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February 15, 2018 - Supply Chain Flagship Newsletter

This Week in SCDigest

bullet Is Amazon Really Building its Own Parcel Network? bullet SC Digest On-Target e-Magazine
bullet Supply Chain Graphic & by the Numbers for the Week bullet Holste's Blog/Distribution Digest
bullet Cartoon Caption Contest Continues bullet Trivia      bullet Feedback
bullet New Expert Insight Column bullet New Videocast and On Demand Videocasts

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first thought


Supply Chain Graphic of the Week
US Spot Truckload Rates Set All-Time Record


Growing Transportation Costs Hitting Corporate Profits

China Trying to Lock Up Cobalt Essential for Batteries
Georgia Considering Expensive Truck Only Lane
Tesla, China, Battling over Possible Factory


January 17, 2018 Contest

See The Full-Sized Cartoon and Send in Your Entry Today!

Holste's Blog: Poor System Performance May Be the Accumulated Affect of Many Small Problems


11th Annual Gartner-SCDigest Supply Chain Study!

One of the Most Popular and Respected Studies in the Industry Each Year

Survey Respondents Receive Complimentary Gartner Research
(See Details Here) - a $300-500 Value

Weekly On-Target Newsletter:
February 14, 2018 Edition

Cartoon, Full Text Predicts, CDP Report, Japan-Lean Questions and more

The Retail Vendor Performance Management Bulletin

January 2018 Issue

Global Trade Management Looks to the Future
by Ty Bordner
Vice President,
Solutions Consulting
Amber Road

Changing the Status Quo to Stay Ahead of the Amazon Effect

by Henry Canitz
Product Marketing & Business Development Director


What are logistics costs as a percent of GDP in China?

Answer Found at the
Bottom of the Page

Is Amazon Really Building its Own Parcel Network?

I had planned to wrap up my supply chain predictions series this week with some additional prognostications from the analyst at Gartner and IDC, but the major news late last week about Amazon's apparent real entry into the parcel delivery market has caused me to delay that planned column in favor of this more pressing development.

In early 2016, I wrote a column titled Amazon - The Most Audacious Logistics Plan in History? that was based on a series of reports that seemed to indicate Amazon's interest in developing an end-to-end global logistics capability.

That column came after news that Amazon had just leased 20 cargo planes for unclear purposes, as it was testing some cargo flights out of the old Airborne Express terminal in Wilmington, OH.


This is "surgical" and "not some threat on the vast amorphous market served by FedEx and UPS," Hempstead says.


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Bloomberg had also reported that "A 2013 report to Amazon's senior management team proposed an aggressive global expansion of the company's Fulfillment by Amazon (FBA) service, which provides storage, packing and shipping for independent merchants selling products on the company's website," Bloomberg reported. "The report envisioned a global delivery network that controls the flow of goods from factories in China and India to customer doorsteps in Atlanta, New York and London."

The project's name: Dragon Boat - and it was said then to be proceeding apace.

"Amazon wants to bypass these brokers, amassing inventory from thousands of merchants around the world and then buying space on trucks, planes and ships at reduced rates," Bloomberg said. "Merchants will be able to book cargo space on-line or via mobile devices, creating what Amazon described as a 'one click-ship for seamless international trade and shipping.'"

Around the same time, Amazon received a license to act as a wholesaler for ocean container shipping from the US Federal Maritime Commission and a similar license from the Chinese Ministry of Commerce.

Consistent with that, as a I reported at the time, a senior executive at a major freight forwarder told me at a Fall 2017 retail industry conference that Amazon already brings in about 60-80,000 containers from offshore into the US right now, and that this number could grow to some 250,000 in five years, likely pushing Amazon past Walmart as the largest container importer.

Many of Amazon's recent moves, he said, are simply due to its insatiable search for more capacity, as it is strained almost everywhere with its still mid-20 percentage growth in merchandise sales.

That executive did not expect, however, that Amazon will actually get into the global logistics business directly, because the returns on such an investment would be very low compared to what Amazon can get from say building more fulfillment and sorting centers around the globe.

But what he does expect is that Amazon will put together a complete, end-to-end global logistics service that manufacturers and merchants around the globe will be able to leverage to ship goods cheaply and quickly from their locations to consumers in the US and Europe. So, it would indeed be an offshoot of Fulfilled by Amazon, in an "asset light" model.

But Amazon may have a more direct strategy for US parcel shipping. Early last year, it announced of plans for a major $1.5-2.0 billion air shipping hub at the Cincinnati airport, with more than 200 flight departures and landings per day to be scheduled. Amazon then denied it plans to enter parcel in a big way, saying facility was being built just to help meet peak demand requirements.

My reaction: who on earth would spend $2 billion on a facility and still more on planes, etc., that would only be used occasionally, in peak periods. My answer: no one, even spend-happy Amazon.

So last Friday, the Wall Street Journal reports that in a few weeks, starting with the Los Angeles area, Amazon will launch new program called Shipping with Amazon (SWA), in which Amazon will take direct control of shipping for its Marketplace sellers in the area, in which it will pick-up packages at those company's facilities, get them into its network, and in some cases take those parcels all the way to consumers' homes.

It is similar to, but different from, another service Amazon announced in 2017 called FBA Onsite. With this, Amazon will again take shipments from its third-party Marketplace sellers into its network, but only to leverage its volumes and scale using traditional carriers such as FedEx, UPS and the USPS for last mile delivery. The theory was that scale gives Amazon more options for the shipper in terms of cost and delivery times, and enable more Marketplace orders to participate in the Amazon Prime program that offers free two-day shipping for a set fee per year.

The SWA program takes that program ever further, with Amazon not just taking the shipments into its network, but taking care of final deliveries where it can. It turns out that Amazon already performs some last mile delivery in close to 40 markets. It is assumed it will take care of last-mile delivery in those areas, filling up its trucks and providing higher delivery "density," the key factor in cost per delivery.

In other markets, it appears Amazon will often get packages close, say via truckload carriers or air, and then use the traditional carriers for the last mile.

Now, of course, the purpose of the hub under construction in northern Kentucky makes a lot more sense.

The Wall Street Journal reported that while the program is being piloted with the company's third-party sellers, Amazon envisions eventually accommodating other businesses and that Amazon plans to undercut UPS and FedEx on pricing,

Wow. There are two key questions: (1) Can it work?; and (2) What does it mean if it can?

As always in such situations, I turned to our friend Jerry Hempstead, a former DHL executive and now parcel shipping consultant, for his insights.

"I don't think it's a threat to FedEx or UPS," Hempstead told me. "The parcel world does not revolve around nor depend on the deliveries of sweaters to your favorite nephew or niece."

He says that while Amazon is a huge fulfillment business it's just a fraction of the world that UPS and FedEx operate in, noting that the core business of the carriers is actually B2B, not B2C, and by a large margin.

"My take on what Amazon is up to is to gain greater routing control over transactions coming from its suppliers and to reduce handling costs and a leg of transit when orders can originate from a supplier rather than transiting from an Amazon DC," Hempstead adds. "The shipments will appear as if they come from Amazon but will actually drop ship directly from the supplier."

This is "surgical" and "not some threat on the vast amorphous market served by FedEx and UPS," Hempstead says, adding "The articles last week are way ahead of reality and the press ( and Wall Street) made way too much of this."

As UPS and FedEx have been saying for years, Hempstead notes that Amazon's ability to one day haul and deliver packages for other retailers and consumers at a national scale would require tens of billions of dollars, requiring thousands of trucks, hundreds of planes and to build many sorting centers to handle millions of packages a day.

I agree generally, but have a slightly different take. While B2B may dwarf B2C at the moment, B2C is growing 15% per year, far faster than B2B. It inevitably will become a bigger factor in the mix.

Second, Amazon is taking the long view – a building options.

Third, the obvious strategy to me is for Amazon to take over the highest volume lanes – and let UPS/FedEx/USPS handle last mile in say Montana.

This point was also made earlier this year by our friend John Larkin of Stifel, who wrote that the fear on the part of carriers is that the company Amazon will skim off the base load volume and leave the end of week, end of month, end of quarter, and/or holiday surges to its outside service providers – who are investing heavily in their own networks on the premise that "base load volume will cover fixed costs and that the surges will afford the opportunity to make a profit."

How this plays out should be fascinating and high stakes for Amazon and the carriers. I think it is great for Amazon to continue to compete on logistics – which many thought had become a commodity function before ecommerce and Amazon.

What do you think Amazon is up to? Can it build its own parcel network? Let us know your thought at the Feedback button below.



New Videocast:

Reducing Costs through Automated Inventory Replenishment & Analytics

How Motor City Industrial Taps into Data Visualization to Help Customers Identify Waste, Reduce Inventory

This videocast discusses how to connect people, processes and technology across commerce and supply chain operations to achieve unified commerce.

Featuring Dan Gilmore, Editor along with Joseph Stephens, CEO, Motor City Industrial, Jay Fielder, Supply Chain Technology Manager, Motor City Industrial and Mike Wills, Chief Revenue Officer, Apex Supply Chain Technologies.

Tuesday, February 27, 2018

On Demand Videocast:

Yes, Retailers and Distributors Can Survive and Thrive by Unifying Commerce and Supply Chain

Integrated Approach will Improve Customer Experience as Smart Retailers Move Beyond Omnichannel

This videocast discusses how to connect people, processes and technology across commerce and supply chain operations to achieve unified commerce.

Featuring Dan Gilmore, Editor and enVista CEO Jim Barnes, a highly recognized industry expert on retail and distribution.

Now Available On Demand

On Demand Videocast:

The State of Retail-Vendor Supply Chain Relationships 2017

Results from SCDigest's Second Biannual Benchmark Study of Retailers and Their Vendors - and SCDigest's New Index to Measure State of the Relationships

These findings are being presented in a live panel discussion with interactive questions from audience members throughout.

Featuring Dan Gilmore, President & Editor-in-Chief of Supply Chain Digest plus Greg Holder, CEO, Compliance Networks, Kim Zablocky, President, RVCF (Retail Value Chain Federation)
and Victor Engesser, Retail Executive Advisor, RVCFP.

Now Available On Demand


Here are some additional emails stemming from Gilmore's First Thoughts column on The End of the Fossil Fuel Era?

Feedback on The End of the Fossil Fuel Era?


First of all you seem to be using the term Peak Oil in a couple of different ways – Peak oil in the sense that the output of a given well will peak early in its life and drop off at a predictable rate. Extending this to an oil field works in that the area with a bunch of wells I guess will behave in a similar manner.

Then you try to use this to talk about global peak production but that not only depends on the production of existing wells and fields but also on new exploration – the end of oil production from all the existing fields in the world would only give you an estimate of Peak production if no new production was developed. Global Peak production needs to take into consideration new production from new wells / fields and getting more out of existing fields by techniques like fracking.

The third use of Peak Oil comes in when you start talking about price – if production is slowed to barely meet demand ( thank you OPEC) then the price will go up. So a higher price may not be because production capability has peaked only because actual production has peaked.

The other major issue that I feel is lacking in the article is the fact that not all oil is used for transportation. While it is a major player some is used for electrical generation and some is used for manufacturing of things (plastic is likely the largest user so I will just use plastic for this area). While developing economies may get electric transportation something still needs to generate the electricity and if the price of oil falls because less is used in transportation people are likely to start using it to create electricity which will be in high demand from the electrical transportation and other uses in the developing countries. Developing countries will also be purchasing more things like refrigerators which need plastic and electricity thus more use of the oil.

So the article is asking will the demand for oil peak, without a detailed analysis on all of the factors it is hard to say – my gut feel is that if demand peaks the drop off will not be fast giving companies and countries time to react to the changes.

Mike Entner
Global Service Quality Assurance Manager
The Dow Chemical Company



Editor's Note:

Thanks for feedback – I love the debate.

Just couple of quick comments:

1. It’s not me but Peak Oil theory that applies it at multiple levels. Originator Hubbert in fact was the one who applied observations from individual wells to nations and ultimately globally.

2. There is no question that new sources – e.g., fracking – have upset the Peak Oil model. Hubbert did not envision this. But I can just say from my research Peak Oil is really of little concern to oil companies/countries today, its Peak Demand. I am not making such a prediction myself, but look at the chart – Royal Dutch Shell, an oil company, say Peak Demand will occur in 2025-2030. Others push it out further, but agree it is coming.

3. I agree fossil fuels – largely natural gas – will probably be used to generate electricity for some time – though solar is making gains much faster than expected. To be clear, I am no fan of solar subsidies and am hardly an anti-fossil fuel person. I also recognize the use of oil/nat gas in making chemicals/fertilizer/plastics, etc. which may continue for decades or forever. But I think as electric cars will become common, it will start to feel like the end of the fossil fuel era, which will accelerate changes in other areas, such as more solar.

As I wrote, we’re not at the end of course, but maybe not far from an inflection point that marks the beginning of the end, which we might agree is reaching Peak Demand.

And on top of all that, it’s good to be a bit provocative to stir the debate.

We’ll know a lot more before long!

Thanks again.

Dan Gilmore


I think you are quite right that electric cars and trucks are going to come on much faster than  many realize, and that this will result in a great drop in demand for oil.


This will then start the beginning of the end for oil energy domination, though of course oil may still be used in applications such as plastics.


Also a fossil fuel, natural gas' future in industrial and utility applications is much brighter, and should be around for decades.

Martin Wise

Ft. Thomas, KY





Q: What are logistics costs as a percent of GDP in China?

A: An estimated 14.9% in 2016. That compares to 7.5% in the US.

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