There is obviously a lot of commentary coming forward regarding the recent U.S. west coast labor contract negotiations and the consequent impact to multi-industry supply chains of dysfunctional ports. Supply Chain Matters has provided its own viewpoints, but we believe it is important to share other viewpoints as well.
A thought leader that this Editor truly admires and respects in the area of logistics and transportation is Professor Yossi Sheffi, Elisha Gray II Professor of Engineering Systems and Director of the Center for Transportation and Logistics (CTL) at the Massachusetts Institute of Technology (MIT). Supply Chain Matters previously provided our review of Professor Sheffi’s latest book, Logistics Clusters.
Professor Sheffi recently posted a very timely Linked-In Pulse commentary, Lessons to Glean from the West Coast Port Dispute.
Sheffi observes how memories of the past 2002 west coast port disruption were short-lived, and apparently not carried forward by industry supply chain teams. He opines: “too many companies failed to take precautionary measures and response strategies well ahead of the stoppages. It’s not as if the disruptions were unexpected.” He further echoes that companies continue to march to Wall Street’s quarterly focused drumbeat.
Professor Sheffi further points out that relatively new shipping options will become available to U.S. companies in the coming years and that re-shoring strategies should be a further lesson in avoiding continued dependence on clogged west coast ports. He opines:
“The lesson for Pacific ports is that they can either modernize or continue to fall behind and suffer the same, predictable outcome.”
Professor Sheffi argues for a longer view, namely strong investments in port modernization that will make cargo operations more efficient in the short term and could deter alternatives from developing over the long haul. He further challenges both port operators and organized labor to think in the future, rather than in the past.
The commentary is direct and insightful, and warrants reading, discussion and consideration.
Today marks yet another milestone announcement concerning the development and application of next generation smart item-level labeling technology that can be applicable for either supply chain business process or product branding and marketing needs.
Thinfilm Electronics ASA and global alcohol beverages producer Diageo jointly announced the intent to unveil a prototype smart label that has the potential to completely change both the role of a bottle along with the consumer experience.
Supply Chain Matters readers may recall our previous commentaries related to Thinfilm’s ongoing development efforts in the next generation of smart item-level labeling. Specifically we call reader attention to our May 2014 commentary that noted demonstration of a printed NFC-enabled smart label that demonstrated a label that combines printed electronics technology with real-time sensing and near-field communications (NFC) technology. We were informed by Thinfilm that this new joint announcement involves a modified passive-tag application of this technology.
This concept of “the connected smart bottle” will be prototyped in conjunction with Diageo’s Johnnie Walker Blue Label® brand. The Thinfilm developed smart label will be printed with an object identifier during the bottling and labeling process. The label itself has a rather unique physical appearance that includes a narrow tail (note the photo). This tail provides the ability for the label to sense whether the individual bottle is in a sealed or opened state after the label is affixed. The breaking of the tail does not impair the label’s capability to be read or transmit information. Once encoded at the point of manufacturing, the label cannot be copied or electronically modified.
In its sealed state, the label can transmit via NFC its object identifier for supply chain physical tracking or tracing purposes. Once more, the label can provide added protection to combat counterfeiting or rouge product. When the label is triggered to an unsealed state, it provides the opportunity for the consumer to gather via individual smartphone, added information regarding the product experience. Such information could include recommendations for further enjoyment of the product, added offers or promotions or other brand loyalty efforts.
Thus, this singular smart label opens-up the possibilities of multiple supply chain related business process and/or brand marketing loyalty use cases. Once more, the reading or sensing of the label can be accomplished with NFC enabled devices, such as smartphones or other mobile devices, which opens up further opportunities to be able to leverage such capabilities without the addition of more expensive infrastructure or proprietary networking or reading technologies as was the case with the initial phases of RFID labels.
In conjunction with joint announcement with Diageo, ThinFilm further announced the launching of its line of Open Sense ® sensor tag technology that has applicability not only within food and beverage but pharmaceutical, cosmetics, health and beauty and automotive industry areas. As noted in the release, the interest levels and the potential use cases of such advanced smart item-level labeling technologies is rapidly increasing.
As noted in our prior Supply Chain Matters commentaries, the current evolution of smart labeling is indeed the dawning of a new era for item-level tracking, one that will harness the potential of the Internet of Things as well as the abilities to bring together the physical and digital aspects of supply chain management, and now, the added ability to enhance the brand experience.
Consider the possibilities. While some of these developments are prototype in nature they have the strong potential to be game changers in specific industry settings.
In the meantime, consumers and loyalists of Johnnie Walker Blue Label® can anticipate a really cool experience in the not too distant future.
© 2015 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.
To the obvious relief of many industry supply chains, an announcement that a tentative agreement has been reached among the Pacific Maritime Association and longshoremen has finally come. The announcement came late Friday night, Pacific Time after nearly nine months of ongoing contract talks and rancor.
According to reports, dockworkers are expected to conduct normal port operations beginning this evening. This tentative agreement averts what could have been an even more disruptive scenario of a total shutdown of ports.
This five year contract agreement still needs the approval of longshoremen union members as well as individual employers. There may also be some local port issues needing resolution. Thus far, no details of the new contract have been disclosed including the reported final contentious issue related to the selection or elimination of certain arbitrators for work rule disputes. According to published reports, U.S. Secretary of Labor Thomas Perez, while declining to reveal any details, indicated that employers and the union have agreed to a new arbitration system.
As Supply Chain Matters opined in yesterday’s update commentary, when contract talks were eventually resolved, it will take months before any U.S. west coast port operations return to a state of normalcy, if at all. The underlying issues of the structural impacts of unloading and loading far larger container ships, the notion of proper scheduling of now outsourced trailer carriages and the consequences of trucking lines classifying truck drivers as casual, independent contractors remain ongoing challenges to be addressed.
Gene Seroka, executive director for the Port of Los Angeles indicated to the Los Angeles Times on Friday: “more than ever, we need labor and management working together.” Those words have special meaning for all U.S. west coast ports.
Remember this date, it will serve as the baseline indicator as to how long before U.S. west coast ports return to operational service levels meeting shipper and industry supply chain expectations. Much work remains, not only from an operations perspective, but also from a shipping lines management planning perspective.
On this Friday, February 20th, Supply Chain Matters provides another reader update and advisory on the all-important and unfortunately, all-consuming disruption occurring at U.S. West coast ports that is impacting multiple industry supply chains.
Various published reports indicate U.S. Secretary of Labor Thomas Perez has set today as a deadline for the Pacific Maritime Association and the west coast dockworkers union to end a long-running labor dispute that has clogged West Coast ports. The sides reportedly negotiated late into the Thursday night in San Francisco, but no agreement was reached.
According to a published report by the Los Angeles Times, City of Oakland Mayor Libby Schaaf, who has participated in a nightly call with Perez and mayors of other West Coast port cities, told the Associated Press that if a deal isn’t reached today, Perez plans to force the parties to Washington, D.C., next week to finish negotiations.
All reports seem to indicate that the one remaining issue of contract talks center on the union’s desire to have a unilateral say on the removal of an arbitrator called in to alleviate work disputes. According to the LA Times, the union is focusing on one specific arbitrator who handles contract grievances at the ports in Los Angeles and Long Beach.
From our lens, most of this week’s reports indicate that the pressure for both parties to resolve this ongoing dispute has become far more intense. We have viewed reports indicating that as of yesterday, 32 container ships were at anchor near the ports of Los Angeles and Long Beach, awaiting an available berth. The repercussions continue to involve other West Coast ports and shipping lines with reports of on-time performance at dismal rates.
It has further become more expensive for industry supply chains to mitigate the current disruption with a new report from Drewry indicating that rates for container ships destined for U.S. East Coast ports are also skyrocketing.
The Journal of Commerce (paid subscription required) reported yesterday that even Wal-Mart is being affected, indicating that shipment delays are hurting its business and threaten its Spring and Easter holiday inventory needs.
The bitter reality for multiple industry supply chains however, remains that even if contract talks are resolved, it will take months before any U.S. west coast port operations return to a state of normalcy, if at all. As we have opined in our previous postings, the underlying issues of the structural impacts of unloading and loading far larger container ships, the notion of proper scheduling of now outsourced trailer carriages and the consequences of trucking lines classifying truck drivers as casual, independent contractors remain challenges to be addressed.
By our lens, the shipping industry is in a state of denial and blindness to customer needs for on-time reliability and effectiveness. Instead, the industry remains focused on individual interests. That unfortunately foretells that 2015 will indeed be a year of continued turbulence for global transportation.
© 2015, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.
Labor negotiations among the Pacific Maritime Association (PMA) and the International Longshoremen and Warehouse Union (ILWU) have reached a crisis stage and industry supply chains, if not already, must have contingency plans underway. After months of elongated negotiations and near paralysis of operations, the stage appears set for a showdown.
The crisis boiled over yesterday when the PMA, operator of 27 U.S. west coast ports decided to temporarily shut down port unloading operations this weekend, indicating that the ports did not want to compensate overtime to workers it believes have been deliberately slowing down operations.
For its part the PMA has publically indicated earlier last week that it had placed on the table an “all-in” five year proposal that increases pay and pensions by about 5 percent each year for the life of the contract. The ILWU has publically indicated that that there are but a few issues to are resolves and calls the current PMA actions of temporary closing to be irresponsible. There are now growing fears of a potential lockout of union workers beginning next week. Interesting enough, U.S. federal mediators were brought into these negotiations in early January.
Yesterday, the National Retail Federation (NRF) issued a statement regarding the current U.S. west coast port situation which reads:
“Temporarily suspending port operations is just another example of the International Longshore and Warehouse Union and Pacific Maritime Association shooting themselves in the collective bargaining foot. The continuing slowdowns and increasing congestion at West Coast ports are bringing the fears of a port shutdown closer to a reality. The entire the supply chain – from agriculture to manufacturing and retail to transportation – have been dealing with the lack of a West Coast port contract for the last nine months. Enough is enough. The escalating rhetoric, the threats, the dueling press releases and the inability to find common ground between the two sides are simply driving up the cost of products, jeopardizing American jobs and threatening the long term viability of businesses large and small. Our message to the ILWU and PMA: Stop holding the supply chain community hostage. Get back to the negotiating table, work with the federal mediator and agree on a new labor contract.”
Supply Chain Matters applauds NRF for its candor and in stating the obvious, it is time that the two parties quickly resolve their differences and stop impacting global commerce. As we have opined previously, the damage is already been done and the effects will be longstanding.
What happens next is anyone’s guess. A shutdown of all U.S. west coast ports, albeit short in duration would have even more devastating effect. The White House could invoke the Taft-Hartley Act calling for a cooling-off period and forcing the parties to continue to negotiate.
In all scenarios, the port situation continues to worsen and any return to normal operations will take an enormous amount of days. U.S. railroads servicing West Coast ports have already indicated that will be delaying intermodal service to the ports because of the current congestion. Trucking firms continue to feel the impact with longer queuing lines along with times for pickup and unloading.
Industry supply chain and their respective sales and operations planning teams, both large as well as smaller company focused, need to have contingency plans underway to work around this messy situation since the prospects at this point, are not good for normalcy any time soon.
As we have often noted in our commentaries, when businesses need to communicate bad news, it is often done late in the Friday new cycle. Thus, we often check our news feeds on a Saturday morning for any meaningful supply chain focused news.
Yesterday, UPS pre-announced expected fourth quarter 2014 results which communicated added unforeseen expenses related to its support of the all-important holiday surge shipping quarter. Noted in the release: “While package volume and revenue results were in line with expectations, operating profit was negatively impacted by higher than expected peak-related expenses.”
Of further note was this statement from UPS CEO David Abney:
“Clearly, our financial performance during the quarter was disappointing,” said David Abney, UPS chief executive officer. “UPS invested heavily to ensure we would provide excellent service during peak when deliveries more than double. Though customers enjoyed high quality service, it came at a cost to UPS. Going forward, we will reduce operating costs and implement new pricing strategies during peak season.”
In today’s edition of The Wall Street Journal, the headline article is aptly titled: UPS Has a Holiday Hangover. It reports that UPS surprised Wall Street in its pre-announcement indicating an unplanned $200 million in additional expenses to handle the holiday rush. According to the report, $100 million of the added expense was attributed to low productivity while the remaining $100 million attributed to higher vehicle rental and staffing costs. While Brown was prepared to support the Thanksgiving holiday to Cyber Monday surge, slower than anticipated volumes in the first two weeks of December led to the overhang in expenses. UPS further warned that its 2015 earnings projection is now likely out of reach.
The initial reaction from Wall Street was a decline in UPS stock of nearly 10 percent.
So much for Wall Street’s view. Let’s instead attempt to put a supply chain operations view to what might have occurred.
As Supply Chain Matters has noted in pre-holiday surge commentaries, UPS and FedEx planned and invested considerable resources to avoid the snafus that occurred during 2013 when UPS was thrown under the bus for not being able to deliver holiday packages during the final days before the Christmas holiday. Beyond resource planning, both carriers actively worked with retailers to influence the pace of promotional activity to avoid a last-minute surge of volume that would exceed network capacity. Both worked with manufacturers and retailers when significant slowdowns occurred at U.S. west coast ports supporting requirement for alternative routings or flex air freight capacity. As we and other media have reported, that planning paid off, and holiday surge delivery performance occurred pretty much flawlessly.
Now let’s speculate on the internal organizational aspects of “We Love Logistics”. Those that have first-line experience in operations management can attest to management directives or zeal, perhaps to the notions that our network is not going to be cited as the point of failure ever again. It could have been: We will not be the party that gets thrown under the bus and will do what’s necessary to insure that does not happen. Thus, UPS operations teams may have well taken on that challenge and flawlessly executed what needed to be done, including the hiring of even more temporary workers, added equipment and staging space. The network and its added resources performed at the expense of planned budget.
For consumers, retailers and B2B firms, there is now a dilemma. UPS will now initiate efforts to restore its Wall Street cred and more importantly, respond to perceptions that E-Commerce or Omni-channel commerce has become a high-cost, low margin trap for transportation and logistics providers. As noted in the UPS statements, businesses can anticipate higher peak ground pricing in 2015. That’s in addition to the new dimensional pricing that was implemented this year.
Remember this date, since it may foretell the start of a new dynamic for parcel shipment and delivery. We anticipate that major online retailers will initiate a different form of planning for the 2015 holiday surge, and that will be how to balance continuing consumer preferences for free shipping with the new realities of higher parcel shipping and logistics costs. We should not be surprised if new or different business models and strategies begin to emerge in the coming months.
© 2015, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.