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Severe Congestion and Paralysis Among U.S. West Coast Ports- Supply Chain Matters Update Four

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In last week’s Update Three commentary regarding the current crisis involving the near paralysis among the U.S. West Coast ports of Los Angeles and Long Beach, Supply Chain Matters highlighted that conditions on the ground were not showing any signs of improvement.  As this week draws to a close, the situation appears to be deteriorating even more, and now involves clear impacts and continued disruption for both U.S. exports as well as imports.

Last week, the National Retail Federation (NRF) published an editorial with the statement: “The sudden change in tone is alarming and suggests that a shutdown of the ports — either from a walkout by labor or a lockout by management — is imminent.” The NRF has since been joined by other industry associations  including the National Association of Manufacturers (NAM) the U.S. Chamber of Commerce, and 60 other organizations representing agricultural growers.

Agricultural exports such as apples, forest products, potatoes and other crops are now jeopardized.  Growers indicate that Far East buyers are now cancelling orders and moving to alternative sources of supply. According to a report from industry trade group, Agriculture Transportation Coalition, the consequences of the current port congestion are being felt throughout the United States. The railroads are unable to bring agriculture products from the Midwest and the South to West Coast ports because of the port congestion crisis. In addition, ocean carriers continue to attempt to pass on their increased costs by imposing draconian congestion surcharge fees on U.S. exporters and importers.

A published report in American Shipper (registered sign-up or paid subscription) now indicates that formal labor negotiations among the lead negotiators of the international longshoreman’s union and the Pacific Maritime Association (PMA) are currently in recess and not expected to resume until December 2. The publication characterizes this development as: “bad news for importers and exporters hoping for a quick agreement and rapid restoration of normal operations at West Coast ports.”

A new wrinkle concerning labor work stoppages expanded earlier in the week as independent truck drivers contracted by trucking firms serving both ports initiated multi-day job actions seeking fair wages and better working conditions. These job actions expanded to five trucking firms serving the port complex as of Monday.  Truck drivers, mostly hired as independent contractors, have had longstanding grievances with local trucking firms and now the Teamsters labor union has taken the current port crisis as an opportunity to leverage driver demands to be recognized as full-time employees.

We again echo our Supply Chain Matters advice that industry supply chains impacted by the current west coast port disruption should be in full response management mode and seeking alternative options for both imports and exports from these ports.  The situation is such that there appears to be little indication of improvement and further indications of shutdown, lock-out or government imposed mediation. Response time to save holiday revenue budgets is in critical stages, too late to save the Black Friday-Cyber Monday holiday weekend, and essential to save customer December and January holiday fulfillment commitments.

We may well observe that the winners and losers of the 2014 holiday buying surge were those individual industry supply chain teams that demonstrated the most resiliency and responsiveness to the west coast port debacle.

Bob Ferrari


Boeing Initiates Multi-Billion Long-Term Supply Agreement for Carbon Fiber Composite

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Multi-year supplier contracts often are associated with the need for strategic direct materials. For large enterprises that have the financial resources, they can well provide a source of industry competiveness or edge in supply.

A prime example is provided in aerospace industry as Boeing has just announced a memorandum of agreement with Japan’s Toray Industries for long-term supply of carbon fiber composite material. Once finalized, this contract extension will take effect in 2015.  According to one syndicated report, the contract is estimated to have a value of $8.6B.

This ten year supply agreement represents by Boeing’s words, a significant increase in material provided by Toray. It includes expanded material supply for Boeing’s ongoing 787 Dreamliner production program along with provisions to supply wing structures for the new 777x aircraft development and production program. According to the announcement, the wingspan of the planned 777x measures 22.8 feet longer than the span of today’s 777-300ER, which in-itself is a large commercial aircraft. Further noted was that in 2013, Boeing contracted for more than $4 billion in goods and services sourced within Japan’s aerospace sector suppliers.

A large portion of the future demand for commercial aircraft stems from Asia and Middle East air carriers.  Sourcing strategic materials in these regions assures continuity of product innovation as well as customer related influence.


Severe Congestion at U.S. West Coast Ports- Supply Chain Matters Update Three

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We are a mere two weeks before the Black Friday holiday shopping kick-off, and a mere six weeks before the actual Christmas holiday and the severe congestion that is crippling U.S. west coast ports essentially remains the same.

In last week’s Supply Chain Matters commentary we described what many are calling the “perfect storm” of supply chain disruption. Another week later, the crisis is cascading across industry and transportation channels, affecting both imports as well as time-sensitive exports.  An NBC News broadcast  in the U.S. notes that as of yesterday, 13 ships are anchored off the coast waiting to be unloaded and describes container shipping at “full stop”. While that may be a bit of journalistic sensationalism, it is descriptive.

The on-the-ground realities seem little changed from last week’s situation.

Public finger-pointing among the ILWU labor union and the Pacific Maritime Association (PMA) has become a public spectacle vs. any perceived constructive progress. Union officials continue to point to chronic shortages of truck chassis, the impact of having to unload far larger container ships and rail bottlenecks. Meanwhile, at least one container shipping line, U.S. Lines, is placing a Port Congestion Surcharge, effective November 17, amounting to $800 for a twenty-foot container and $1000 for a 40-foot container.  That is sure to add additional heartburn for retailers and manufacturers alike.

A published report from the Journal of Commerce reports that air freight forwarders with operations in the Asia Pacific region are observing space shortages with shipping costs rising dramatically. That should not be a complete surprise considering that Apple and other consumer electronics providers had previously locked-up air freight capacity to overcome their own production backlogs.

The National Retail Federation (NRF) continues to lobby for the personal intervention of President Obama but that effort, even if it did occur, is unlikely to relieve the current congestion any time soon.

As we stated last week, regardless of the finger-pointing, the situation is indeed the perfect storm scenario that many had feared and industry supply chains need to deal with the current realities. Noted in this week’s Wal-Mart commentary, retailers have already kicked-off holiday promotional merchandising and are de-emphasizing the singular Black Friday shopping event in favor of a steady stream of promotions extending through the end of November and probably well into December.

Last year, UPS, and to some extent FedEx, were thrown under the proverbial bus by retailers for non-performance at the most critical time period. In 2014, the creditability of west coast ports and indeed the surface shipping industry is inching closer to being the Grinch’s of Christmas.

Bob Ferrari


Maersk Reports Stronger Earnings but Continued Industry Warnings

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This week, AP Moller-Maersk, parent of global leading ocean container shipping line Maersk reported rather positive Q3 financial results. For the third quarter, the shipping concern reported an overall net earnings increase of 25 percent on flat revenues. However, Maersk did take the opportunity to once again warn its investors of a continuing slowdown in global trade.

Financial highlights for the Maersk Line unit included revenues of $7.1B and profits of $554M. Return on invested capital was 13.5 percent compared with 10.9 percent a year earlier. Volumes increased by 3.7 percent, average rate increased by 0.9 percent while unit costs decreased by 0.9 percent. Fuel costs decreased 2.4 percent from the year earlier period.

According to reporting from the Financial Times (paid subscription or free metered view), aggressive cost cutting and lower use of fuel has made Maersk Line the most profitable in the industry. The publication notes that current operating margin of 10.5 percent is considerably higher than the average of industry rivals.  Once more, Maersk boosted its operating margin over two percentage points in one quarter, and has the opportunity to continue boost future margins through the announced 10 year 2M vessel sharing alliance with rival Mediterranean Shipping Company (MSC).

Maersk CEO is again quoted as indicating that in essence, the glory days of rapid industry growth in containerized trade is over.  Operators must now assume lower single-digit volume growth.

In the midst of continued industry-wide overcapacity and little industry volume growth, Maersk continues to demonstrate that it will aggressively compete for additional business and market-share. In September, Maersk Line announced a renewed ship acquisition program. It announced plans to invest upwards of $3B per year, for the next five years to acquire the equivalent of 30 new 14,000 TEU capacity vessels. That is despite its recent investments and delivery of new Triple-E vessels capable of handling upwards of 18,000 TEU’s. The new acquisition of more technologically advanced and more fuel efficient vessels further provide the opportunity to scrap older, less efficient vessels.

Included in our Supply Chain Matters Predictions for Global Supply Chains for the current year, we forecasted continued industry consolidation in surface transportation. Maersk’s continued financial performance and aggressive competitive stance adds further kindling for the industry’s lower-tied players to make additional moves or be left behind.

Supply Chain Matters will be scorecarding each our 2013 Predictions in the not too distant future.

Bob Ferrari


Bombardier Features Video Status Update on C-Series Program

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In our coverage of challenges and learning among aerospace supply chains, we have featured commentaries related to industry dominants Airbus and Boeing, as well as those attempting new innovation such as Bombardier.  Our Supply Chain Matters coverage of the C-series program dates back to 2010 as the company’s Aerospace Group Bombardier C-Series First maiden Flightcranked-up efforts to introduce a technologically advanced single-aisle aircraft, termed the C-Series that could compete with industry dominants Airbus and Boeing in the smaller single-aisle aircraft segment. Bombardier embarked on a huge strategic gamble with the supply chain deployment and market launch of the new and innovative C-Series aircraft which was originally slated for market introduction in 2013.

Earlier this year, the program experienced a noteworthy setback resulting in a nine-month delay for the program due to a malfunction concerning the aircraft’s technologically advanced power plant. Since that time, program management and global supply chain teams have been working to resolve issues and move the C-Series forward.

Bombardier has now demonstrated what we believe was a rather effective use of social media based product marketing.  The company utilized Twitter to broadcast a video link featuring program vice-president Rob Dewer, narrating a visual status report of the program.  The video, which can be accessed by double-clicking here, speaks for itself and provides a good example on how to get the word out on program progress. It further points out the important coordinated contributions being made by all production, design engineering and supply chain teams.

How did you respond to this video? Do you view it as an effective means of brand marketing?  Do you believe that senior management within your industry is open to such efforts?

Share your thoughts in the Comments section.


Information Disclosed in Bankruptcy Filing of Apple’s Sapphire Glass Supplier

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Supply Chain Matters provides a follow-up to Apple supplier GT Advanced Technologies and the events leading up to its bankruptcy filing. In early October, in a sudden and startling announcement, this developing supplier for new, more durable sapphire glass applications for Apple’s product lineup announced that it had commenced a voluntary filing under Chapter 11 of the Bankruptcy Code as a best means to reorganize and protect that company.

This weekend, The Wall Street Journal, which first identified GT Advanced Technologies as the prime supplier of the new sapphire based material, revealed details previously included but sealed in the bankruptcy filing in October (paid subscription required). On Friday, the bankruptcy judge had ordered the release of this information.

According to the WSJ, GT’s CEO characterized Apple’s efforts as a “classic bait and switch” strategy that caused this supplier to be stuck in what was described as an “an onerous and massively one-sided deal.” The article further indicates that the supplier described constant changes in product specifications without adequate compensation and that Apple had no obligation to buy the material but demanded the supplier restrict the company from selling to other consumer electronics company. In an earlier motion to the court, Apple stated that the filing was intended to “vilify Apple and portray Apple as a coercive bully” and that the CEO’s statements were untrue and defamatory. Apple also invested the sum of $439 million which it must now try to recover.

This Apple supplier relationship has obviously reached a point of no-return. The WSJ quotes GT’s bankruptcy lawyer as indicating: “There are discussions between Apple and the company not about continuing the marriage but rather what I could call a divorce without a custody fight.

As Supply Chain Matters has noted in many prior commentaries, the perils of being an Apple supplier are those of having the capability of high agility in the wake of what others would view as rather difficult obstacles. That tendency dates back to the era of Steve Jobs who instilled a perfectionist culture for design engineering. Also with Apple come huge scale and the potential for financial reward. In the case of GT Advanced Technologies, the risk-reward strategy has an apparent far different outcome.

Obviously, Apple has no desire to have such a supplier relationship vetted in business and social media but this is a far different era of transparency and openness that sometimes transcends discussions behind closed-doors.

This is today’s mission for high tech and consumer electronics suppliers, namely dealing with whatever is required to make the customer’s business model successful, but sometimes at-peril if a counter-balancing strategies are not pursued. One of the Comments affixed to the WSJ article very pointedly states: “If you cut a deal with Apple, you better know what you’re getting into.” That comment sums it all.

Bob Ferrari


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