jams: A Symptom of Indonesia’s Infrastructure Woes

The World Bank’s latest Logistics Performance Index (2014) has Indonesia in 53rd place (out of 160 countries), well below Southeast Asian neighbors Singapore (5), Malaysia (25), Thailand (35). At 24 percent of GDP, Indonesia’s logistics costs are significantly higher than most other countries in the region. Bringing this down to 16 percent of GDP, the same as Thailand, would realize huge savings of some $80 billion a year, according to World Bank calculations

Increasing urbanization – by 2025, the urban population is projected to reach 65 percent, compared to 53 percent in 2010 – as well as a burgeoning car population and higher volumes of transported goods as the consumer class grows, makes it even more important for the country to develop a solid level of infrastructure, one that promotes rather than inhibits business activities and facilitates rather than puts a drag on economic growth.

The good news is that Indonesia finally appears to be taking steps in the right direction in terms of improving the landscape for logistics. Since taking office in late 2014, new leader President Joko Widodo has repeatedly stressed the importance of infrastructure development and outlined ambitious expenditure plans to the tune of tens of billions of dollars for the construction of 3,600 km of new roads, 15 new airports, 24 new seaports, railway network expansion by 3,258 km, and the improvement of public transportation in 29 cities.

Given Indonesia’s island geography, it makes sense to boost the quality of sea transportation and improve the connection between the main islands as well as to trading partners in the region. While the main container port of Tanjung Priok, which handles two-thirds of the country’s trade, on the main island of Java is Indonesia’s most developed in terms of technology, the dwell time (the interval between container unloading and exit from the port), of six days is still five times longer than in Singapore and twice as long as in Malaysia. And it’s not surprising to learn that it takes ports in less developed areas of the country even longer to move containers in and out.

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Given Indonesia’s Island Geography, It Makes Sense to Improve the Quality of Sea Transportation

Included among the 24 planned new ports is New Priok, which lies east of Tanjung Priok and will have an annual capacity of three times that of the existing port’s six million containers when fully operational with nine terminals in 2023. Elsewhere, construction work has commenced on ports in Kuala Tanjung in Sumatra and in Makassar in Sulawesi.

Back on dry land, the groundbreaking ceremony for the Trans-Sumatra toll road took place on April 30. The $23 billion, 2,700 km highway, which will connect major cities on Sumatra, from Banda Aceh in the north to Lampung in the south, is set for completion in 2018 and will greatly boost connectivity and reduce shipping costs on Indonesia’s largest and second most populous island. On Java, the main economic center, the Trans-Java mega toll road project is underway and will eventually connect its western and eastern ends.

While there is no doubting President Joko Widodo’s determination to improve Indonesia’s anemic level of infrastructure, the country’s notorious bureaucracy and onerous regulations remain a threat to proper and timely realization of grand plans. For instance, a much needed $2-billion city-to-airport railway line project in Jakarta has been delayed because of disputes on its route, and poor coordination between government ministries is preventing other “priority” infrastructure projects from getting off the ground.

The sheer scale of the planned infrastructure investments over the next few years means there is indeed a real opportunity to bring Indonesia’s lagging logistics competiveness closer to that of neighbors like Malaysia, Singapore and Thailand.

If the issues around mega infrastructure project start-up can be resolved, Indonesia can expect a payoff in the form of transformed and improved logistics, which will in turn drive economic growth and help the country conform to the rosy expectations of the IMF: a tenfold increase in GDP, to over $9 billion, and the fifth largest economy in the world (currently 16th) by 2030.

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Infor and GT NexusThe announcement of Infor’s agreement to acquire GT Nexus for $675 million is this week’s biggest logistics technology news. It is the latest consolidation in the enterprise application software market, following the trend of traditional software vendors acquiring SaaS solution providers. GT Nexus provides a cloud-based network connecting a community of trading partners, allowing for the dynamic transfer of information and visibility into global trade events. Infor has been transitioning its offerings to the cloud over the last year and a half. In early 2014, Infor announced the Infor CloudSuite, a partnership between Infor and Amazon Web Services, offering industry application suites on the cloud. GT Nexus will operate as a separate business unit within the larger Infor organization. Infor is presenting the acquisition as highly complementary, and I agree, as there is very little overlap between the two companies’ solution sets. Offering out-of-the-box integrations between Infor’s current supply chain footprint and the GT Nexus platform will offer total cost of ownership benefits. However, it remains to be seen to what degree and in what ways this acquisition can provide synergies in the form of increased revenues for Infor.

Now on to the rest of this week’s news:

Tianjin China

A Tianjin, China warehouse, owned by a company called Ruihai Logistics that specializes in handling dangerous goods, exploded late Wednesday evening. The blasts killed at least 50 people, injured 700, and destroyed scores of new cars and shipping containers. Needless to say, the blasts were horrific. We are including this story in Logistics Viewpoints due to the logistics relevance of the site and location. We wish the best for those injured and effected in other ways by this tragic event.

Cass IndexesThe Cass Freight Index for July showed a slight reduction in shipments and a substantial reduction in expenditures. However, July is typically a slow month and the year-over-year reductions are comparing against 2014 which was the best year the freight sector has experienced since the recession. These factors imply that the negative comparisons are likely transitory. In contrast, the Cass/INTTRA Ocean Freight Index for July reported reductions in imports and increases in exports. Container imports increased 21 percent month-to-month, while exports showed a 29 percent decrease year-over-year. The recent surge in the price of the US dollar accounts for much of the import/export disparity, as US goods are now more expensive overseas and international goods are cheaper in the US. Also, much of the global economy is experiencing a slowdown, while the US is importing goods for the “back to school” season and the overall economic trajectory remains stable.

FTR’s Trucking Conditions Index (TCI) for June rose to the highest level of 2015. Freight growth has slowed but rates continue to grow, labor costs are increasing, and lower fuel prices are maintaining profit margins.

e-Commerce fulfillment centers continue to come on line to support the ongoing robust growth of e-commerce. Research conducted by my colleague Chris Cunnane and I show that practitioners expect online sales to increase 40 percent over the next five years, while brick and mortal sales are expected to remain flat. Recent warehouse investments in the news include Amazon’s planned distribution center in Joliet, IL that will be the company’s first warehouse in the state and provide access to the Chicago metropolitan area.  Amazon is also opening a new fulfillment center is south Dallas, reportedly to fulfill small items such as books, etc. Finally, the other 800 pound gorilla of US retail, Wal-mart, is commemorating the opening of its new 1.2 million square foot e-commerce fulfillment center in Plainfield Indiana.

That’s all for this week. Have a great weekend. This week’s video shows a landing and take-off of an Airbus Beluga super transporter. I’m pretty sure it is a sea mammal of some kind. Maybe a dolphin.

Categories This Week in News
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omni-channelAt the heart of everything omni-channel is inventory. The customer needs to be able to get the merchandise they want, when they want it, and through their channel of choice. There has to be inventory visibility across channels, so stores, warehouses, and distribution centers can see real-time inventory levels as part of the order fulfillment process. And finally, in order to actually fulfill orders in a timely and efficient manner, inventory needs to be shared across channels.

At the end of last year, Clint Reiser and I worked on an extensive survey examining the omni-channel commerce landscape. From that research, which I am currently updating now, it became apparent that organizations were not doing a very good job of sharing inventory. While many companies had either the business processes or enabling technology in place, they did not have the combination of the two required to actually share inventory. In fact, our research showed that just over 50% of respondents are sharing inventory across channels. To put this in perspective, imagine if half the stores you went to could not fulfill your order both online and in-store because they only had the inventory allocated to one channel. That would leave you frustrated, and most likely, would send you to another store / brand to get the product you want. That is what is happening in today’s fragmented omni-channel environment. A lack of inventory sharing is creating customer dissatisfaction and reduced customer loyalty. Sharing inventory alleviates some of the concerns about lost sales. However, it does require accurate inventory counts at all locations, and the ability to centrally manage the flow of inventory. And these are major issues facing organizations as they attempt to move to a truly omni-channel environment.

Now looking at those respondents that are sharing inventory across channels indicates that a combination of online and in-store are where companies are focusing their attention. According to our research, 62% share across all channels (brick and mortar, online, mobile, call center) and an additional 34% share between brick and mortar locations and online. That means 98% of respondents are sharing inventory between stores and online. There is not a big push to share call center and catalog inventory with brick and mortar or the online channel. These channels are really a byproduct of their customer service departments. As a result, they generally do not carry direct inventory. However, call center employees need access to inventory to fulfill orders that do come in.

Online shopping, blue mouse in the shape of a shopping cartThe big reason for brick and mortar and online channels to share inventory is the changing nature of retail. Click and collect, and ship from store are two areas that are gaining more traction, and seeing a lot more investment from retailers. According to our data, 42% of respondents fulfill online orders from the store. The majority of orders fulfilled from the store are picked and shipped from the store (86%), followed by click and collect (68%), and shipped to the store from a DC for customer pick-up (45%). These processes require inventory visibility and availability between channels. The end result is the opportunity to increase sales, decrease mark-downs, better utilize labor, and potentially decrease transportation costs and delivery times.

dissatisfiedThere is still a lot of work to do in order for companies to fully share inventory across all channels of operation. There are business processes and enabling technologies that must be updated and integrated in order to be fully omni-channel. However, until organizations are able to gain full visibility of on-hand inventory (and ensure that it is accurate), allocate inventory appropriately, and pull inventory from all available channels, the customer experience will still feel disjointed. This lack of a cohesive customer experience is a main cause of customer defection. Our survey shows that those organization that share inventory across channels have increased customer retention 12% year-over-year, compared to a 1% reduction for those companies that do not share inventory. These defections are rooted in the inventory issues that are plaguing today’s retailers, and is a main reason for the continued slow evolution of omni-channel operations.

The results of this year’s survey will be released in the coming months. For your chance to participate, the survey link is below.

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