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Upcoming Accenture Academy trendTalk- Managing Supply Chains in a Volatile Geopolitical Era

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This posting serves as a sidebar to our previous Supply Chain Matters blog commentary; The Beginning of NAFTA Renegotiation Talks- Monitor and Be Prepared.

We wanted to advise members of Accenture Academy that Founder and Executive Editor Bob Ferrari will be delivering an upcoming trendTalk web seminar fittingly titled: Managing Supply Chain in a Volatile Geopolitical Era. This exclusive trendTalk is scheduled for September 20 at 10 am Eastern time.

Every day we observe headlines that provide updates on the current wave of anti-globalization and anti-trade sentiments that are sweeping the geopolitical landscape. With heightened global tensions now turning toward anti-trade and possibly more protectionist rhetoric among developed nations, industry supply chains must be prepared to deal with potential near- and long-term implications that such policies will bring about.  MSC Ship 2 300x199 Upcoming Accenture Academy trendTalk  Managing Supply Chains in a Volatile Geopolitical Era

This trendTalk examines the current anti-trade and anti-globalization forces impacting various nations and considers the uncertainties they generate. The potential impacts to industry supply chains and the new opportunities brought about in such an environment will be explored. We’ll look at important tools that can be utilized and the steps your business and its supply chain organization can take to be prepared or to take advantage of these impacts.

Accenture Academy members should be able to view and register for this upcoming webcast in the upcoming events section of the member portal.

 

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


U.S. West Coast Ports and Dockworkers Agree to Significant Labor Contract Extension

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Last week, U.S. West Coast dockworkers agreed to extend their existing labor contract with port operators for an additional three years, setting-up a potential tense period of upcoming negotiations scheduled for U.S. East Coast dockworkers. The labor contract extends out to July 2022, quite a period for labor contract stability.  389 U.S. West Coast Ports and Dockworkers Agree to Significant Labor Contract Extension

Both sides pointed to the labor contract extension as an effort to avoid crippling cargo delays that impacted U.S. West Coast ports in 2014 and early 2015. One could well argue that this move was one to regain the competitive positioning of West Coast ports as the preferable ports of entry for goods originating from Asia.

Many shippers have since re-routed ocean container shipments directly to East Coast ports taking advantage of expanded Panama Canal. In the second quarter, East Coast ports enjoyed a 7.8 percent increase in imports vs. a reported 4.6 percent increase among West Coast ports.

The current labor agreement among many U.S. East Coast ports is set to expire about a year from today, in September of 2018. Contract renewal discussions began months ago but have yet to produce anything near an agreement.

The open question for multi-industry shippers is whether to plan for alternative continency port routings in 2018, given the prospects for contract renewal negotiations leading to some labor stoppage. Another new development has been the new capacity and routing plans implemented by the ocean line carrier networks that favor a pooling of larger capacity vessels that thus far, limit port calls on the East Coast.

For the time being, supply chain and transportation teams will be more occupied with planning related to the second-half of this year, including the upcoming holiday fulfillment period. But, come later this year and early in 2018, evaluations and decisions will have to be made regarding contingency planning for ocean container transport.

The best outcome is for those involved in East Coast port labor contract negotiations is to dedicate the remainder of this year toward resolving major bargaining issues. Obviously, there is a lot at-stake in terms of which coast assumes the bulk of import and export traffic.

 

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


FedEx Elects Not to Match UPS in Holiday Peak Period Parcel Surcharges

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In a published Supply Chain Matters commentary last month, we raised the specter that UPS’s announced added surcharge efforts relative to peak holiday package shipments, if successful, would lead to added structural shifts in online business practices. The question is whether this would benefit UPS at the expense of shippers and the broader retail industry.  FedExGround 300x200 FedEx Elects Not to Match UPS in Holiday Peak Period Parcel Surcharges

Up to this point, rival FedEx had not weighed in with a similar structural surcharge, until this week.

Rival FedEx has now elected not to add additional package surcharges for parcels during specific pre-holiday surge weeks that span Black Friday through the Christmas holiday. The carrier instead plans to hike fees for any larger dimensional packages shipped during the peak holiday period later this year.

The motivation for the announced UPS pricing actions were obvious, namely to protect or boost the carrier’s own profit margins by compensating the carrier for needs to add surge personnel and logistics capacity. The UPS surcharges would add 27 cents for residential deliveries for the weeks spanning November 19 thru December 2 and December 17 thru 23. The carrier further indicated an added surcharge of between 81 and 97 cents to overnight, second- or third-day deliveries for residential deliveries between December 17 thru 23. There were other announced charges for oversized packages.

UPS communicated that such added charges will motivate retailers to plan merchandise promotions earlier in November and thus lower the need for peak staffing and augmented capacity costs. However, the open question remains whether holiday consumers will change their shopping habits, especially those procrastinators who always wait until the just before the holiday to execute holiday buying decisions.

FedEx is undercutting its rival to possibly gain added customers, leaving UPS to standalone in its ability to convince retailers to go along with the added blanket surcharges tied to specific pre-holiday weeks.  That is obviously significant.

A spokesperson for FedEx indicated to The Wall Street Journal that the decision to not match UPS should not be viewed as a competitive response, but rather ensuring that the carrier prices effectively.

In our prior commentary, we opined that the U.S. Postal Service will likely see added package volumes during the busiest holiday periods, with the added risk that the service will not be equipped to handle such a surge or be able to recover added costs. Retailers and other shippers can now add FedEx to that dimension, and now, the combined alternative of the USPS and FedEx provides added options for peak residential shipment decisions.  Third-party logistics services firms, who are already marshaling resources and services to handle the need to support online purchases of larger-sized goods such as appliances, furniture and like will also benefit with increased holiday volumes, as well as opportunities to negotiate added services to online retailers.

The open question remains as to whether UPS’s announced efforts can alter peak holiday shipping norms among retailers. With this week’s actions by FedEx, that candidly looks less effective. At this point the question is how married UPS will be to its added surcharge actions, with the willingness to risk reduced holiday volumes for added margins.

Regardless, retailers can rest somewhat easier now knowing that there are now other options to support peak holiday shipment volumes.

 

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


UPS’s Continued Pitch for Added Holiday Parcel Surcharges

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A sidebar to our previous Supply Chain Matters commentary related to Amazon’s Q2 financial performance relates to UPS, and its recent announced efforts to impose added surcharges to B2C retail shipments during select week leading-up to this year’s Christmas holiday.

In a commentary last month, we raised the specter that UPS’s added surcharge efforts would lead to added structural shifts in online business practices. The question is whether this would benefit UPS at the expense of shippers and the broader retail industry.  UPS Natural Gas Van 300x177 UPSs Continued Pitch for Added Holiday Parcel Surcharges

The motivation for the new UPS pricing actions were obvious, namely to protect or boost the carrier’s own profit margins by compensating the carrier for needs to add surge personnel and logistics capacity. UPS has communicated that such added charges will motivate retailers to plan merchandise promotions earlier in November and thus lower the need for peak staffing and augmented capacity costs. However, the open question is whether holiday consumers will change their shopping habits, especially those procrastinators who always wait until the just before the holiday to execute holiday buying decisions. Up to this point, rival FedEx has not weighed in with a similar structural surcharge.

Thus, we viewed as interesting that The Wall Street Journal ran yet another article today indicating that UPS expects most retailers to agree to the higher “necessary” surcharges. One could get the impression that the parcel transportation provider needs to reinforce the message of necessity for shippers to fall in-line with added holiday peak surcharge rates.

Online retailers are fully aware at this point, that Amazon’s model of Free Shipping has become the expected norm for consumers to finally execute their online purchase. They further comprehend that the power of Amazon is in its flexibility to accommodate online consumer buying needs even on the day before Christmas. Retailers are thus placed in another difficult position. They must compete for consumer business by matching Amazon’s or Wal-Mart’s capabilities to accommodate consumer buying preferences right-up to the actual holiday, and must find ways to absorb the added parcel transportation surcharges. Retailers with significant brick and mortar store presence can channel Free Shipping toward in-store pick-up. However, smaller specialty retailer and businesses lack such flexibilities and lack the leverage to negotiate rate flexibility with the likes of a UPS.

Thus, more-and more-specialty producers and retailers will likely evaluate placing goods on the Fulfilled by Amazon platform if not this year, next year.

The sum-total is that UPS may well find another way to sustain or grow near-term margins, but Amazon will gain even more online market influence.

Perhaps in 2018, UPS will not need added surcharges to fund its surge transportation needs since Amazon will have its network already at the ready.

Something to consider.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Our Supply Chain Matters View of Amazon’s Q2-2017 Financial Performance

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Amazon reported Q2 financial performance this week with mixed results, to state the obvious.

While net sales rose 25 percent to $38 billion, profitability fell 77 percent driven by major investments in operating businesses.  Investors were not necessarily pleased with the latter news, driving Amazon stock down 2.3 percent on the news. FBA sized 300x145 Our Supply Chain Matters View of Amazons Q2 2017 Financial Performance

In the context of recent retail industry financial performance, a double-digit increase in revenue and nearly $200 million in profitability would be a basis of celebration.  But, this is Amazon, which as we all know all too well by now, marches to its own cadence of financial management.  For Amazon, bold and aggressive investments that can drive business growth can often overshadow Wall Street’s expectations for high levels of near-term profitability. Company management solidified that expectation with guidance for Q3 indicating a potential $1-2 billion increase in sales with operating income ranging from negative $400 to positive $300 million.

As business media points out, while many retailers today are in crisis mode attempting to deal with declining foot traffic and negative margins, Amazon has been a compelling driver of permanent shifts in consumer buying activity, in favor of the Amazon fulfillment model.

Let’s touch upon some insights from the latest June-ending quarter:

Amazon CFO Brian Olsavsky indicated that customer fulfillment growth continued at a 40 percent growth run-rate during the recent growth. Amazon Prime membership increased to 53 percent year-over-year in Q2, and that program provides funding for Free Shipping offerings afforded to Prime members.

The Wall Street Journal noted that Q2 shipping costs during Q2 rose 36 percent year-over-year to $4.52 billion.  Think about the magnitude of that number, or on the number of $18 billion in annual logistics and transportation costs.  During the quarter, the online retailer launched its 25th leased air cargo plane, now representing the equivalent of a full-blown global operating air freight company. By the end of this year, Amazon’s physical fulfillment centers will total in the mid to high 30 range. The online retailer just launched a new hiring campaign across the U.S. with the goal of filling upwards of 50,000 fulfillment center openings to again meet expected volume growth for the holiday fulfillment quarter later this year.

This is why we declared months ago that Amazon to be a logistics and transportation services provider in addition to an online retailer. We continue to reinforce that insight because it is important for readers to comprehend and understand Amazon’s broader strategies related to online and physical.  The B2C consumer goods, retail and third-party logistics industries are quickly understanding the magnitude of Amazon as a disruptive force, not only for retail, but for contracted customer fulfillment and logistics. And, we must add Wal-Mart as a consideration as-well, since that retailer is instituting aggressive plans to compete with Amazon for online market-share.

Another open-question is how long can Amazon keep-up with this pace of growth without a major operational hiccup.  Thus far, an open checkbook, fueled by the revenue and margin growth of other Amazon businesses such as AWS, have been the cushion to insure adequate physical fulfillment capacity and capability.

There are some tough decisions to be made, and at the end of this year’s holiday fulfilment period, more industry casualties and subsequent implications will once again be evident. But time is not a luxury for many, and disruption is indeed the call-to-action.

 

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


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