A new year is underway, and what better way to begin our 2023 blog activity than with a summary of the freshest news from the supply chain and logistics theatre?
In this edition of our news roundup, we cover the following notable developments:
- China’s U-turn on COVID policy and the potential impact on global supply chains
- South Korean President’s supply chain message in World Economic Forum address
- The death of just-in-time in the seafood supply chain
- The rapid growth of the big and bulky sector in last-mile logistics
- Walmart’s success with drone deliveries leaves Amazon lagging
- The end of the Maersk/MSC container shipping alliance
- The new software that could solve omnichannel warehouse woes.
So let’s get this new roundup underway with a look at the COVID situation in China since the nation shifted away from a zero-COVID policy.
China’s COVID Management Could Cause More Supply Chain Chaos
While few in the Western world may have thought that China’s zero-COVID policy could be effective, or that it was anything other than an obstacle to the smooth operation of global supply chains, the Chinese government’s abrupt reversal might bring about a much more severe disruption to international logistics and trade. But is that a real possibility, or are the predictions of supply chain mayhem just so much panic and hot air?
Indeed, there is cause for concern about Chinese factories’ ability to fulfill orders, given the massive uptick in COVID cases since the harsh policy was lifted.
In the week ending January 15th, hospitalisations in the People’s Republic increased by 70% against the week prior, according to The World Health Organization (WHO) as reported by Reuters. Other reports say that people are sickening quickly and in enormous numbers, leaving factories short-staffed at the worst possible time—Chinese New Year.
COVID and Chinese New Year—A Perfect Storm for Supply Chains
In some cases, as much as 40% of a Chinese factory’s workforce might be absent, either because of COVID infection, or staff staying away from work to avoid contagion. With the virus running rampant, members of factory management teams, too, can become thin on the ground, placing manufacturing companies under severe strain.
Observers are concerned that the arrival of Chinese New Year will only exacerbate the problem, due to the droves of people traveling from centres of manufacture to their home towns and vice versa.
In any typical year, companies around the globe must factor the New Year shutdown into their inventory management plans. However, this year, it will be tough to anticipate availability before, during, and after the holiday, because of the unforeseeable levels of COVID infection, especially given that port workers in China, too, would not be immune from any post-holiday spread of the virus.
An End is in Sight, But Will it Be Too Late?
If there is any silver lining, it is the fact that China has abandoned its zero-COVID policy, soaring infection rates notwithstanding, because while high COVID case counts are bad news for manufacturers and international companies that depend on them, the numbers should come down at some point.
During the zero-COVID years, it only needed one or two cases to shut down an entire plant, leaving customers altogether in the lurch. That will no longer be an issue. But, of course, with so many cases in such a vastly populated nation, the risk of a new variant emerging to start the whole cycle over again cannot be underestimated.
For companies wishing to decouple their supply chains from China but struggling to do so, the current situation presents an unsettling start to 2023. But, at the same time, it will undoubtedly reinforce the belief among enterprises already in the decoupling process—including notable giants like Dell and Panasonic—that they made the right call in reducing reliance on products made in China.
South Korea’s President Weighs in on Supply Chain Resilience
The President of the Republic of Korea, Yoon Suk Yeol, recently took advantage of his attendance at the 2023 World Economic Forum Annual Meeting in Davos, Switzerland, to impress upon other world leaders and policymakers his desire to see countries work in unison to increase global supply chain resilience, describing it as the most urgent task of our time.
Yoon expressed his concern that cooperation only among groups, or blocks, of countries, is a risk and that such coalitions would do nothing to enhance resilience in the global supply chain, saying, “Building up walls and intensifying protectionism cannot be the right solution.”
He said that the only answer to continued supply chain destabilisation and global fragmentation is for the international community to cooperate closely to increase resilience in the world’s supply network.
A Rallying Cry for Intergovernmental Cooperation
Yoon Suk Yeol delivered his message to stir enthusiasm among global leaders for improved intergovernmental collaboration to counter the growing trend in deglobalisation.
But with U.S./China tensions continuing to escalate and Russia at loggerheads with NATO and the West in general, President Yoon’s logical and impassioned hopes for a future of international harmony could be a long way from realisation.
Nevertheless, when world leaders bring up the topic of supply chain resilience at a global forum, there can be little doubt that we’re in the midst of a seismic shift in the global logistics landscape and what the world will look like in commercial terms when the dust settles, is anyone’s guess.
In the Seafood Industry, at Least, Just-in-Time is Dead
If you tend to doubt that the logistics industry is being forced into a state of considerable upheaval, consider this: Ever since the height of the COVID pandemic, pundits have been speculating that the era of just-in-time supply chains is over, but now it’s no longer just the pundits.
In the seafood industry, the death throes of just-in-time are being openly discussed as fact. Indeed, a panel of experts in Palm Springs, California, for the U.S. National Fisheries Institute Global Seafood Market Conference on January 17, 2023, agreed that the just-in-time model is floating belly-up.
Heavily seasonal, the seafood industry has been through several years of supply chain disruption due to the pandemic. Even now, challenges continue to compound, crippling companies’ ability to plan early for volume fluctuations.
As a result, there is no longer a place for just-in-time logistics. Instead, it has been replaced by just-in-case. That means companies in the industry, like seafood importers, must maintain higher inventory levels inside expensive cold storage facilities for lengthier periods than ever before.
Logistics at the Core of the Seafood Trade
Caught in the transition, seafood logistics companies, in particular, are having a tough time, partially because importers have not yet adjusted fully to the logistics needs of the new supply chain model.
For example, Senior Vice President of Sales at Lineage Logistics, Dan DiDonato, reports instances where importers and their customers strike deals but subsequently fail to inform the responsible logistics company that a large shipment will require transportation.
The panel at the GSMC stressed that this must change, and that seafood suppliers must begin to treat logistics not as a back-office function, but as a core element of their customer offerings.
The panel also agreed upon a reality becoming evident to logistics professionals across many other industries—that a just-in-time approach today leaves a company merely one supply chain hiccup away from letting customers down.
The Big and Bulky Boom in Last-Mile Logistics
It’s no secret that the final stage of retail logistics, otherwise known as the last mile, is typically the most expensive for operators, regardless of whether they are ecommerce or conventional retailers with an in-house fleet, or whether they outsource to a 3PL. As a proportion of total transportation costs for a given product, the last mile can generate up to 40%.
Nevertheless, in the ecommerce age, the volume of goods that retailers must commit to delivering into their customers’ hands will continue to increase, and to a degree, so will the size of those goods.
Last-mile delivery is now so prolific that the activity is naturally separating into categories, one of which—we’ll call it big and bulky, for want of a better expression—is ballooning in its sector size. Indeed, it looks set to be one of the hottest growth categories in logistics during the year ahead.
The reason, of course, is that the number of conventional and online retailers offering home (or business) delivery of big and bulky items is growing exponentially, particularly in the United States, where this logistics sector is booming notably.
Big and Bulky Growth and Consolidation
Furniture, large appliances, office equipment, and other heavy, bulky items require more expenditure, expertise, and specialised equipment to deliver than typical online products, which can usually be shipped as parcels.
However, vendors selling big and bulky products must also offer an appropriate delivery service if they want to stay in the game. In many cases, that service extends to the complete white-glove treatment, with delivery to a specific room in the customer’s home, and perhaps even assembly or installation.
With growth comes consolidation, and in the USA, at least, plenty of M&A deals are being sealed as logistics firms seek to improve their big and bulky delivery capabilities and networks.
Recent merger activity includes:
- AIT Worldwide Logistics’ acquisition of NY-based Select Express & Logistics
- Werner Enterprises’s purchase of last-mile carrier NEHDS Logistics, LLC
- B. Hunt Transport Services Inc.’s acquisition of Mass Movement Inc. and RDI Last Mile Co.
- Pilot Freight Services’ purchase of LTL company American Linehaul Corp. and California’s DSI Logistics
It’s clear, then, that in the United States, the big and bulky last-mile delivery sector is on fire, and with ecommerce booming everywhere, it’s a category that’s sure to enjoy similar growth this year and beyond. So for companies that desire to capitalise on the insatiable demand for last-mile delivery, the big and bulky niche might prove attractive.
Walmart Leads and Amazon Lags in the Drone Delivery Game
In 2013, Jeff Bezos announced that doorstep delivery by Amazon drone would be an everyday reality within four or five years. From then on, Amazon was slated as the retail company to watch as the applications of drones became ever more commonplace in various other industries.
While drone skeptics foresaw many obstacles to overcome before governments, or even society in general, would embrace the possibility of thousands of unmanned aerial vehicles crisscrossing cities with consumer packages, it seemed that if any company could successfully bring the concept to commercial fruition, it would be Amazon.
Indeed, in 2020, the US Federal Aviation Administration granted Amazon the approval necessary to operate a fleet of delivery drones.
Yet as we enter 2023, close to a decade after Bezos revealed his vision, Walmart, not Amazon, has made the most successful foray into the brave new world of airborne door-to-door transportation.
6,000 Drone Deliveries and Counting
While Amazon’s Prime Air division has managed only to begin test services in two limited markets and has now fallen victim to the experimental program cutbacks we reported on in our last news roundup, Walmart claims to have completed some 6,000 drone deliveries in the United States during 2022.
Unlike Amazon, Walmart does not manage its drone operations directly; instead, in the grand tradition of retail logistics, it works with three partners, namely Zipline, DroneUp, and Flytrex. Those three companies execute the deliveries on Walmart’s behalf, flying packages from 36 drone delivery hubs located at the company’s stores in seven US states.
The retail giant’s strategy to achieve its ultimate target of one million drone deliveries per year limits customer eligibility to those who live within 1.6 kilometres of a store with a launch site, but allows consumers to choose from a product range containing 20,000 discrete items and to receive delivery within 30 minutes of placing an order.
All’s Fair in the Race for Airspace
Will Walmart usurp Amazon’s reputation as the pioneer of retail drone delivery? It would be unreasonable to write Amazon off. Only last November, the company unveiled a new drone, superior to the existing one, and scheduled to enter service in 2024.
However, as Amazon lays off staff attached to its Prime Air service and reduces expenditure on experimental technology, Walmart’s partnership approach could be about to catapult it to the forefront in airborne last-mile delivery.
The End of 2M Alliance: The Start of an Ocean Shipping Shakeup?
An alliance between the world’s two most prominent ocean shipping lines will terminate after the mandatory ten-year period, which expires in 2025. Maersk and MSC will part company after a decade of vessel sharing, marking a potential shakeup/deconsolidation of the ocean carrier market.
As the two companies begin to pursue divergent strategies—Maersk is transitioning to become an end-to-end logistics provider, rather than remaining purely in the ocean shipping sector—they have agreed to cease working in concert and, once again, to become independent entities.
Some observers believe that the separation will begin a chain reaction as shipping lines in the other two big alliances, Ocean Alliance and THE Alliance, seek to capitalise on the opportunities, and protect themselves from the threats that the 2M breakup will present to their profitability.
A Response to Changing Times
The purpose of the 2M alliance was primarily to give Maersk and MSC mutual access to colossal shipping capacity by enabling them to share one another’s vessel space.
However, as the ocean freight environment has changed in the wake of the COVID pandemic and as a response to the current recession and inflation issues, the two companies agreed it was in their interests to exit the arrangement when the prescribed ten-year term expired.
Maersk, as mentioned, is pursuing a change of positioning with its entry into the general logistics market. At the same time, MSC has boosted its cargo capacity massively through a shipbuilding program that will add over 100 new vessels to its already colossal fleet.
Tecsys Software Solves Omnichannel Warehouse Challenges
For retailers and brand owners that combine wholesale and conventional brick-and-mortar retail with ecommerce sales, optimising their warehouse operations to accommodate a mix of direct-to-customer and store distribution models has to be one of the most perplexing challenges.
To address the problem, software provider Tecsys claims to offer the perfect solution to the challenge of mixed ecommerce and conventional distribution facilities. It describes its Omni™ WMS product as a warehouse-in-a-warehouse model that streamlines mixed warehouse operations.
Because Warehouses are in Warehouses
Setting up separate logistics networks for ecommerce operations may not be a viable option for many companies already engaged in wholesale or retail sales.
It’s common for an enterprise to repurpose some portion of its existing warehouse space to meet the specific needs of ecommerce, which typically include single-item picking and single-order packing.
However, it can be complicated to seamlessly mesh such operations into a warehouse primarily oriented to pallet and case distribution for retail outlets. Moreover, there is a risk that trying to do so can raise the costs of inventory management significantly. Yet many companies feel compelled to use their warehouses in such a way, considering entry to the ecommerce market as an essential requisite for survival.
One Step Closer to Truly Integrated Omnichannel Logistics
The warehouse-in-a-warehouse WMS will, according to Tecsys, solve many of the challenges for companies running decoupled distribution operations within a single warehouse.
The new platform’s features include the ability to toggle between batch picking and cluster picking, and other functionality to enable greater efficiency in a mixed warehouse operation.
One retailer that implemented this ecommerce fulfilment software successfully used its automated workflows to reduce its ERP-controlled processes by some 90%.
For the large numbers of retail enterprises that hurriedly introduced ecommerce offerings alongside their conventional distribution channels during the COVID years, tearing off the Band-Aid and reengineering for optimal efficiency can be a big project. Tools like the Tecsys solution will make it easier and more affordable for these companies to develop optimal omnichannel logistics operations.
An Interesting Start to Another New Year
So that’s it for this first Logistics Bureau news roundup of 2023. I hope you found this overview of current logistics and supply chain issues enlightening.
We’ll bring you another round in April, and of course, between now and then, you’ll find a lot more informative content posted here on our blog. So remember to stop by often to see what’s new.