1H 2018 in Supply Chain Review

As always, it seems, it was a very interesting first half of 2018 in the supply chain. Here were what I view as the top three themes and trends:

US tariff actions and threats from the Trump administration clearly were the largest story of the past six months, as friends such as Canada and European countries retaliated, and China promises to aggressively defend its trade interests.

How will this play out? Will a true major trade war breakout? Or will this lead to new agreements that are better for US manufacturing interests? We'll know a lot more by the end of the year.

Meanwhile, soaring logistics costs, driven by a shortage of drivers and rising diesel costs, were a growing concern for shippers - and CFOs. Rates are reaching all-time highs and accelerating, as carriers keep raising driver pay but still can't seat enough trucks to increase capacity.

Rising transport and oil costs, plus the strong global economy, are in fact re-introducing inflation into the supply chain for the first time in many years. For example, the Prices Index from ISM registered a very high 76.8 in June, well, well above the 50 mark that indicates a more neutral pricing environment, and indicating higher raw materials prices for the 28th consecutive month.

With that, here are what I see as the top supply chain stories by month in the first half of 2018.

January

Amazon received US patent for a system that uses ultrasonic communications between storage locations in a DC and special wristbands worn by workers doing putaway and picking activities to automatically verify locations and picks. News generates criticism in some quarters for "big brother" aspects, with a New York Times article on the patent headlined "If Workers Slack Off, the Wristband Will Know."

The Trump administration starts its trade actions by announcing a series of new duties on solar panels and washing machines coming into the US. Later come tariffs on steel and aluminum imports, then a broad array of other imports from China, spurring retaliatory actions.

China unveils plans for a "Polar Silk Road" across the Arctic by developing shipping lanes opened up by global warming and which could significantly reduce transit times versus going through the Suez Canal on some routes. The news draws concern from some countries in the region over China's long-term strategic objectives.

February

KFC in the UK forced to shutter some 700 of its 870 outlets in the country for one of more days after a supply chain snafu - caused it appears by switching to a new single food distributor there versus a less decentralized approach in the past. The new DC just couldn't get chicken out the door and to the restaurants.

Truck manufacturing giant Daimler threw a little shade at rival Tesla's announced plans for bringing electric semis to market, saying 2021 was a lot more realistic timeline than the 2019 schedule Tesla has promised. "The laws of physics still apply," Daimler says, in terms of the delivery range of electric powered big rigs.

The American Trucking Associations calls for a national 20-cent per gallon additional federal tax per gallon on gas, diesel, and equivalent natural gas sales in the US to fund an additional investment of $340 billion over ten years for infrastructure spending.

Amazon announced new "Shipping with Amazon" (SWA) services, where it will take shipments directly from the facilities of its Marketplace customers into its network for delivery. Expectation is this will lower shipping costs by leveraging Amazon's network and scale, and gives Amazon added benefit of keeping additional SKUs out of its maxed out fulfillment centers.

March

UPS London announces some form of breakthrough in recharging electric delivery trucks simultaneously overnight without requiring an expensive revamp of its electric grid. As a result, UPS says its fleet of electric route trucks will grow for a current 52 to some 170 over the next few years. UPS said that this marked the "beginning of the end" of the reliance on internal combustion engines.

Walmart says it will expand the number of US markets with same day grocery delivery from the current six to 100 by the end of the year. After Walmart packs the order, it will be handed off to a third-party delivery company or startup that uses contract workers to ship orders to homes.

Amazon receives patents for use of an on-demand air bag to protect parcels being dropped from the sky by drones, and separately for a delivery drone that can respond to human gestures and change is own behavior depending on whether the customer appears satisfied, angry, etc.

Uber stops - for now - autonomous car and truck testing after an autonomous vehicle, with a back-up driver inside, strikes and kills a woman in a crosswalk. It is believed to be the first highway fatality ever involving a pedestrian struck by an autonomous vehicle on a public road - but doesn't seem to have much of an impact on self-driving vehicle research overall.

Reports that that apparel retailer Zara is piloting an automated system that will enable shoppers who have ordered items on-line for pick-up in store where the consumer scans or enters a code, triggering a behind-the-scenes "robot" to search for the customer's package in a small warehouse, and then deliver it quickly to a drop box on the outside of the store.

April

The International Maritime Organization announces new rules for sulfur emissions from ocean cargo ships that will require ship owners to either move to a much more costly low sulfur fuel or install very expensive scrubbers by January, 2020. Either way carrier costs will go way up, with the CEO of one Japanese carriers saying some carriers will go bust as a result.

Amazon says there are now 37 US cities where its new Amazon Key In-Car is available, in which an Amazon delivery person Amazon enters a code into a mobile app to unlock the car, then places the order in the trunk, shuts the door, then used the app again to lock the car through the Satellite service.

The Federal Motor Carrier Association begins real enforcement of its mandate that all truck drivers use electronic logging devices to prevent cheating on hours of service rules possible with manual logs. Estimates on effective US trucking capacity vary from minor to significant.

An advisory panel of the National Academies of Science, Engineering, and Medicine (NAS) issues an interim report outlining the substantial additional research it says is needed before heavier and/or longer trucks are allowed on US highways, likely meaning it will be years before either change is again considered.

California Supreme Court made it much harder for employers to classify their workers as independent contractors in a decision that in supply chain could impact truck drivers, Amazon delivery personnel, and much more.

May

News that Target is piloting a new distribution center in New Jersey that will ship smaller quantities to stores more frequently, seeking to reduce the DC to store replenishment cycle from days to hours and reduce inventory at stores at the same time, especially at its new small-format stores in urban markets. Target calls this a "flow center."

US grocery giant Kroger announced it had signed an exclusive deal with UK online supermarket Ocado to use its distribution technology in the United States. Ocado had developed a unique robotic picking system for ecommerce for its own use, then began marketing the technology to others. The companies will identify three sites in 2018 for development of new Kroger "automated warehouse facilities" in the United States.

In move to spur US research, the US Department of Transportation announces 10 winners of permits for more advanced commercial drone tests, many involving supply chain-related applications and most partnerships between drone technology developers and other businesses/organizations. Notably, Google and Uber are in and Amazon is out of this round of testing.

Gartner releases it Top 25 Supply Chains list for 2018. After putting Apple, Procter & Gamble, Amazon and McDonald's in a sort of hall of fame category, Unilever tops the list for third year in a row, with Inditex/Zara, Cisco, Colgate-Palmolive and Intel rounding out the top 5.

CSCMP and shipper organization NASSTRAC announce a partnership under which NASSTRAC becomes an independent subsidiary of CSCMP, with a merger of their respective conferences starting in 2019. Move puts CSCMP for the first time in the government advocacy role, one of the services NASSTRAC performance for members.

June

The Cass Linehaul Index finds year over year per mile truckload rates in May were up 9% - the largest single monthly jump since the index was launched in January 2005.

CSCMP and AT Kearney release the 2018 State of Logistics Report, with the headline news that absolute US logistics spend was up 6.2% in 2017, to $1.49 trillion. But with decent economic growth last year, logistics costs as a percent of GDP were up just a tick to 7.7%.

Home Depot announces plans to create 170 new more local distribution points in US over next 5 years, at a cost of $1.2 billion, to support same day or next day deliveries for ecommerce orders.

Google makes $550 million investment in JD.com, China's second largest ecommerce platform, showing it intends to become a major player in on-line retail.

UPS and the Teamsters agree on a tentative new 5 year contract, pending a full union vote, seemingly ending the chance for a strike when the current pact ends July 31. Union get a decent pay hike over the contract term, while UPS gets a new class of drivers that can work weekends. Meanwhile, earlier in the month labor and management at East Coast and Gulf Coast ports reached tentative agreement on a six-year contract renewal.

What did I miss? 1H 2018 in numbers and charts next week.

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