STATE OF TRUCKING – 2018

Last week, the American Transportation Research Institute (ATRI) the research arm of the American Trucking Associations (ATA), released its annual Top Industry Issues report. This report identifies the top ten critical issues facing the trucking industry in North America. The analysis also includes the major strategies for addressing each. This year’s report was based on 1500 survey responses from both drivers and carriers.

 

  1. Issue number 1 this year has been in the top three for 12 of the 14 years this survey has been conducted – Driver Shortage. Currently, the driver shortage nationwide stands at about 50,000, according to the ATA. From a driver perspective, this has been beneficial since carriers have been forced to increase pay, benefits, and bonuses during the past year. Capacity is tight, not because of lack of equipment but due to the shortage of drivers. Right now, the major strategy for dealing with the shortage seems to be the development of programs and legislation that would facilitate the entry of 18-20-year-old drivers into interstate commerce. Since 48 states allow drivers in this age bracket to drive in intrastate commerce, there are experienced drivers in this category.

 

  1. Hours of Service, a top three issue for the past 8 consecutive years, is once again high on the list. After years of discussion and litigation, there still are two major concerns. Current rules require a long-haul driver to spend 8 consecutive hours in the sleeper berth. Drivers would prefer to rest when they are tired and flex their schedules so they can drive during the less congested hours. Customer detention is also still a problem since many shippers and/or receivers do not move trucks in and out as quickly as they should.

 

  1. Driver Retention moved up the list this year, and it appears the industry is trending toward the highest annual turnover since 2013. Carriers continue to try to find the right mix of salary, benefits, sign on bonuses and time off for their drivers. The costs of recruitment and training have increased significantly.

 

  1. ELDs are still high on the list, but since they have been mandated for several months, concern is dwindling. Carriers however, are starting to assess how ELDs are affecting productivity and safety, and drivers still are a little suspicious of how the data will be used.

 

  1. Truck Parking. Now that ELDs are the law, drivers must park wherever they happen to be when their HOS are up. This is becoming a major issue and drivers ranked it as their second most important concern. ATRI suggests that truck parking facilities be expanded and identified for drivers. 

 

  1. Compliance, Safety, Accountability (CSA). CSA has been with us since 2010, and continues to be problematic in many areas. The most viable solution seems to be working with the Federal Motor Carrier Safety Administration (FMCSA) to ensure that the recommendations of the National Academy of Sciences review of CSA are implemented. This study, mandated by Congress, made some excellent suggestions on improving the evaluation of carrier safety performance.

 

  1. Driver Distraction. With the expanded use of smart phones and other personal or on-board technologies, driver distraction has become a major concern. (This problem of course, is not unique to truck drivers.) The solutions to this problem are education, enforcement, and harsher penalties for all – not just truckers. Every year, distracted driving is the cause of a significant number of crashes.

 

  1. -10. Infrastructure, Driver Health/Welfare, and the Economy round out the list. All of us are awaiting some action in Washington on the infrastructure crisis. Carriers are working to develop and encourage better exercise and eating decisions for drivers, as well as provide facilities where exercise equipment and healthy food are available. Finally, while the economy has been growing rapidly, recent governmental actions such as tariffs and possible trade wars are making everyone a little uncomfortable.

 

While both carriers and drivers have issues, their opinions do not always coincide. Carriers listed Driver Shortages, Driver Retention, and Hours of Service as their top three issues, and drivers listed Hours of Service, Truck Parking, and ELDs as their top three.

Written By: Clifford F. Lynch

THE WORSENING TRADE SITUATION

The current growing concerns about the U.S. trade environment are focused on two fronts. One is the (hopefully completed) renegotiation of NAFTA, and the other is what some believe could explode into a major trade war with China. As we have written before, President Trump campaigned against what he called “the worst trade deal ever…the job-killing disaster known as NAFTA.” By most accounts, NAFTA (North American Free Trade Agreement) has been quite successful since it was signed into law in 1993. The trade among the three parties to the agreement, U.S., Mexico, and Canada has been in the trillions of dollars, but Mr. Trump Believed (or said he did) that the agreement had caused the loss of many U.S. jobs as industries moved into Mexico, took advantage of low-cost labor, and shipped their products duty-free back home. The concern was somewhat valid. The auto industry has significantly increased production in Mexico, and one in every five cars sold in the U.S. is manufactured in Mexico. Even so, most experts believe there has been more success than failure with NAFTA. The president was determined to revise the agreement however, and threatened to pull out altogether if the U.S. did not get the concessions it wanted. The result was what is now called the US-Mexico-Canada-Agreement (USMCA). While the president has said “it is the most important trade deal we’ve ever made”, that statement raised a lot of eyebrows, since it is difficult to find many major changes and certainly none that would significantly increase U.S. employment.

Under NAFTA, any vehicle could avoid tariffs it was at least 62.5% made in North America. USMCA increases that percentage to 75, which should help the auto workers some, but it is not a life changing increase.

Canada agreed to remove some of the protection they have maintained for their dairy industry. That will open that market for U.S. producers, but it doesn’t’ represent a significant portion of our economy.

There are other minor changes, but nothing that many of us will notice. The countries did agree to sunset the agreement in 16 years. The agreement still must be ratified by Congress which could be problematic, depending on the results of the mid-term elections.

A more serious potential problem is our relationship with China. Using the same logic with which he attacked NAFTA, the president decided to penalize imports from China and has placed a 25% tariff on $34 Billion worth of Chinese imports. This was followed by a 10% levy on $200 Billion of other items, including many consumer products.

China immediately retaliated with a 25% tariff on soybeans and automobiles. The soybean tariff in particular, is going to cause considerable damage to our soybean export market; and currently, Chinese soybean imports from the U. S. are expected to decline by 12%. Obviously, this will hurt Midwestern farmers.

The October 10 issue of USA Today included a story that provided some insights into the hardships that will be experienced by another section of the economy – the “dollar stores”. Many of the products they sell are faced with the 10% tariff, and it will force them to either raise prices or take hits to profitability. (On January 1, the tariff will increase to 25%.) According to the article, 60% of the customers of Dollar Tree and Family Dollar stores have less than $40,000 in annual income and will be negatively impacted by the increases.

Whatever the product, almost no one believes that either side wins a trade war, and this one will be no exception. First of all, we are heavily dependent on China, and in this kind of situation, countries just continue to retaliate until one calls it quits.

Written By: Clifford F. Lynch

AN ATTEMPT FOR SIMPLICITY IN A COMPLICATED WORLD

Our industry, like so many others has long been blessed with a wretched excess of buzzwords and terms. We have spent so much time thinking out of the box about the paradigms of globalization in the new millennium that we have not had time to push the envelope in the development of our E-commerce business models.

Once, during a performance evaluation, when Dilbert was asked what he had accomplished, he responded, “Well, I have used my empowerment to create a new paradigm, and I teamed across financial boundaries to improve quality. I dare say I was customer focused and market driven. I proactively found excellence in the midst of chaos. I re-engineered my core processes and embraced change”. To the boss’ question, “Was that sarcasm?” Dilbert replied. “To be honest. I don’t know either.

Logistics and supply chain management have always been fairly straightforward disciplines, but for years, in my opinion, we have been plagued with the excessive, and arguably incorrect, use of the terms third party, third party logistics, and 3PL. One warehouse company even went so far as to advertise 3PL logistics services. Now, once again, the term 4PL has started to get more mention in white papers and opinion pieces. The definition of a 4PL is a little vague, but many refer to it as an enhanced 3PL, which really doesn’t help much.

Contrary to most popular opinions, the term third party was first used to describe shippers’ agents. The Hub Group, founded in 1971, was one of the early third parties, as were companies such as National Piggyback Corporation and Alliance Shippers. Usage of this term was logical since it properly described the interjection of a third party into the transportation contract. For example, if a company (Party Number 1) wished to ship a trailer in intermodal service over a rail carrier (Party Number 2) it could deal directly with the carrier or arrange for transportation through a shippers’ agent (Party Number 3). This was advantageous since because of the volume involved, the cost of the transportation utilizing the shippers’ agent usually was less than if the transaction had been handled directly with the carrier Motor carriers, warehouse companies, and railroads were known and referred to by their own competencies. To do otherwise, would have caused enormous confusion. Suppose that, using the above example. Party Number 1 had utilized a contract warehouse to distribute its products and a shippers’ agent (Party Number 3) to arrange for the transportation. Would the warehouse company be Party Number 4, or possibly Number 1 ½?

“To be honest, I don’t know either.”

In the 1980’s, the term third party became widely used to describe any provider of logistics services, and in many cases, was not a proper use of the term. The term fourth party has been around since the 90’s, but seems to be gaining renewed emphasis as a firm that assumes functional integration that has been atypical of a traditional third-party arrangement. Believe it or not, a fifth party also has been suggested to integrate the integrators. If one were more cynical, it might be suggested that the fourth and fifth layers are an unnecessary duplication of activity.

Before we all get buried in a morass of semantics, perhaps it would be helpful to return to clear and basic terms. When a firm outsources a logistics function, or group thereof, it simply is contracting with another firm that has the requisite service offerings and expertise. If we refer to that company as what it is – a logistics service provider – then the relationship would be much clearer. Whether the provider furnishes motor carriage, warehousing, order fulfillment, or freight bill payment, the term logistics service provider remains constant. If one prefers acronyms, LSP does not assault the senses or twist the tongue, and is easy to decipher.

As supply chain and logistics managers we should try to simplify where we can. In this new world of AI, AR, ML, and Blockchain, our jobs are tough enough without adding more vocabulary stress.

Written By: Clifford F. Lynch

HOW MUCH IS TOO MUCH?

Over the past few years, millions of words have been written about “big data” and how to manage it. It has often been considered as one of the major disruptions to supply change management. The fact of the matter is that big data is simply a new term for an old condition. Almost from the first day that technology became widely used in managing the supply chain, we’ve had more data than we could use. Rather than spending time and resources trying to manage what we don’t need, I think it might be interesting to try to reduce the amount of data to that which we really can use effectively. This could be particularly important in managing the performance of logistics service providers (LSPs), where in too many cases, outsourcers will become so enamored of data that they measure far more than they need to.

In 1610, Galileo Galilei said, “We must measure what can be measured, and make measurable what cannot be measured.” (Over the years, this statement has evolved into the more direct, oft-quoted axiom, “You cannot manage what you cannot measure.”) But today, some 400 years later, many supply chain managers still struggle with the application of that premise. Different companies will have different criteria for measuring their LSPs’ performance. For example, a pharmaceutical client would be much more concerned about batch controls and error rates than an appliance manufacturer would. But four basic rules should apply over all industries and providers:

The first axiom is the tried and true, “You can’t manage what you can’t measure.” This is particularly valid for outsourced operations. If you do not know how the provider is performing against agreed-upon standards and benchmarks, it will be impossible to evaluate not only its performance, but the client’s own customer service.

Make measurable what cannot be measured. The task here will be to identify activities in discrete segments against which you can establish measurable and achievable standards. A common mistake is to establish standards that are so vague they are absolutely meaningless. This creates additional work for both parties. Once the activities have been identified, then their importance can be determined.

Measure only what is important and actionable. This is the area where a lot of big data is generated. It also often leads to “report abuse.” Some managers will become so fascinated with the reports themselves that they will insist on measuring trivia. If it doesn’t have an impact on the operation or the operation’s cost, efficiency, or customer service, forget it. While every company has its unique needs, in a typical warehouse operation, the measurement of eight to 10 basic areas should be sufficient. Examples of these are productivity, order-fill rate, on-time performance, inventory variations, order cycle time, line-item accuracy, number of orders handled, and space utilization. You really don’t need to know how many orders were loaded at Door 5 by employees wearing blue shirts.

Measurement must be balanced. Too many measurements can bury the operation in details and lead to friction between the parties. Too few or too general evaluations make the performance difficult to manage. Timing should be balanced as well. There is no need to measure everything every day.

Certainly, as our technology continues to improve, we will learn more about our supply chains, i.e., generate more and “bigger” data, and the information no doubt will be helpful. The phrase “Information is power” probably has been quoted on millions of occasions; but in my mind, the real power lies in being able to take the information and use it effectively. This includes rejecting the information you don’t need to manage your activities.

Written By: Clifford F. Lynch

SOME PROGRESS WITH NAFTA NEGOTIATIONS

On August 27, President Trump announced that the U.S. and Mexico had reached a “preliminary agreement in principal subject to finalization and implementation” on new trade provisions. While those words seem to be the mother of all hedging, at least they represent some progress. While it has been a part of the NAFTA negotiations, Canada has been standing on the sidelines for five weeks while the U.S. and Mexico have worked toward a solution of their bilateral differences. Just this past week, Canada rejoined the talks.

The major provision of the U.S./Mexico revised agreement concerns the auto industry. Under the new pact, 75% of auto content must be made in the U.S. or Mexico. This is up from the current 62.5% in NAFTA. Also, 40-45% of the content of an auto must be the work of laborers making at least $16 per hour. Both countries believe that these provisions will support better jobs for employees, close some gaps in NAFTA, and give U.S manufacturers the incentive to expand their production. The new agreement also provides for stronger rules of origin and a streamlining of certification and verification of rules of origin.

Provisions were included that would incentivize more U.S. and Mexican production of textiles. These rules are stronger than the current regulations and hopefully would encourage more domestic and Mexican production.

Agriculture received a lot of attention in the negotiations, and several new rules regarding food sanitation, biotechnology, and tariffs were established. The two countries also agreed to remove all the barriers to marketing in Mexico certain kinds of cheeses made in the U.S., and will continue to recognize bourbon on and Tennessee whiskey as distinctive U.S. products, and Tequila and Mescal will be declared uniquely Mexican.

But what about Canada? The president has been emphatic about eliminating the NAFTA dispute mechanism, and Mexico has compromised with him on that. Chapter 19 of NAFTA allows members to challenge each other’s trade practices involving dumping and unfair subsidies; and the U.S. wants to eliminate it. Canada is very much opposed to dropping this from any agreement. Another sticking point will be the regulations regarding the shipment of dairy products from and to the U.S. and Canada.

On the surface, it appears that President Trump is quite willing to move ahead without Canada, even though Mexico disagrees. U.S. labor and other informed industry leaders feel strongly that the core of NAFTA, i.e. an agreement among all three countries must be maintained. Trump has indicated he would be quite happy with separate agreements with the two countries. That of course, would defeat the original purpose of NAFTA. Whatever happens, he wants to drop the name NAFTA. He maintains that it has too many negative connotations. He is in the minority on that one, but whatever we call it is not the big issue here. We need to find a way to get all three countries included in an agreement that each can live it. Certainly NAFTA can use some tweaking, but this pact has been too valuable to throw the baby out with the bath water. We need to be the leader in these negotiations – not the gadfly.

For complete details see the U.S. Trade Representative site at www.ustr.gov.

Written By: Clifford F. Lynch

A SUPPLY CHAIN GENERATION GAP?

As the so-called millennials are becoming the predominant members of the workforce, they are coming face to face with those baby boomers (51-70) who are continuing to work. An increasing percentage of the workforce is by-passing the traditional retirement age of 65, and working well into their seventies and beyond. The result is a generational void we should not ignore or criticize, but should understand and benefit from.

A few months ago, I was thumbing through a trade publication which featured a section on “pros to know”, or the magazine’s take on the current supply chain visionaries. Not surprisingly, while there were a few notable exceptions, the vast majority of the men and women listed were affiliated with a firm that offered some variation of supply chain technology. In another survey of chief financial officers, Duke University found that 70% of those surveyed felt that the advantage of hiring so-called millennials was their expertise in technology. So is there a gap between the older and younger supply chain generations? You bet there is. Obviously, there is no exact defining line between the two groups. Some younger practitioners may subscribe to the more traditional techniques; and I know several (OK, maybe a few) senior practitioners who have an excellent grasp of new supply chain technologies.

Regardless of our time in grade, most of us are familiar with such systems as those for warehouse and transportation management. They have been around for quite some time, although looking back, the early ones were fairly primitive. But today, the list of applications for supply chain is almost endless. There are sophisticated systems for managing labor, inventory, and the yard. There are voice order picking systems and speech recognition software. We have GPS, RFID, bar codes, clouds, wireless, Block chain, AI, digitalization, and 3D printers, not to mention our smart phones which give us almost instant connectivity. Obviously, with all this technology comes a new breed of supply chain practitioner. This vast reservoir of technology would be useless without those who understand it, relate to it, and can apply it effectively. This is where the gap exists – and a huge one it is.

As an adjunct supply chain instructor, I am constantly aware of what my students do not know and what they know that I don’t. They don’t believe me when I tell them that 25 years ago I paid a consulting firm several hundred thousand dollars to do a basic network analysis for my company. Most of them do not know that transportation was once regulated, but when we begin a discussion of some of the current technology, they quickly leave me behind.

So yes, there is a generation gap, and thank goodness there is. As the world becomes smaller, customers become more demanding, and channels of distribution change rapidly, without new techniques and technology, and the people who understand them, a supply chain manager’s task would be impossible.

As with every major change however, there is a risk; and the supply chain environment is no exception. Already, we have seen breakdowns in personal communication, sensitivity to our colleagues, fellow employees and subordinates, as well as other management skills that cannot be systematized. I see this as a huge risk for I believe strongly that the future belongs to the supply chain manager that can master the technology and at the same time maintain those attributes that are so necessary for effective human relations. For these, technology will never be a substitute, but perhaps the baby boomers can help smooth the edges a little.

Written By: Clifford F. Lynch

THE SAGA OF ELDs

Most in the industry are aware that most over the road trucks and buses are now required to be equipped with electronic logging devices (ELDs); but like many major changes in the industry, the journey to get there has been tortuous. Since 1938, bus and truck drivers have been required to keep logs of their activities while on duty. The logs have been kept in written form, and each day and hour within that day must be accounted for. Every time there is a “change of duty status” such as stops for sleep, fuel, loading or unloading, it must be recorded. The purpose of the log is to ensure that drivers are conforming to prescribed hours of service rules. Authorized government representatives and carriers can check the logs at any time.

Obviously, such a system was cumbersome, to say the least; but drivers were used to it. For several years however, there was a push to require the installation of electronic on-board recording devices, commonly referred to as ELDs. Finally, in 2015, after four long years of public listening sessions extended comment periods, and Congressional action the FMCSA published the long awaited rule. Since the rule was not to take effect until December 18, 2017, there was more time for appeals and protests. . ELDs had long been strongly supported by the American Trucking Associations and just as vigorously opposed by the Owner – Operator Independent Drivers Association (OOIDA). OOIDA pursued their efforts all the way to the Supreme Court, which declined to hear their appeal.

Under the new rule, every driver required to keep a Record of Duty Status must use an ELD to record his or her compliance with hours of service regulations. ELDs are advocated to aid drivers and improve accuracy and efficiency. Many advocates have suggested they will improve safety as well, by forcing compliance with hours of service rules. (It was assumed that many drivers fudged on their paper logs.) In 2014, the FMCSA reported that carriers using ELDs had about 12% fewer crashes, and hours of service violations were reduced by 50%. . Pilot programs had indicated that more accurate reporting actually resulted in productivity losses of 3 to 4%. However, a study by Transplace revealed that 81% of large fleets were already in compliance, and virtually all were working toward compliance. A number of smaller fleets had been unwilling or unable to move ahead with installation, and some were still hoping for governmental intervention right up to the last minute. It was expected that a large number of drivers would simply leave the industry.

So what happened? The new rules have been effect about 8 months, and enforced for about 5. The FMCSA reported that there have been few violations, and in May reported that less than one percent of roadside inspections uncovered drivers without ELDs. It would appear that most of the industry has gotten on board. According to a recent Journal of Commerce article, we have not seen drivers fleeing the industry, but we have seen transit times lengthen. Some one day trips have now been extended to next day. That would suggest that some drivers had to go over the line a little to make the one day trips. So while we may be losing productivity, it is not in the way everyone expected.

Even so, these extended transit times may cause shippers to take another look at their networks and shipment practices, particularly those who are operating the more severe customer service constraints we have today. While ELDs will cause some adjustments to be made by both carriers and shippers, so far it appears that they have had a positive impact.

Written By: Clifford F. Lynch

TURN YOUR CHALLENGES INTO OPPORTUNITIES

Unless he or she just returned from Mars, every supply chain manager has encountered, or certainly heard of the “Amazon Effect”. Driven by the aggressive customer techniques of Amazon, the term has come to stand for rapid and dependable service, often same day deliveries, free shipping, and instant visibility. To accomplish this, Amazon has established hundreds of distribution points in the country from which their shipments are made. Obviously, with the high level of service  provided, it is necessary to have inventories located closer to the buyers; but not every firm has an interest in, or can afford to establish hundreds of distribution centers throughout the United States.

As other sellers scramble to compete with Amazon, they are seeking alternate ways to do so. Wal Mart for example, fills some online orders from their stores, as do other retailers with diverse store networks. One option that surprisingly, is not gaining as much momentum as I would have expected is the establishing of inventories at the facilities of logistics service providers close to target markets. Outsourcing is not a new concept, but it seems that some managers and firms are just discovering it.  A white paper published a few years ago, stated that “outsourcing was formally identified as a business strategy in 1989.” Not too long after that, I had a young consultant inform me it was “invented in 1990.” (That’s scary.) These comments came as somewhat of a surprise to me since I have been involved in some form of outsourcing since the early 1960’s. While outsourcing has gained renewed emphasis in the last twenty years, the practice can be traced back almost as far as one would care to research it

In Warehousing Profitably author Ken Ackerman even suggests that one of the first business logistics arrangements is described in The Bible, Genesis, Chapter 41.This is an account of the seven years of plenty during which the people in the land of Egypt accumulated  crops for the predicted seven years of famine. The grains and other fruits of their labors were taken to public storehouses for safekeeping, after which they were distributed.  In Europe, a number of logistics service providers can trace their origins back to the Middle Ages. The first commercial warehouse operations were built in Venice, Italy in the 19th century. Merchants from all across Europe used them as collection and distribution points. In a nutshell, any person or firm that has ever subcontracted an activity has outsourced. For at least a hundred years, firms worldwide have found that outsourcing can be a solution for any number of distribution challenges.

Through the 1950’s and 1960’s the outsourcing of warehousing and transportation was common. The relationships for the most part, were short term; but there were other firms such as DuPont and Quaker Oats that had long – term outsourcing agreements. (The long term relationship between Quaker and Worley Warehousing for example, was an important component of the Quaker distribution network.)  During the 1970’s manufacturers placed heavy emphasis on cost reductions and improved productivity. Longer – term relationships became more common, particularly in the warehousing area. Single tenant facilities were built and operated by warehouse companies in major markets of the U.S. Consolidation of facilities into larger operations became more and more frequent.

The 1980’s brought with them a phenomenal number of mergers and acquisitions; and in many cases, firms found themselves with more distribution centers than any one company ever wanted. Consolidation became a necessity, and many of the new facilities were outsourced. By 1990, there was an increasing interest in outsourcing anything that was not directly related to a company’s core business. More and more companies came to realize that the real competitive edge was to be found in enhanced customer service and relationships, and many found outsourcing as an effective method of accomplishing this. By 1999, the entire country was caught up in the potential and mystique of the Internet. We hit a rough patch when too many order fulfillment logistics service providers were established, only to have a significant number fail when the bubble burst. Those who survived were both wiser and more conservative.

It was also about this time we began to see another wave of consolidation in the LSP industry, and users of these services found themselves dealing with different companies and individuals, as well as different cultures. Mergers introduced larger, and in many cases foreign entities into the outsourcing equation. Many of these alliances were an effort to respond to the increasing global needs of outsourcing firms.

The decade of the 2000’s brought us a bigger and better industry with more sophisticated providers and expanded services, particularly in the technology area. Today the industry continues to expand and concepts such as vested outsourcing, visibility enhancement, last mile delivery techniques, and other improved services have been installed. Outsourcing once again has emerged as a viable solution to another distribution challenge – the “Amazon Effect”.

Certainly the world and supply chain management are changing, but let’s keep in mind that we already have some tried and true techniques for meeting the new challenges. All we have to do is take advantage of them.

Written By: Clifford F. Lynch

THE CONTINUING INTERNATIONAL TURMOIL

As we wrote last month, negotiations for a new North American Free Trade Agreement (NAFTA) are not going well. President Trump has criticized the agreement repeatedly and succeeded in antagonizing both Mexico and Canada through the U.S. negotiating team. In spite of overwhelming support among U.S. businesses, we have delayed negotiations long enough that any action by Congress will be impossible before next year. By then, a new Congress and a new Mexican president could make an agreement even more problematic

If that were not enough to concern firms and consumers that would be affected, the president has started what could be a major trade battle, if not an all-out war. His philosophy is simple. If we penalize goods manufactured abroad, manufacturers and consumers in this country will be much better off. In principle, that sounds good; but most informed economists say it just does not work that way. Other countries will not sit idly by while we penalize products they are selling us. Let’s look at what has happened so far. It started with Canada and Europe when we imposed a tariff on steel and aluminum coming into the U.S. Canada struck back with a 10 percent levy on about $12 billion of U.S. products, including such things as chocolate, ketchup, soup, salad dressing, and beef. The European countries retaliated against motorcycles, whiskey, boats, and peanut butter. Mexico chose more than a dozen agricultural products, including pork, a major export to Mexico.

The most concerning contest of course, is with China. Last week, the U.S. levied a 25 percent tariff on $34 billion of Chinese exports to this country. Airplane parts and farm implements were the hardest hit. China immediately imposed tariffs on soybeans and automobiles. The soybean levies will be particularly hard on Midwest farmers who sell large amounts of soybeans to China. Currently, the U.S.  is threatening to penalize another $200 billion of Chinese products.

Although we buy much more from China than they buy from us, there are a number of ways they could retaliate. With China our number one supplier of toys, think about Christmas with the price of toys up 20-25%. It also would be very easy for the Chines government to penalize U.S. companies operating in China, organize boycotts, cut off student and tourist travel, or initiate other economic sanctions.

President Trump’s fantasy is that U.S. manufacturers will move back home, production will pick up here, employment will increase, and the economy will grow. Typically, what happens however, is that prices simply rise across the board, consumers are worse off, and no one wins.

For those companies who manufacture offshore, closing foreign operations would be easier said than done. Some firms have made huge investments in other countries and are not likely to readily abandon them. For the supply chain manager, these international conflicts become just one more issue with which he or she must contend. Changing product origins has an impact throughout the pipeline, and adds a major complexity to the supply chains of those companies affected.

Written By: Clifford F. Lynch

THE STATE OF LOGISTICS – 2018

On June 16, the Council of Supply Chain Management Professionals (CSCMP) released the “29th Annual State of Logistics Report”. This year’s report was entitled Steep Grade Ahead .The SOL report was launched in 1988, by the late Bob Delaney, one of the leading supply chain experts of that time; and after his death carried on by Rosalyn Wilson until 2015. Since that time, A.T. Kearney has performed the research and published the results. The complete report can be found at www.cscmp.org, and is free to members of the organization. Since non-members are charged $295, this week, I wanted to publish a brief summary of the report for those who might not see it otherwise

2017 business logistics costs totaled $1.5 trillion, or 7.7% of Gross Distribution Product. Expenditures were up 6.2% y/y, and the percentage of GDP was slightly higher than last year’s 7.6%. At the same time, GDP grew about 2.9%. Expenses for every category were up, ranging from 1.1% for water to 10.7% for rail intermodal.

2017 y/y?
Motor Carriers $641.4 B 7.8
Rail 80.5 8.2
Parcel 99.0 7.0
Airfreight 67.2 3.1
Water 41.0 1.1
Pipeline 36.4 5.8
Inventory Carrying Costs 428.0 4.6
Administration 101.2 4.9

ATK chose the title of this year’s report considering the fact that carriers continue to control the marketplace and are expected to do so throughout 2018. Demand is exceeding supply in every sector.

E – Commerce continued to grow by double digit percentages, and growth should continue at the same rate. Not surprisingly, the report indicated that Amazon is continuing to “raise the bar” as far as customer service expectations are concerned. It further suggested however, that on-line sales growth may be slowed somewhat by the lack of infrastructure capacity necessary to accommodate the tighter delivery requirements.

Although relationships between shippers and providers are becoming more common and more important, in the warehousing sector customers still are focusing on short term cost cutting rather than long term strategic partnerships. This was disappointing; and I believe as capacity becomes tighter, this could be detrimental to those firms concerned only about cost.

Looking ahead, ATK expects five trends to shape the logistics future,

  1. Strong macroeconomic growth, fueled by strong labor and tax cuts.
  2. Costs will rise as interest and fuel costs increase.
  3. Changing demand patterns and new competitors will “challenge old business models”.
  4. A fully digital and flexible supply chain, optimized for E – Commerce and tight delivery demands will be essential.
  5. Technology

For the past year, most reports on the subject of logistics have made some mention of blockchain, and this one was no exception. Kearney believes blockchain has application in three supply chain areas:

“simplifying payments and cross-border transactions; tracking goods as they move through the supply chain, and establishing the provenance and integrity of goods.” In spite of the hype about blockchain however, adoption will be slow. There are several reasons for this, but the major hindrance will be the lack of common standards. In this regard, it will not be unlike the standardization that was necessary to facilitate Electronic Data Interchange (EDI) several years ago.

For those who have access to the full report, a review of the document would be very informative..

Written By: Clifford F. Lynch