A lot of transportation and logistics focused social and business media headlines have been painting a picture on the large numbers of drones will be the future of parcel delivery. Our Supply Chain Matters response has been one of skepticism to this notion principally because drones serve a specific purpose related to certain limited in scope delivery challenges. This challenge has always been about coming up with a more innovative surface transport technology.
That is why we call attention to a recent Reuters and Wired article titled: Amazon’s Real Future Isn’t Drones. It’s Self-Driving Trucks. This article observes that the current challenge remains that the transportation industry does not have enough qualified truck drivers, and the shortfall numbers are not getting any better.
A recent report by The Wall Street Journal indicating that Amazon is developing an Uber-like mobile truck-hailing app is just a prelude to the real challenge. Not so!
The conclusion is one that Amazon has demonstrated quite often in its history, namely addressing the bigger problem, one that has not been solved before, and that is addressing the need for autonomous self-driving trucks for long and short-haul shipments. Similarly, we and Wired have noted Uber’s and others ongoing efforts in the self-driving truck category. A recent tech industry pundit quipped on the CBS This Morning news program that Uber alone has just about hired every AI scientist from Carnegie Mellon University alone to develop such technology. In 2012, we all initially questioned why Amazon had interest in acquiring warehouse material handling and robotics technology provider Kiva Systems. We now know the result, namely hundreds of Kiva robots circumventing multiple Amazon distribution and customer fulfillment centers driving higher levels of efficiency and pick accuracy.
Amazon now has a fleet of over 400 branded tractor-trailers available for added experimentation and autonomous driving development. The online giant has an annual freight expense that is staggering for many other retail or online commerce firms. The Wired article observes that in August, Uber acquired self-driving truck company Otto for $680 million. Supply Chain Matters has previously brought reader visibility to heavy truck industry disruptor Nicola which is developing a hybrid electric-powered long-haul tractor that likely would be an ideal candidate for autonomous control. We have recently read of a plan that calls for delivery vans to transport goods to a local neighborhood where a fleet of delivery drones takes control for door-to-door delivery. Go figure!
In just a few days, millions of us will experience the Christmas holiday and the traditional opening of gifts. As you do so, think of the hundreds of drivers and operators who contributed hundreds of hours, many in the middle of the night and wee hours, toward having such gifts delivered on-time, and without damage.
Perhaps, soon, all we can thank is a team of genius’s who eventually develop a set of artificial and predictive intelligence algorithms that allow trucks to self-drive themselves, with fleets of drones attached to their bodies. Then again, those genius’s will be millionaires and be lavishing in all forms of holiday gifts.
Today, a published report from Bloomberg indicates that pilots working for Amazon’s leased air freight contractors Air Transport Services Group (ATSG) and Atlas Air Worldwide Holdings have taken to social media to warn that Amazon might not be able to deliver last-minute holiday packages.
Advertisements on Facebook and Goggle targeting Amazon online customers provide a web link to the website: canamazondeliver.com, which has sponsorship from the Airline Professionals Association, Teamsters Local 1224. Readers may have already encountered such postings and links.
The dedicated web site asserts that both leased carriers had taken on Amazon contracted work despite known pilot staffing problems. Further asserted is that many of the existing pilots are seeking new jobs because of excessive duty hours. As Bloomberg points out, the broader issue is ongoing contract negotiations with over 1600 pilots employed by both contract carriers. More than likely those negotiations include provisions related to pilot work hours.
In mid-November, a work stoppage among 250 cargo airline pilots working at ABX Air, a subsidiary of ATSG grounded more than 75 flights contracted for both Amazon and DHL Worldwide Express. The move came just before the start of busy Thanksgiving, Black Friday, and Cyber Monday holiday shopping events. That action was quickly stopped by a court order citing provisions of the National Railway Labor Act that prevents labor disputes from disrupting commerce. Thus, pilots have opted to utilize other methods to gain bargaining table leverage including this social media campaign declaring that there may not be enough pilots to deliver for Amazon in the coming days.
We have previously highlighted a prior strike vote among UPS maintenance workers who maintain UPS’s fleet of aircraft after contract talks remained deadlocked over the issue of health-care benefits. Our stated view was that it does not seem likely that a labor strike will occur during the crucial holiday fulfillment period essentially because of the criticality of moving freight volumes for the next 8 days.
However, what should be of concern is a potential air lift capacity bottleneck in the coming days that could impact certain retailers and last-minute shippers.
First, Amazon has already made contingency airlift backup plans that likely include FedEx and UPS as a fallback. As noted, UPS maintenance workers could conceivably enact a work slowdown, especially since the UPS air fleet will operate at maximum capacity in the coming days, requiring inevitable maintenance issues. FedEx will have its own issues having to support Amazon, customer contracted or UPS contingency backup.
What this likely means is that airlift capacity will be highly restricted or overbooked next week. Retailers planning on last-minute holiday promotions, and there may be lots of them, that assume that air will be the fallback option to assure delivery by the Hunukkah and Christmas holidays should be re-validating available air lift capacity.
As has been in prior years, Amazon’s sheer scale and dominance will prevail and its contingency options will either consume any remaining air capacity, or FedEx and UPS will say no and honor last-minute retailer needs. The clear takeaway for online retailers is to plan and validate on a daily basis all of next week. The takeaway for online consumers is to consider completing all online holiday related shopping now and do not wait until later next week if you want your merchandise by the holiday.
An area that the Supply Chain Matters blog has focused on since our inception is bringing visibility to how a background in the many functional areas that make-up supply chain management can lead to other senior business leadership roles, including that of the CEO. We, as well as others, have highlighted CEO appointments involving corporations such as Apple, BMW, Dow Chemical, General Motors, McCormack Foods, among others. The key theme often comes down to not only positioning one’s career but also having a deep understanding and appreciation for the linkage of manufacturing and supply chain capability to required business outcomes.
Once again, we highlight another appointment, one involving internationally renowned toy maker LEGO Group, and the recent appointment of Bali Padda as its new CEO. Mr. Padda assumes the top role from former CEO Jørgen Vig Knudstorp who will now head up the new entity, LEGO Brand Group. Business Network CNBC’s byline regarding this appointment of this closely-held company was the significance of the first non-Danish CEO in the company’s history.
Padda’s has been at LEGO for 14 years and his most recent role was that of Chief Operations Officer. Prior roles included Head of Logistics, Head of Supply Chain and Executive Vice President, Global Supply Chain. He joined the Danish company with a customer service and supplier relations management background.
The corporate press release includes a quote from Niels Jacobsen, Chairman of the Board of LEGO Group which provides a great reinforcement of required leadership skills:
“Bali Padda has a fantastic record of accomplishment in the LEGO Group with more than 14 years of experience especially within supply chain functions, but more recently also focusing on people and organizational development. Bali has demonstrated an ability to drive the changes required in operations through the significant growth we have experienced during the past years. I am confident that Bali will continue to develop the company in close cooperation with management.”
As many of our readers can well relate, LEGO’s business model is one driven by seasonality of product demand. More than half of the company’s annual revenues are derived during the current holiday fulfillment period. Toy industry supply chains with high seasonality are highly distribution sensitive with inventory and working capital management as key competencies for assuring profitability growth. The company’s new strategic goal is to extend its brand and distribution reach across the globe and has recently opened a new manufacturing facility in China to supply product demand needs across Asia.
Supply Chain Matters extends are congratulations, best wishes and Tip of the Hat Award to new LEGO CEO, Bali Padda
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
This week, there is additional information coming forward after Danish shipping conglomerate A.P. Moller-Maersk’s announced acquisition of container shipping line Hamburg Sud.
Financial and industry news sources are reporting comments from Maersk CEO Soren Skou at an investor conference this week which indicate a strategy that positions Maersk Line to become a global integrator of container logistics.
As noted in our prior Supply Chain Matters postings regarding Maersk, parent A.P. Moller-Maersk announced in September that it would split its current business operations into two separate operating businesses. Maersk Line, the world’s most dominant ocean container carrier would be the center point for a new container transport and logistics division that will consist of other owned businesses such as APM Terminals, Damco and Maersk Container Industry businesses. Its energy focused division that includes crude and bulk tankers as well as oil exploration businesses would exist as a standalone energy business.
At this week’s briefing, plans were disclosed to route ships in and out of APM Terminals and move more cargo inland via use of its DAMCO logistics unit. The plan calls for added revenues from integrated logistics services to offset lost revenues from the energy division.
The implication of such a strategy would be increased competition for existing freight brokers, third-party logistics or management services providers such as FedEx and UPS. Maersk would also have to re-think its customer services strategies with such a move, since that has not been one of its strengths as a global leader in shipping. We foresee a lot of added technology investment.
We further wonder aloud as to how much global maritime regulators are willing to approve such a strategy that impinges on open competition for logistics services. If the dominant ocean container shipping line can exercise such a strategy, then other lines or shipping networks will obviously follow.
Obviously, there will be more to come as the Maersk strategy continues to unfold. The one certain thing is that consolidation and pending change will continue to permeate the global transportation landscape in 2017, and perhaps beyond.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
We have reached that time again as global transportation networks deal with the peak volumes of the current holiday fulfillment period.
Today’s Wall Street Journal Logistics Report headline indicates that both FedEx and UPS are struggling to keep-up with the surge in holiday orders. Reading the report, one would get the impression that parcel transportation networks are struggling. Supply Chain Matters is of the view that this is just business as usual and should be expected. The true benchmark of performance is yet to come.
The WSJ report indicates that UPS has relocated hundreds of staff from headquarters and other corporate offices to help efforts at the carrier’s main shipping hubs. That is not unusual since this has been a practice of UPS in prior holiday focused quarters including last year. Further noted is that FedEx and UPS have both extended delivery windows beyond prior quoted times. That also occurred last year.
Further cited are on-time delivery stats from ShipMatrix Inc. indicating that on-time delivery rates for UPS Ground and FedEx Ground, adjusted for weather and delays fell to 96.3 percent and 96.9 percent respectively last week. Again, we believe that this should not be a big deal given current surge volumes and the occurrence of severe winter weather conditions across the U.S. these past two weeks.
What is probably more pertinent was that current online shopping data indicates that shoppers started earlier this season, with Thanksgiving and Black Friday holidays showing online volume higher peaks than previous years.
Let’s face it- we have reached an era of expected instant gratification brought about by online buying habits. Consumer patience for delay is short.
We agree with some industry experts that the deployment of corporate staff teams to operational hubs at this point may be a signal of concern for added chokepoints just prior to the Christmas holiday when last minute holiday shoppers exercise online purchases and expect delivery by Christmas Eve.
Of course, what is missing in the overall headline is the current delivery performance of Amazon which this year, has taken on more control for last-mile fulfillment requirements for Amazon Prime program members. Any firms tracking that specific statistic are going to have a high interest level among transportation industry insiders. Direct feedback from Amazon Prime members will be helpful as well. Our own experiences thus far indicated the program is meeting its delivery commitments.
The real headline last year, and again this year, is whether the traditional hub and spoke networks of both FedEx and UPS can adequately keep-up with current levels of holiday package surge and whether modified networks are in the cards for future periods. That will require more expensive investments in the light of Amazon’s deployment of its own logistics fulfillment network.
Bottom-line, the real performance statistics matter over the next two weeks and especially the period from December 22-24.