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Emergence of New Global Logistics Hubs


Global commercial real estate firm CBRE Group Inc. has released a research report indicating that over the next decade, 20 markets worldwide—including South Florida; Santiago, Chile; Bajio, Mexico; and Philadelphia—are set to emerge as global logistics hubs.

The concept of emerging global logistics hubs was brought forward to in the book, Logistics Clusters, Delivering Value and Driving Growth, authored by Yossi Sheffi at MIT’s Center for Logistics and Transportation.

According to the CBRE research report, while global hubs will continue to best meet the needs of companies with international supply chains that encompass the sourcing, manufacturing, distribution and sale of goods, there are 20 specific regional hubs that are poised to become major players in the network for global trade. Although they currently serve as central processing locations for regional supply chain networks, the report cites a number of factors are shifting the dynamics of international distribution and catapulting some regional hubs into the supply chain spotlight. We have attached the report’s infographic that names these various hubs.

CBRE Global Emerging Logistics Hubs Infographic

The CBRE research points to significant logistics investments, such as the ongoing expansion of the Panama Canal, regional industry production cluster, such as those manifested in the automotive sector, the ongoing impacts of Omni-channel and E-Commerce, and evolving trade agreements as major impetus factors for these new emerging logistics centers.

In the latter, the report cites The Trans-Pacific Partnership (TPP) as a potential trade agreement that will have drastic effects on global trade routes and manufacturing demand in Asia. Supply Chain Matters has recently published our initial impressions of the impacts of TPP.

For the implication of e-commerce’s impact on customer fulfillment and supporting logistics, the report indicates:

“In the past, a network of regional centers that fed into the local supply chains with 3-4 day delivery time coverage of the region was sufficient to meet service standards. However, compressed service times—in many cases, to overnight or same-day delivery—has reshaped the supply chain and has often resulted in distribution direct to the consumer from a global or large regional hub. The Eastern Pennsylvania region, anchored by Philadelphia but fueled by the growth of the Lehigh Valley, is an example of a hub that has been transformed by this new technology. This mid-Atlantic location enjoys access to over100 million people within a one-day drive, including key metropolitan areas such as New York, Washington, D.C., and Boston.”

Further noted:

“E-commerce shipments are smaller in size and require more technology and expertise to execute efficiently. As a result, modern logistics facilities are being developed in the traditionally strong logistics hubs of Tokyo, Seoul and Taipei. Brick-and-mortar retailers are entering the online sales market, resulting in strong demand for modern logistics in Tokyo, as logistics networks must be upgraded to accommodate the higher volumes of package movement. Additionally, the online trend is strong in Taiwan and South Korea, where 83% and 73% of shoppers, respectively, go online to avoid going to a physical store.”

There are many other insights and observations regarding rapidly shifting patterns of logistics which are impacting commercial real estate investment. However, what should be of concern to supply chain and Sales and Operations teams are the implications to existing distribution fulfillment networks that were formed under far different business process assumptions than today’s Omni-channel and global production strategy world.

The report itself can be accessed at this CBRE hosted web link. Please note that registration and account sign-up is required to download this complimentary report.

Report Card for Supply Chain Matters Predictions for Industry and Global Supply Chains-Part One


While industry supply chain teams work on achieving various 2015 year-end strategic, tactical, and operational line-of-business business and supply chain focused performance objectives, this is the opportunity for Supply Chain Matters to reflect on our 2015 Predictions for Industry and Global Supply Chains that we published in December of 2014.

Our research arm, The Ferrari Consulting and Research Group has published annual predictions since our founding in 2008. Our approach is to view predictions as an important resource for our clients and readers, thus we do not view them as a light, one-time exercise. Thus, not only do we publish our annualized predictions, but every year in November, look-back and score the predictions that we published for the year. After we conclude the self-rating process, we will then unveil our 2016 predictions for the upcoming year.

As has been our custom, our scoring process will be based on a four point scale. Four will be the highest score, an indicator that we totally nailed the prediction. One is the lowest score, an indicator of, what on earth were we thinking? Ratings in the 2-3 range reflect that we probably had the right intent but events turned out different. Admittedly, our self-rating is subjective and readers are welcomed to add their own assessment of our predictions concerning this year.

But now is the time to look back and reflect on what we previously predicted and what actually occurred in 2015.

2015 Prediction One: A More Optimistic Global Economic Growth With Usual Caveats and Uncertainties

Self-Rating: 3.0 (Max Score 4.0)

Our prediction echoed an optimistic economic outlook entering 2015 with continued cautions and unknowns for industry supply chains. Bright spots were expected to be the United States and Mexico, with some slight moderation for China. As the year progressed, the caveats and uncertainties became evident with 2015 now expected to close at a far more moderate growth rate, primarily as a result of declining growth among emerging economies.

Entering 2015, the International Monetary Fund (IMF) had predicted 3.8 percent in overall 2015 global growth vs. an actual 3.3 percent growth in 2014. However, at mid-year, the IMF revised that forecast downward. In its October 2015 forecast, the IMF had adjusted global growth expectations to 3.1 percent, slightly below that of 2014.

Growth within Advanced Economies, originally projected to be 2.3 percent entering the year, have now been scaled back to 2.0 percent. In the first-half of 2015, growth of advanced economies was reported as modest, with growth in the United States weaker than expected despite a strong second quarter. The Eurozone sector has bounced back with growth accelerated by foreign currency advantage and added confidence. The IMF’s October forecast now indicates a six-tenths growth rate for the Eurozone over 2014.

Growth among Emerging Markets and Developing Economies, originally projected to be 5.0 percent entering the year, was scaled back to 4.0 percent by October 2015. As many are now aware, the most significant concern focuses on China, which entering the year was forecasted to grow 7.1 percent. By October, the China forecast had been reduced to 6.8 percent. While Latin America growth was expected to be fueled by Brazil and Mexico, Brazil is now forecasted as a 3 percent decline in growth was Mexico is forecasted to end the year at 2.3 percent growth, two-tenths higher than 2014.

The J.P. Morgan Global Manufacturing PMI Index, a composite index of global supply chain and production activity entered 2015 at a value of 51.5. As of the close of Q3, the value had declined to 50.3, just slightly above the 50 level of overall contraction. The average for the nine months ending in September was 51.2. Rather than a growth scenario, global supply chain activity has generally been on a downward trend. Once more, forward indicators such as New Orders, Export Orders and Employment Growth are all reflecting continued moderation.

Global currency shifts have turned out to be a significant challenge for both individual countries and for multiple industry supply chains. The most significant for industry supply chains was China’s sudden devaluation of its currency in August. Growth and profitability plans predicated on an emphasis toward emerging markets, particularly China, had to modified. Sales and Operations (S&OP) teams remain constantly challenged with adjusting individual region and often individual country resource plans.


2015 Prediction Two: General Moderation and Reduction of Commodity Costs with Certain Exceptions

Self-Rating: 3.8 (Max Score 4.0)

Our prediction for this year focused on an overall moderation trend for the cost of inbound commodities and consequent supply chain raw materials and components. We noted that lower oil prices would be the biggest headline driving commodity pricing trends in 2015 and that turned out to be exactly what occurred.

In its November forecast, The International Energy Agency (IEA) indicated that oil prices are likely to remain low over the next five years because of excess supply and falling demand in developed countries. Further reported was that oil prices have now plummeted more than 50 percent since the middle of 2014, closing at $43.95 per barrel as of November 9th. Further, in its semiannual forecast, The Organization for Economic Cooperation and Development (OECD) indicated in November that lower oil prices and falling unemployment will bolster economic growth in the 34 nation group of developed economies, helping to offset the impact of a slowdown in emerging economies.

As of early November, the Standard and Poor’s GSCI Index of broad based commodities was down 22.5 percent year-to-date. Highlights included industrial metals, agricultural, livestock and grains all down in double-digit ranges. The precipitous decline in China’s import and export manufacturing sector has had a dramatic impact in fostering oversupply in industrial commodities and associated prices. Commodities such as copper, gold, silver and steel remain at low price points with global excess inventories.

Global weather events remained an important driver of agricultural prices in 2015 with severe drought conditions in the United States and certain Latin American countries adding to the exception to lower commodity price trends in 2015.

In our next posting in our look back on 2015, we will review Predictions Three and Four.

In the meantime, please share your own observations and insights regarding our initial two predictions related to global supply chain activity and commodity pricing trends.

Bob Ferrari



Initial Supply Chain Focused Impressions of the Trans-Pacific Partnership- Part Two


In this two-part commentary Supply Chain Matters shares some initial impressions of the Trans-Pacific Partnership (TPP) which has reached the stage of preliminary agreement pending the ratification by member nations. In early October, ministers of the 12 TPP countries announced conclusion of their negotiations regarding trade among what is estimated to represent 40 percent of current global GDP, which is rather significant, especially from a global supply chain context.

In our Part One posting, we shared perspectives on the defining features and summary descriptions of Sections 2, 3 and 4 of TPP.

We continue with pointing out some other important sections for the education of our cross-industry supply chain reading audience.

Section 14- Electronic Commerce

This chapter prohibits the imposition of customs duties on electronic transmissions and prevents TPP parties from favoring national producers of suppliers.  TPP members agree to adopt and maintain consumer protection laws related to fraudulent and deceptive online related commercial activities and ensure that consumer protections can be enforced in TPP electronic messaging. To promote more online focused trading network activity, the agreement calls for promoting paperless trading between businesses and governments including electronic customs forms, electronic authentication and signatures for commercial transactions. The parties agree not to require that TPP companies build separate data centers in store data as a condition for operating in a member country, and that source code of software is not required to be transferred or accessed.

This area will surely aide in measures to streamline B2C/B2B business process and customer fulfillment networks. We also view this as potentially removing barriers to facilitating electronic supply chain control tower capabilities spanning both planning and execution visibility and decision-making needs.

Section 18- Intellectual Property Protections

Consistently, one of the more important concerns for firms and their respective value-chains is IP protection. This chapter of TPP is described as making it easier for businesses to search, register and protect IP rights in new markets. It establishes standards based on WTO’s TRIPS Agreement and international best practices. For trademarks, it provides protections of brand names and other signs that businesses and individuals use to distinguish their products in the market.

This section further contains pharmaceutical-related IP provisions that address both innovative medicines and availability of generic medicines.

Section 19- Labor

All TPP parties are noted as International Labor Organization (ILO) members and thus recognize the importance of promoting internationally recognized labor rights.  Rights are noted as the right to collective bargaining, elimination of forced labor, abolition of child labor and elimination of discrimination in employment, among other tenets.

There are further acknowledgements to have common laws related to governing minimum wages, hours of work and occupational safety and health.  This section will have special meaning to high tech and consumer electronics, high direct labor focused, and general lower-cost focused contract manufacturing focused value-chains.

Section 20- Environment

TPP parties are to share a strong commitment to protecting and conserving the environment and to effectively enforce their environmental protection laws. There is specific language related to the protection of fisheries, endangered species, water and wetlands and marine environment.  The parties are to commit to cooperate to address matters of joint or common interest, including areas of conservation and sustainable use of biodiversity along with transition to lower emissions and resilient economies.

Section 24- Small and Medium-Sized Businesses

A special chapter promoting a shared interest for small-and-medium-sized businesses sharing in the benefits of TPP. It includes commitments from TPP members to create user-friendly business practices, provide assistance in accessing new markets and in overall training.

Section 26- Transparency and Anti-Corruption

A rather important section for strengthening good governance and addressing the effects of bribery and corruption practices. It calls for laws, regulations and administrative rulings be publicly available along with consistent enforcement of anticorruption laws and regulations. The section covers areas for both corporate and public officials.

Obviously there is much more to TPP, more than we can cover in a couple of blog posts. Ratification is expected to occur in 2016 as legislators of individual member countries vote approval. We can’t help to speculate that this effort may take-up most of 2016, given the far reaching aspects of TPP.

As we noted in our initial commentary, certain influential nations such as China are not a current member of TPP. That country, instead, is now actively promoting the Free Trade Area of Asia Pacific (FTAAP) as a further alternative. This week, Chinese President Xi Jinping stated: “With various new regional free-trade arrangements cropping-up, there have been worries about the potential of fragmentation. We therefore need to accelerate the realization of FTAAP and take regional integration forward.”

With a significant global and supply chain influencer such as China, representing the other significant portion of global growth, promoting yet another or alternative trans-Pacific focused trade pact, TPP can either be ratified, compelling other nations to join in its tenets, or could be fragmented by conflicting standards.

Industry supply chains are obviously important stakeholders in these major trade pacts and it will be important to keep up to date on these trade developments along with their implications on easier access to new markets, more leveraged use of technology and impacts to existing business practices.

Supply Chain Matters will do our part to keep readers informed of important developments.

Bob Ferrari


Initial Supply Chain Focused Impressions of the Trans-Pacific Partnership Agreement- Part One


In this two-part commentary Supply Chain Matters shares some initial impressions of the Trans-Pacific Partnership (TPP) which has reached the stage of preliminary agreement pending the ratification by member nations. The government of New Zealand took the liberty to post the summary of this agreement on its web site, and it provides a high level view of the various components that will make-up this significant trade agreement.

In early October, ministers of the 12 TPP countries announced conclusion of their negotiations regarding trade among what is estimated to represent 40 percent of current global GDP, which is rather significant, especially from a global supply chain context. The countries to be included in TPP are: Australia, Brunei, Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States and Vietnam.

The Summary points to five defining features that make-up this agreement, which include:

  • Comprehensive market access which is expected to result in the elimination or reduction of tariff barriers across substantially all trade of goods and services.
  • A regional perspective among value-chains, where goods sourced and flowing among TPP nations can be considered a part of the same value-chain, for tariff purposes.
  • Commitments to aide small and medium businesses to take advantage of broader market access opportunities among TPP nations.
  • A platform for regional economic integration which was designed to potentially include additional economies across the Asia-Pacific region.
  • Aspects for promoting innovation, productivity and competitiveness including further development of the digital economy along with the role of state-owned enterprises in the global economy.

The TPP includes 30 chapters covering trade-related issues. We and others certainly have not had the opportunity to review all chapters in-detail, but upon our review of the summary, we cite what we believe are important chapters for our readership audience:

Chapter 2- Trade in Goods

Eliminates and reduces tariffs and non-tariff barriers on industrial goods and means to reduce or eliminate tariffs and other restrictive policies on agricultural goods. According to the summary, most tariff elimination in industrial goods will be implemented immediately upon ratification, although some specific tariffs will be eliminated over longer time periods as agreed to by TPP parties.  More than likely, the latter are the controversial tariff areas among specific individual trade nations that remain contentious.

Regarding agricultural products, the agreement calls for promotion of policy reforms that include eliminating agricultural export subsidies among nations along with fostering greater food security across the TPP region.

Chapter 3- Textiles and Apparel

This area calls for elimination of tariffs on textiles and apparel immediately, although those tariffs involving some sensitive products will be eliminated over longer timeframes. The former are obviously very significant for textile and apparel related industry supply chains and their associated sourcing strategies. The chapter further includes specific rules of origin requiring the use of yarns and fabrics from the TPP region, which promotes a regional supply chain. Since China, a significant multi-tiered player in the industry is not a current member of TPP that implies the development of a more independent apparel supply chain.

Chapter 4- Rules of Origin

The summary indicates that the 12 nations have agreed to a single set of rules of origin that define whether a particular good is “originating” and therefore eligible to receive TPP preferential tariff benefits. Obviously, this is a rather important, if not the most important section related to the entire agreement, one that defines the TPP value-chain economic benefit. To specifically quote a sentence in this chapter:

The TPP provides for “accumulation,” so that in general, inputs from one TPP party are treated the same as the materials from any other TPP party, if used to produce a product in any TPP Party. The TPP parties also have set rules that ensure businesses can easily operate across the TPP region, by creating a common TPP-wide system of showing and verifying that goods made in the TPP meet the rules of origin.

To dwell a bit more on this particular section, keep in mind that Canada, Mexico and the United States already trade under tenets of the NAFTA agreement, which defines rules of origin and tariff arrangements. Once more, as noted in a prior Supply Chain Matters commentary, country of origin and labeling legislative actions among Canada, Mexico and the U.S. were headed toward WTO arbitration.

To gain more perspective, we reached out again to trade compliance services provider Livingston International for a perspective on all of the current global trade developments in motion. We spoke again with Candace Sider, Vice President of Regulatory Affairs, Canada. While Livingston is still completing its detailed analysis of the various sections of TPP, Sider did point out that trade agreements are often contentious, especially in areas related to rules of origin. The impacts on the COOL disagreements are yet to be determined but TPP certainly adds more perspective. Concerning NAFTA, and specifically automotive supply chains, that agreement specifically calls for 60 percent origin in NAFTA countries. With Japan a member of TPP, there were reports of tense negotiations related to the effects on Japan based automaker’s global sourcing and tariff strategies which remain to be sorted out in the final details and respective ratification.

In our part two commentary, we will touch upon other important sections of TPP, along with their implications.

Bob Ferrari

Additional Data Reflects Inventory Overhang and Global Trade Contraction Concerns


Concerns are growing regarding the current holiday surge period after recent reports regarding inbound and outbound transportation movements. Once more, there are concerning questions whether there is too much inventory overhang.

Earlier in the week, data compiled by The Wall Street Journal and trade research group Zepol Corp. indicates that for the first time in over ten years, imports recorded among the three busiest U.S. seaports, Los Angeles, Long Beach and New York harbor, fell by over 10 percent between August and September.  As our readers are aware, this is traditionally the busiest shipping period by volume as holiday focused inventories make their way to wholesalers and retailers. However, imports among the nation’s busiest ports for the first 10 months of this year is reported as being up 4 percent from last year. Railroads and trucking companies that normally scale-up for this peak period report concerning reductions in volume.

Similarly, in Europe, container throughput volumes are down. Container volume for the first nine months of this year at the Port of Rotterdam increased just one percent over 2014 levels.  Volume numbers for the Port of Hamburg are down 9.2 percent from levels of a year ago. Decreases at both ports are attributed to lower Chinese exports, slowing growth among emerging markets and the deterioration within the economy in Russia.

In its reporting, The Wall Street Journal concludes by these numbers that more businesses have been stocking up throughout the year and holding on to inventories far longer. Two further questions are posed: does this trend represent the start of a sustained period of weakness driven by concerns by businesses of a weak economic outlook, or is the slump a side effect of a massive inventory buildup that occurred earlier in the year? The WSJ cites U.S. Census Bureau data as indicating that the inventory-to-sales ratio in September stood at 1.38, up from 1.31 in the year earlier period.

Supply Chain Matters is of the view that the current situation stems from both of these described trends.  Retailers and manufacturers were burned badly from last year’s disruption and dysfunction among U.S. West Coast ports. The digging out from the backlog of unloaded container vessels extended into February and March, leaving retailers with unsold holiday goods. Similarly, exporters missed their holiday selling period because goods could not be shipped in time, in some cases, losing out to domestic competitors. Another factor is that with far lower fuel and energy prices, retailers are assuming a robust holiday selling period, and wanted to bulk up on certain in-demand products to insure a successful season.  Rather than risk last year’s transportation and logistics snafu’s, retailers more than likely exercised buying activity that spread out inbound activity and balanced receipts among both U.S. east and west coast ports as a risk hedge.

As noted in our recent Q3 quarterly newsletter, global supply chain activity thus far this has been trending downward, edging closer to contraction. The J.P. Morgan Composite Global Manufacturing PMI averaged 50.9 in Q3 with forward indicators such as New Orders, Export Orders and Inventories indicating further contraction.

Thus, the current holiday fulfillment period will be crucial for industry and global supply chains. How much inventory gets sold and how global retailers and wholesalers fare from a financial perspective will provide key indicators for 2016 and beyond.  Network-wide inventory management correlated with sales has once again, taken on an important dimension.

We want to hear from readers- how do you view current trends?  Are global supply chains inching toward overall contraction in 2016 and beyond?

Supply Chain Matters will provide further observations and insights as we publish our 2016 predictions in the December time period.

Stay tuned.

Breaking News- Report that General Motors to Import Chinese Produced Buick SUV


The Wall Street Journal is today reporting (paid subscription required) that General Motors plans to become the first auto maker to import and sell Chinese produced automobiles in the United States. The automobile producer reportedly plans to sell the Buick Envision, a midsize sport-utility vehicle early next year.

The report cites informed sources as indicating that the vehicle will be produced in Shandong province, and will add a third SUV to Buick’s model lineup. Initially, GM plans to import a modest number, indicated as between 30,000 and 40,000 Envisions annually, and the move signals a strategic shift and a bold experiment by GM.

The Buick brand is a well-respected and top brand within China, dating back to earlier times when China’s top government officials rode in chauffeured Buicks. The report observes that nearly 100,000 Buicks were sold in China just last month, compared with fewer than 19,000 sold in the U.S.

According to the WSJ report, by adding a third crossover model GM fills a product gap while accelerating efforts to compete with other foreign and domestic based automakers. However, GM officials indicated to the WSJ that this move is not one related to cost-saving.  That obviously remains to be seen as this strategy unfolds.

Buick’s most popular SUV offering is the Encore which is currently produced in South Korea. The second model by sales is the Buick Enclave, a large SUV crossover produced in the United States.

The article opines that the arrival of a Chinese produced model is likely to rile the United Auto Workers which caught rumors of such an announcement during the summer.  However, the report indicates that the UAW and GM discussed this move during recent labor talks and appear to have come to some understanding.

GM’s latest move obviously represents confidence that a Chinese produced vehicle can meet or exceed the safety and product feature requirements demanded by U.S. consumers. Supply Chain Matters concurs that this strategic move will be closely watched by other industry players. Depending on the outcome and the response from U.S. consumers, we may well observe other China produced vehicles offered to the U.S. market in the not do distant future.

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