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.
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.”
“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.
There are additional consolidation related events underway in ocean container shipping. The Wall Street Journal cites informed sources as indicating that China’s two ocean container carriers will merge by January. China Ocean Shipping Co. (Cosco Group) and China Shipping Group Co. have reportedly been working on a tie-up for several months, responding to Chinese government directives to consolidate similar state-owned enterprise in order to more effectively compete in global markets. This consolidation is expected to create the world’s fourth-largest container shipping carrier. According to the report, the value of this merger could exceed $20 billion, accounting for 8 percent of global volumes.
This news comes in midst of other industry and business media reports that Singapore based Neptune Orient Lines (NOL) is in talks with Maersk Line and CMA CGM, with the latter now favored as be the final suitor. Neptune and its affiliates represent 3 percent of global container shipping volumes. According to one report, NOL, which is 65 percent owned by Singapore sovereign-wealth fund Temasek Holdings Pte. Ltd., has been looking for a buyer for months. The company reported a $96 million loss in the third quarter and sold its profitable logistics business, APL Logistics Ltd., for $1.2 billion to Kintetsu World Express Inc. in May.
Both of these developments are continued but not expected developments for an industry that has significant excess capacity and is losing any leverage to increase tariff rates to expected levels.
Once both of these entities are merged, readers should not be surprised by other consolidation developments as remaining carriers feel the pressure to compete with now larger and perhaps more cost-efficient survivors.
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.
Last year at this time, Supply Chain Matters featured a commentary focused on China’s online fulfillment provider Alibaba. Noted was that we can sometimes get enamored with names such as Amazon and Wal-Mart but Alibaba is indeed an evolving player to reckon with in this era of online commerce and hanging retail supply chain customer fulfillment.
That point was again driven home this week with reports of probably one of the largest online fulfillment events, ever, an event that made a significant statement relative to the processing of a single day’s volumes and on promoting largescale consumer interest in an online shopping event.
China’s Singles Day is somewhat equivalent to Black Friday or Cyber Monday in terms of an online shopping event. This event was conceived by students in the 1990’s as a mock celebration for people not in relationships, with a desire to give something to oneself. It traditionally occurs on the 11th day of the 11th month or Double Eleven, since when written numerically, November 11th is represents “bare branches”, a Chinese expression for bachelors and singles. In 2009, Alibaba orchestrated an online shopping event promotion to rival that of Western nations. The event is now replete with high anticipation including a four-hour variety television shopping focused extravaganza complete with Hollywood celebrities and other guests.
According to Alibaba, this year’s Singles Day online event recorded a record 91.2 billion yuan ($14.3 billion) in one-day gross sales. Volume was reported as surpassing last year’s $9.3 billion in sales after 12 hours. For the sake of comparison, last year’s online Black Friday and Cyber Monday volumes do not come close to that of this year’s Singles Day.
A report from BBC News highlights data indicating that the event now represents 80 percent of China’s total online shopping with an estimated 120,000 orders processed each minute. Nearly 73 percent of online purchases in the first hour had reportedly originated by mobile phone. Alibaba further indicated that this year there would be 40,000 merchants and 30,000 brands from 25 countries offering merchandise across its various online platforms.
Of significance from a supply chain logistics and fulfillment perspective is that Alibaba owns its own parcel delivery logistics entity, Cainiao, along with close relationships with other logistics providers to insure that packages are delivered to expectations amid a number of residential delivery challenges across China’s high density urban and rural landscapes. The online firm estimates that 1.7 million delivery persons and over 400,000 vehicles will be deployed to deliver this week’s volume of packages. In a September commentary, we called attention to Cainiao’s efforts to forge shipping relationships with other global parcel delivery entities including the United States Postal Service.
Make no mistake, when it comes to sheer volume and scale of B2C/B2B online commerce, Alibaba is the provider to watch. This week’s Singles Day milestone provides yet more evidence of such scale and inherent online retail customer fulfillment capability.
Supply Chain Matters Book Review: The Power of Resilience- How the Best Companies Manage the Unexpected
From time to time Supply Chain Matters will feature book reviews which we believe would be of value and a learning asset to our extended global supply chain management community of readers.
In this particular posting, we share our review of: The Power of Resilience, How the Best Companies Manage the Unexpected. The author, Yossi Sheffi, is a well-known thought leader among the global supply chain management community serving as the Elisha Gray II Professor of Engineering Systems at the Massachusetts Institute of Technology (MIT) and Director of the MIT Center for Transportation and Logistics. He has authored a number of previous books including: The Resilient Enterprise: Overcoming Vulnerability for Competitive Advantage and Logistics Clusters: Delivering Value and Driving Growth. Professor Sheffi was gracious to this blog by previously contributing a guest commentary related to his Logistics Clusters book.
If you have been a long time reader of this blog, you have undoubtedly read of the many disruptive events that have impacted industry and global supply chains, along with some of the consequences. Events would include Hurricane Katrina that devastated New Orleans and the U.S. Gulf Region in 2005, the 2011 devastating earthquake and tsunami that impacted Japan and the severe floods that impacted Thailand that same year. Other events we have noted, such as additional earthquakes, major factory or warehouse fires, natural disasters and product recalls continue to uncover the vulnerabilities and dependencies among today’s globally based supply chains. In this new book, Sheffi provides with in-depth case studies that illustrate how companies have prepared for, coped with, and demonstrated resilience following such disruption, along with important learning related to the encroaching threats facing today’s supply chains. Further included are the business processes, corporate culture and technology tools utilized to prepare and learn from disruption. Indeed, the interconnectedness of global economies, the lean aspects of multi-industry supply chains today, and the implications of vast arrays of information amplified by all forms of media imply that unexpected events in any corner of the globe can ripple through the supply chain and affect customers and shareholders.
This blogger, analyst and consultant thoroughly enjoyed reading this book which I managed to read cover-to-cover on a recent roundtrip coast-to-coast plane ride. The book immediately captures interest, flows from chapter to chapter and compels one to read more. I highly recommend this text to current or aspiring senior executives and supply chain leaders as a must-read regarding the mitigation and response to supply chain risk. I especially applaud Professor Sheffi for incorporating supply chain social responsibility strategies under the umbrella of risk, which it should be.
The first five chapters of this book provides various insightful case studies of companies that experienced and responded to risk events including Cisco, General Motors, Intel, Medtronic, Procter & Gamble, Western Digital and others. These case studies bring out the importance differences among business continuity planning (BCP) and business continuity response (BCR). There are examples of risk metrics such as Value-at-Risk (VaR), Time-to-Impact and Time-to-Recovery, very similar to those defined in the latest releases of the APICS Supply Chain Council’s Supply Chain Operations Process Framework model (SCOR).
Chapters 6 through 11 address the strategy, preparation, communication and supply implications of supply chain risk and resiliency. Sheffi observes: “Building a resilient enterprise involves two broad categories of options: building redundancy and building flexibility of supply chain assets and processes.” Chapter 8, Detecting Disruption, explores methods for incident monitoring, mapping the supply chain for vulnerabilities, monitoring suppliers, and a rather important section related to leveraging social media in risk detection and response. Chapter 9 is a rather important read since it explores means for securing the information supply chain and the tendencies of cyber criminals to exploit supply chain partners as targets of information security vulnerability, as was the case of the Target credit-card hack where penetration vulnerability came from the stolen login credentials of a regional store refrigeration maintenance services vendor.
Chapter 12 addresses today’s “new normal” of disruption and risk along with methods to benefit from longer-term implications. In the final two chapters, Professor Sheffi explores the growing dependency on all levels of suppliers, including those in the lower-tier of industry supply chains. Sheffi notes: “Supply chain risk management is in a race between the fragility of complex supply chains and the resilience created by better risk management.” In Chapter 13, an argument is made that systemic supply chain risk, one that can bring an entire industry to a halt, has not occurred because of the combined efforts of today’s more responsive supply chains. Sheffi opines:
“Thus, it’s hard to conclude that modern global supply chains show evidence of true systemic risks. Companies have developed efficient response mechanisms, and the same globalization trends that could create disruption risks for specific companies that use suppliers from faraway lands may also contribute to the prevention of systemic risk by spreading manufacturing capacity around the globe. Most important, global capacity for manufacturing and distribution is large, and while it is crucial for any company to prepare and respond effectively to disasters, there are always others ready to take its place if it fumbles.”
We quoted that entire passage because upon reading and contemplating the book’s case studies, we were not as sure regarding this conclusion. While many firms have been able to eventually overcome supply and services risk, the open question is scale and timing of supply continuity. Customers, consumers and activist investors are far more impatient and unforgiving today, and the clock speed of business and industry change may not tolerate forms of extended supply chain disruption. However the one conclusion that is clear is that speed, resilience and flexibility are indeed the most important capabilities of any supply chain.
It is Friday and we thought we should close out a very busy week with some updates relative to previous supply chain management and industry developments highlighted in prior Supply Chain Matters postings.
Within our 2015 Predictions for Global and Industry Supply Chains, and within numerous subsequent transportation and logistics focused postings this year, we continue to highlight the industry turbulence impacting global transportation services. What caught our attention this week was a report from The Loadstar highlighting an Alphaliner report indicating that in the next few weeks, idled ocean container ships will reach the highest level since the past financial crisis, nearly one million TEU’s. That includes the idling of one Maersk Lines, 18,000 TEU capacity Triple-E vessel.
According to the Alphaliner report, idle containerships now amounts to 263 vessels representing an estimated 4.7 percent of global capacity. Most of this idle capacity is attributed to reduced demand on the Asia to Europe segment. As one might expect, the idling of a Triple-E vessel, a rather expensive asset is stark evidence of the building severity of the current excess shipping capacity has become. Meanwhile, the excess capacity crisis has spilled over to the ship charter segment with multiple sized ships being idled.
The Loadstar report further indicates that industry leader Maersk’s parent company issued a profit warning last week as a result of an unexpected $600 million shortfall, attributed to the “significant drop in rates.”
Industry transportation and supply chain teams can obviously spin this latest news in either good, or not as good contexts. As the industry sunsets from the peak holiday inventory surge period into winter slack, it is a complete buyer’s market in terms of container shipping rates, probably the best since the great global recession period in 2008-2009.
The not so good news, is that idle shipping capacity will continue to impact carrier bottom-lines, and that equates to added industry shakeout, and even more idle vessels. More importantly, it is a reflection that global trade volumes are declining beyond expectations.