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NRF Issues Optimistic Forecast of Holiday Sales- Be Watchful and Be Prepared

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Business media and online channels are abuzz regarding the latest rather optimistic forecast of expected retail holiday sales issued by the National Retail Federation (NRF), an industry trade group of the retail industry. However, retail supply chains need to be prepared for even more challenges and unknowns in the coming weeks leading up to the end of year.

The NRF is forecasting that upcoming retail sales in the months of November and December (excluding autos, gasoline and restaurants) will increase by 4.1 percent over 2013 levels, equating to nearly $617 billion. According to the NRF, retail sales incurred an actual 3.1 percent increase during this same time period in 2013. The current forecast marks the first time since 2011 that holiday sales would increase by more than 4 percent.

In an interview with business network CNBC, NRF’s chief economist indicated that the 4 percent increase could be on the low end, given the current downward trend in energy prices that are benefitting consumers.

Also today, Shop.org released its 2014 online holiday sales forecast, expecting sales in November and December to grow between 8 – 11 percent over last holiday season to as much as $105 billion.  Holiday non-store sales in 2013 grew 8.6 percent.

In its release, the NRF wisely warns retailers that shoppers will remain extremely price sensitive and that retailers will have to overcome such challenges through differentiation in value and exclusivity. That trend was reinforced by a recent PwC study based on a poll of more than 2,200 consumers across the U.S. that spanned all demographics and income levels, and defined the holiday season as September through January. The PwC study reported that 84 percent of respondents indicated that they plan to spend the same or less than they did in 2013.  That is a somewhat conflicting data point relative to spending levels and for us, is a clear indicator of continued price sensitivity among the majority of consumers.  Thus, the retail winners in 2014 are those with the most attractive promotions and merchandising creativity.

Even more confusing is presumptions that termed “webrooming” (researching online and buying in physical store) the opposite of “showrooming” (research and touch in-store and buy online) will prevail this year. We refer readers to various commentaries, including our own,  written at the conclusion of the 2013 holiday buying period regarding lessons learned.  In early January, the Wall Street Journal produced ShopperTrak trending data related to total retail foot traffic since 2010 that clearly indicates a significant reduction in store visits, by a factor of almost a half since 2010.  In our Supply Chain Matters 2013 lessons learned commentary, we addressed information data security (credit card data breaches) coupled with logistics and transportation capacity breakdowns as important lessons. Some of those learnings are now reflected in conversations among retailers and their logistics partners.

What does all of this mean for retail supply chain teams? 

It essentially means that the challenges in the upcoming holiday surge are going to be even more dynamic  than last year and supply chain agility, flexibility and patience will be all important factors. 

Sales and Operations teams will probably have dynamic, perhaps even heated  discussions with merchandising and marketing on the timing of promotions, including how late to keep the channels open for orders and guarantee holiday delivery for consumers.

Planning for inventory needs in the correct fulfillment channel will be another challenge and will require a lot of demand sensing and day-to-day collaboration with marketing and merchandising teams. There are but 11 weeks remaining of planning time. Because of the threat of a west coast dock labor stoppage, most of the inventory has arrived and is making its way to various distribution points. Similar to last year, the period between the Thanksgiving and Christmas holidays is a short 26 days and the severity of winter weather conditions will again be all important in assuring continuous logistics flow without last year’s numerous logjams.

One very important other wildcard to monitor is whether economically stressed but savvy consumers, who may have lost trust in the data and information security practices of retailer systems, trend toward shop online and pickup and pay by cash at retail stores at the very last minute.  That may well be the 2014 doomsday scenario for retail supply chains that lack adequate agility in inventory re-positioning, multi-channel and logistics partner fulfillment capabilities.

Good luck, best wishes and let the planning and execution begin.

Bob Ferrari


Report Indicates Amazon Has Deployed New Sortation Centers in Preparation for Upcoming Holiday Surge

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Earlier this month, Supply Chain Matters posted its initial commentary to prelude what to expect in the upcoming holiday buying surge period. In that posting we observed that retailers and parcel carriers had carried over important learning from the 2013 season.

UPS has invested $500 million in plans to augment its package-car capabilities by an additional 10 percent over last year’s levels as well as dramatically flexing its capacity and intermodal capabilities at its Worldport central hub. Brown will also deploy what it terms as pop-up “mobile distribution center villages” that will function across various U.S, network points beginning with the expected holiday delivery surge.

Bloomberg now reports that Amazon has embarked on its own plans to avoid a repeat of holiday delivery snafus. A North Carolina retail advisory firm is cited as indicating that over the past 18 months, the online retailer has deployed 38 new fulfillment centers across North America, plus an additional 15 new “sortation centers” which are an added layer of capability to bypass the busy hubs of carrier partners such as FedEx, the U.S. Postal Service, as well as UPS. These sortation centers reportedly provide added flexibility to work around congestion points during high surge periods, including the all-important days before the Christmas holiday. They are further designed to be an important fulfillment component to Amazon Prime members who have signed-up for free shipping and other privileges.

As we and other have noted, Amazon is further experimenting with its own fleet of delivery vans being piloted in a select U.S. cities.

It is indeed going to be an interesting upcoming test of acquired learning as both online retailers and package carriers over the coming months. Supply Chain Matters will provide continued coverage of B2C/B2B Omni channel commerce learning during the 2014 holiday surge.


EU Commission Approves Hapag-Lloyd and CSAV Merger

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In April, German based ocean container carrier Hapag-Lloyd and Chilean based CSAV formally announced a merger deal after preliminary talks leaked in December 2013. This combination would create the fourth largest container shipping company in the world with upwards of 200 vessels and transport capacity of 7.5 million TEU’s in the fleet. The outlined deal involved Hapag’s control of 34 percent of the merged entity after two added capital infusions totaling approximately $1 billion. Container_Term

After its consideration, the European Commission has now issued its approval of the planned merger.  

Approval hurdles in other jurisdictions remain before the final green light, but the EU nod is a significant milestone.


A Time for Broader Technology Vision Across Supply Chain Execution Partner Ecosystems

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This author has been writing and speaking on the significant impacts that the Internet of Things (IoT) will have on industry supply chains in the next five years. Physical devices such as sensors, production equipment, transport vehicles and other supply chain focused devices connected to the Internet, transmitting valuable data and insights, literally bring the notions of connecting the physical and digital supply chain closer to reality.  

More and more industry supply chains have opted to outsource logistics, transportation and customer fulfillment to outsourced logistics and transportation partners and thus leveraging the potential benefits of IoT becomes a de-facto capability requirement. They also require broader vision among supply chain service providers for incorporating such strategies in their strategic planning.

Industry supply chain teams have gained significant learning from previously vendor hyped, single focused initiatives such as RFID, which ultimately had to overcome initial unplanned and unforeseen cost and technical infrastructure hurdles to reach compelling cost and operational benefits.  The broader vision of cost-effective item tracking and data management was a missing element. Similarly, the context for the benefits of IoT itself need to include leveraging the convergence that is now occurring in data analytics, in-memory, mobile and software engineered systems technologies that are providing deeper capabilities at less cost than a mere few years ago.  

Last week I had the opportunity to speak with Chris Power, Director of Product Management for Airclic.  For those readers unfamiliar, Airclic supports the critical last-mile of the supply chain, providing a cloud-based proof-of-delivery and routing service for food service, retail, healthcare, third-party logistics (3PL) and transportation industries.

In our discussion, Power observed that B2C/B2B Omni-channel fulfillment requirements are presently driving profound impacts on logistics and customer fulfillment needs. More and more B2C focused supply chains are moving their focus toward increased requirements for cross-dock, sorting and service center capabilities.  Goods are becoming more in-motion vs. traditional aspects of transport, store and ship. From Power’s observations, teams initially tend to seek more and more data regarding different logistical touch points, but “their eyes more often become bigger than their stomachs” when all that data overwhelms systems and people resources. That is often when Airclic gets the call. The need then shifts toward the broader need for making more effective use of data and avoiding data overload.

We discussed the notion that the term “big-data’’ may be disserving, and that a better term may well be what we at the Ferrari Research Group advocate, which is “smarter data”. Smarter objects that report on exceptions or abnormalities beyond a threshold provide a huge opportunity for managing the critical last mile of the supply chain.

Airclic advocates a three-stage maturity model.  First is harnessing capabilities to gain more automated visibility.  A second phase addresses managing exceptions, “tell me when there is a problem” vs. a hose line of streaming, overwhelming data. The third phase, one that Powers observes that few supply chain have achieved to-date, is predicting what is going to occur, especially in peak or seasonal demand periods when all resources are stretched. One example we discussed was last winter’s situation when horrible weather conditions caused noteworthy transportation and logistics delays, especially during the critical holiday buying period. Supply chain teams were often reacting to bottleneck disruption vs. anticipating such disruptions and executing alternate strategies that buffer or overcome disruption quicker.

However it is quite important to point out that the true benefits of harnessing IoT, smarter sensors and more predictive analytics within the physical aspects of products in movement is highly dependent on the ability of key upstream supply chain participants to have vision and commitment to invest in IoT, coupled with smarter data capabilities. As a community, 3PL’s, with the exception of FedEx, UPS or other visionary players, have not had a track record for investing in leading-edge technologies unless prompted and compensated by specific customers. In this author’s view, the time is long overdue for the broader logistics and 3PL community to broaden their vision and invest in such capabilities without solely passing the tin cup of customer donation. Leveraging the physical and digital capabilities is a service that will attract customers, and the economics for such investments will change for the better. 

The time is now for bold vision and broader technology perspective across supply chain execution partner ecosystems.

Supply Chain Matters invites other supply chain logistics and transportation industry players to share their views on the business benefits of harnessing IoT, enhanced mobile, smarter data and decision-making capabilities for industry supply chains.

Bob Ferrari


Breaking News: CMA-CGM Announces Ocean Three Service Sharing Alliance

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At the beginning of this year, a 2014 Supply Chain Matters prediction and consul was that industry supply chain teams should anticipate continued consolidation activity for the ocean container industry.  That indeed has been unfolding. The failed attempt among the top three global ocean container carriers to form the P3 Network was quickly followed by the announcement of the 2M Alliance and the Hapag-LloydMSC merger. Now comes the next iteration.  Container_Term

Today features the announcement from French container shipping group CMA CGM that the service carrier has entered into service-sharing alliance with China Shipping Container Lines (CSCL) and United Arab Shipping (UASC).  According to the announcement, the alliance will be termed Ocean Three, and will extend among Asia-Europe, Asia-Mediterranean, Transpacific and Asia- United States East Coast transit routes. The agreements will reportedly cover vessel sharing, slot exchange and slot charter agreements among the three carriers. Routes will be utilizing transshipment hubs common to the three partners. Rather noteworthy is that this alliance covers container shipments originating from the Middle East, Indian sub-continent and West Africa.

This new alliance requires the approval from the U.S. Federal Maritime Commission before it can go into effect.

Readers will recall that CMA CGM was one of the lines originally included in the former P3 Network alliance proposal, and was not included in the 2M Network alliance announcement among industry leader Maersk Lines and Mediterranean Shipping Company (MSC). If approved the Ocean Three alliance will also compete with the announced merger of Hapag-Lloyd and Chile based CSAV, an effort to create the fourth largest global container shipping line by consolidation. That merger is still subject to approval from European Union maritime officials.

Industry supply chain teams and transportation and logistics service providers should anticipate further announcements related to consolidation as the industry domino effect continues. While the various ocean container carriers continue to point out the benefits of increased efficiencies, schedule frequency and overall capacity utilization from these consolidation moves, the smoking gun remains as to the impacts to future tariff rates.

Bob Ferrari


Significant Progress Reported in West Coast Port Labor Contract Talks- No Final Deal As Yet

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Some fitting good news came prior to the Labor Day holiday weekend in the U.S. concerning the ongoing labor negotiations concerning the Pacific Maritime Association, representing numerous west coast ports, and the International Longshore and Warehouse Union. The existing labor contract involving 29 U.S. west coast ports expired on July 1st.

The Associated Press and other supply chain focused business media report that ongoing talks have made significant progress with a tentative deal reached on the critical knotty issue of healthcare benefits. According to the AP report, the association especially focused on limiting fraud in health plans to avoid penalties that may occur under the Affordable Care Act. The AP report further cites a federal grand jury investigation in California indicting three people for an alleged $50 million scheme to swindle health plans involving dockworkers along with other federal investigations concerning fraud among the subject health plans.

In conformance to negotiation practices, no details have been released concerning specifics to the tentative agreement on the healthcare component. Other remaining issues involve compensation, job security and workplace safety, which imply that contract negotiations will most likely continue for several additional weeks.

Industry and retail focused supply chains have already implement contingency plans including the re-routing of inbound and outbound ocean shipments to U.S. east coast and other North American ports. That activity will likely continue as supply chains move into the critical pre-holiday surge of inbound products from China and other Asia-based producers.


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