It has been another busy and hectic week in our global supply chain world. Even we at Supply Chain Matters cannot keep up.
A labor dispute involving 800 clerical workers at the Ports of Los Angeles and Long Beach has just about shut down operations involving 40 percent of the U.S. import trade. According to a published Bloomberg report, seven or eight terminals at the Port of LA and three of six terminals at the Port of Long Beach have halted operations. Union clerical workers, which handle most of the paperwork for ships entering these ports, walked out on Tuesday of this week amid an impasse on contract talks, and other union longshoremen have honored the clerical worker’s picket lines. According to an Associated Press report, at least 18 ships have been unable to either load or unload, since the strike began on Wednesday. Other anchored or inbound container or cargo vessels are being re-routed to other west coast ports such as Oakland, Seattle or possibly Mexico.
Since the Ports are operated by the city of Los Angeles, that city’s mayor has urged clerical workers to return to bargaining and reach an agreement, including the assistance of a mediator. A statement from the clerical workers indicates that they have been working without a contract for 30 months, with the main stumbling block being outsourcing of clerical work. According to the Bloomberg report, port officials claim that work has not been outsourced and that the issue is about promoting “featherbedding”, requiring the engagement of employees even when there is no work to perform.
The National Retail Federation has asked President Barack Obama to intervene citing that the 10-day west coast port strike that occurred in 2002 cost the U.S. economy about $1 billion a day and disrupted supply chains for at least six months. The AP story indicates that the chief negotiator for the shippers remained hopeful about a resolution, and indicated that talks have been professional and courteous. Thus, Supply Chain Matters believes that any federal governmental intervention is not likely to occur immediately, at least not until the economy is seriously impacted. The bulk of the holiday inbound goods have already arrived and have been moved from west coast ports weeks ago.
This walkout comes on the heels of stalled labor negotiations among longshoremen and 14 east coast ports including New York and New Jersey. The Federal Mediation and Conciliation Service is involved in these negotiations and a strike could come in January if an agreement is not reached. If the ports on both U.S. coasts are affected by a work stoppage, that would be a disruption of a far greater magnitude and will likely draw more intervention. Also, the specific Ports of New York and New Jersey are still dealing with the effects of infrastructure and facilities damage brought about from super storm Sandy in early November.
In the meantime, manufacturing, retail and service supply chain teams, if they have not done so, need to be initiating risk mitigation response planning concerning both U.S. west and east coast container bound shipments and inventory.
As we noted in our commentary opening, there is never a lull period in the world of global supply chains.
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In covering many global supply chain developments we often note that the timing of public announcements, especially from governmental agencies is an important indicator of what is occurring behind the scenes.
This week, the U.S. National Transportation Safety Board (NTSB) indicated that current fire protection regulations concerning air cargo is inadequate. The NTSB urged the U.S. Federal Aviation Agency (FAA) to call for substantially tighter rules to prevent air cargo fires, including the installation of both advanced fire detection and fire-suppression systems installed on all U.S. cargo jets, as well as the use of fire-retardant cargo containers for cargoes that are highly flammable.
The NTSB action is a response to recommendations that agency made nearly six years ago in the wake of an onboard fire in 2006 involving a UPS DC-8 cargo jet landing in Philadelphia. That was followed in a 2010 crash of a UPS 747 freighter in Dubai which killed both pilots and destroyed the aircraft, and a later 2011 crash of an Asiana Airlines 747 freighter off the coast of South Korea. In these crashes, investigators suspected the presence of large numbers of lithium battery cargoes on-board helped to fuel the fires. According to reports, investigators have been unable to clearly identify causes of both these accidents because of the intensity of the fires. Supply Chain Matters published an October 10 commentary noting calls for increased fire detection and suppression measures, and here we are two years later with little reported progress. Then again, the U.S. Presidential election cycle has just completed and that may be an indicator that federal air safety agencies have run out of patience and will now step-up the pressure on the air cargo industry for increased fire safety measures without political and/or lobbyist interference.
Both air cargo and battery industry interests have been resisting such regulations because of the huge expense involved. Sophisticated fire detection and suppression equipment can cost millions of dollars per aircraft. Supply Chain Matters has previously noted that battery manufacturers have been shifting transport to surface and ocean container means of transport to avoid such exposures and potential expense.
Both the NTSB and The Wall Street Journal note that UPS disclosed that it has voluntarily developed and is testing a new class of fire-retardant containers constructed of aluminum and fiber-reinforced material similar to that used in bulletproof vests that can contain a 1200 degree Fahrenheit fire for as long as four hours. The NTSB announcement also notes that FedEx is in the process of installing a fire-suppression system on its long-haul fleet.
The timing of this announcement is obviously a response to increased governmental agency concerns for the air cargo industry to institute active measures. Effective use of containment devices is more likely the preferred preference for air cargo operators, at least for UPS.
The NTSB does not have the power to directly order its recommendations but the fact that the agency has elected to go public is an indicator that patience is running thin. UPS’s disclosure we believe, was also prompted by these increased calls for action.
The air cargo industry is running out of time to come-up with active action plans and this latest announcements, we believe, are a clear indicator that patience is wearing thin for concerted industry action on increased fire safety for hazardous air cargo.
Shippers of goods such as lithium batteries, or containing such batteries, will likely need to prepare for the fallout of increased measures, including more expensive shipping rates for air cargo movements.
A news capsule this week issued by SiliconValley.com noted that production problems continue to plague Apple and specifically its iPad Mini tablet, but they should be resolved early next year, according to a report by Taiwan-based DigiTimes. According to the DigiTimes commentary (paid subscription required to access content), production of Apple’s iPad Minis may fall as much as 40 percent below projections for the fourth quarter of 2012 due to problems with both the manufacturing yield of the LCD panels, as well as shortages of component supply. The panel problems extend to the 21.5 inch and 27-inch iMac line as well, but later release dates should allow production to catch up and eliminate the backlog by Q1 2013, the report said.
DigiTimes points to supplier AU Optronics as experiencing continuing problems in production yield causing that vendor’s prior commitment of 40 percent of target supply, to actually have a run rate of 22 percent of panel supply for the iPad Mini. It notes that Apple might experience a shortfall of up to 4 million units in the current 4th quarter, largely as a result of production delays at AU Optronics.
In September, DigiTimes reported that Apple had begun to shift the bulk of volume LCD production to both Korea (LG Display) and Japan (Japan Display), but that Taiwan based AU Optronics was an exception, being designated as the new third supplier. Supply Chain Matters featured a previous commentary related to AU Optronics.
This being the holiday quarter with the largest shipping volume requirements, if these reports are accurate, it will present unfortunate timing for Apple in its quest to establish significant market share in the highly competitive 7 inch tablet market dominated by the Amazon Kindle.
This week, Supply Chain Matters tuned into a 2013 Information Technology Predictions webcast sponsored by top-tier industry analyst firm, IDC. (a former employer of this author) IDC’s #3 Prediction indicated that market unit shipments for mini tablets will jump from the current 33 percent, to 60 percent of the total tablet market in 2013, opening up more possibilities for access to electronic content, including use by schools and universities.
Obviously there is a lot at-stake in the current competitive battle of mini-tablets and supply problems are not going to be tolerated by Apple.
Stay tuned for additional efforts from Apple’s supply chain and logistics teams to scramble to fulfill every conceivable order for iPad Mini’s during the holidays. Both FedEx and UPS will probably experience and even later surge in peak holiday deliveries as iPads descend from the skies.
This commentary is a reminder to readers who are members of Accenture’s Supply Chain Management Academy.
Next week, I will be delivering the second of a two-part community education series of webinars on the evolving hot topic of Supply Chain Control Towers (SCCT).
In the Part One- Foundations webinar I addressed the fundamental strategic changes occurring across global supply chains, along with their implications for decision-making. Part Two of this education series dives deeper into the people, process and technology capabilities to consider in preparing for a Supply Chain Control Tower initiative along with some guidelines for designing initiatives within industry supply chains.
This series is exclusively available to members of the Accenture Academy. Readers who are Accenture Academy Live members, especially those who attended the Part One webinar, are encouraged to register for Part Two which is scheduled for Tuesday, December 4.
Supply Chain Matters readers can also review and access some of these SCCT concepts by clicking on supply chain control tower in our listing of Topics in the right-hand panel. I will be summarizing some of the key takeaways from this series in a Supply Chain Matters commentary later next week.