ced global logistics summit state of the logistics industry€¦ · ced global logistics summit...
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CED Global Logistics Summit
State of the Logistics Industry
1
Tim Feemster MBAPresident
Foremost Quality Logistics
Moderator
Scudder SmithPrincipal Consultant
Freight & Logistics Practice, WSP
Joseph G.B. BryanVice President, Freight
Transportation and Logistics Policy Planning, WSP
Agenda
• Introductions and Opening Remarks-Moderator: Tim Feemster, President, Foremost Quality Logistics
• State of the Industry Report: Joseph G.B. Bryan, Principal Consultant, Freight Transportation and Logistics Policy, Planning, WSP
• Trade Wars & Tariff Impacts, Scudder Smith, Principal Consultant, Freight & Logistics Practice, WSP
• Questions
2
Top 25 Risks to the Supply Chain1. Supplier/Vendor Distribution Disruptions
2. Federal, State and Local Regulations
3. LABOR
4. Competition
5. Commodity/Raw Material Pricing
6. ECONOMY
7. Environmental Regulations, Laws, Liability
8. Threats in International Operations/Sales
9. Cyber Issues; Security, Privacy, Theft, Crime
10. Currency Risk
11. Inability to Execute; M&A, JV's, Divestitures
12. ACCESS TO CAPITAL
13. Ability to Maintain Info Systems and Implement Upgrades and New Systems
14. Business Interruption; Natural Disasters, Trade Wars, Conflicts
15. Change in Product Demand; ability to maintain and grow Market Share
16. RECALLS
17. INNOVATION
18. Litigation, Legal Proceedings
19. ATTRACT/MAINTAIN/MOTIVATE Key Personnel
20. Customers/Vendors/Partners Financial Condition
21. Anti-Corruption/Anti-Bribery, FCPA
22. Intellectual Property, Trademark Infringement
23. Insurance Costs and Loss Coverages
24. Fuel/Electric/Oil; Transportation
25. Accounting Standards/Internal Controls/Financial Reporting
3
Source: BDO Study of 2016 10K’s of Publicly Traded Corporations, Dermody, & FQL
3
Supply Chain Risk Factors
1. Costs
2. Business Interruption
3. Labor
4. Federal, State and Local Regulations
5. Economy/Competition
6. Information Technologies
7. Cyber Issues
8. Site Specification Specifics
4
Source: BDO Study of 2016 10K’s of Publicly Traded Corporations, Dermody, & FQL
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CSCMP Logistics Cost-2018
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91.2%
A.T. Kearney 6
CSCMP Steep Grade AheadState of Logistics Report 2018
CED Global Logistics SummitSeptember 25, 2018
Joseph BryanWSP USA
US State of LogisticsLogistics Costs $1.494 t
% of GDP 7.7%Trans Costs $965 bInv. Carrying $428 b
Transportation = 65% of total logistics spend!
Source: CSCMP’s Annual “State of Logistics®” Report
A.T. Kearney 8
2017 US Business Logistics Costsincreased by 6.2% to ~ $1.5 trillion
Source: CSCMP’s Annual “State of Logistics®” Report
Logistics Costs have risen 20%
Average annual increase = $25b
2017 increase was $87b
Since 2006…
As a % of GDP, Logistics expense went from 8.5% to 7.7%, a reduction of 9.4%.
Since 1990, the reduction is 30%!
However….
Global Comparison of Logistics Expenditures
Asia 17% GDP
China 18% GDP
Europe 13% GDP
India 13% GDP
Japan 11% GDP
Mexico 14% GDP
EconomyHigher Output--GDPBetter use of resourcesMulti-use InfrastructureBusinessesMarket AccessMarket IntegrationCost EfficiencyConsumersMore Goods and ServicesWider AvailabilityLower Prices/Income
U.S.
7.7% GDP
• 2016’s expenditure declines in 9 segments turned into increases for all 16 segments in 2017
• Intermodal and private/dedicated fleets had highest jumps
• Parcel increased 7% in 2017, following a strong 10% in 2016
• Water and airfreight saw relatively modest increases
• Inventory costs rose 4.6% in 2017 vs a -3.2% decline in 2016 led by higher inventory and financing costs
• Other costs increased 4.9% in 2017 from a -2.0% decline in 2016 led by administrative costs
$billion 2017 YoY 17/16 5-yr. CAGR
Transportation costs• Full truckload 289.4 6.4% 4.8%• Less-than-truckload 62.4 6.6% -2.1%• Private or dedicated 289.6 9.5% 6.8%• Motor carriers 641.4 7.8% 4.8%• Parcel 99.0 7.0% 7.9%• Carload 59.0 7.3% -0.5%• Intermodal 21.4 10.7% 2.6%• Rail 80.5 8.2% 0.3%• Airfreight (includes domestic, import, export, cargo, and express) 67.2 3.1% 1.5%• Water (includes domestic, import, and export) 41.0 1.1% -0.4%• Pipeline 36.4 5.8% 5.8%
Subtotal 965.5 7.0% 4.2%Inventory carrying costs• Storage 148.0 4.2% 3.1%• Financial cost (WACC x Total Business Inventory) 151.6 5.0% -1.0%• Other (obsolescence, shrinkage, insurance, handling, others) 128.4 4.6% 0.9%
Subtotal 428.0 4.6% 0.9%Other costs• Carriers' support activities 50.5 3.9% 4.8%• Shippers' administrative costs 50.7 6.0% 4.9%
Subtotal 101.2 4.9% 4.9%
Total US business logistics costs 1,494.7 6.2% 3.2%
A.T. Kearney 12
Source: Bureau of Transportation Statistics2016 2017 2018
Motor carriers: Truck tonnage up 4.2%, with acceleration in back-half of the year
Seasonally adjusted monthly values (2015 [index year]= 100)Truck Tonnage Index
95
100
105
110
115
May SepJul NovJan Nov JanSepJul MarMayMar MarJan
+4.2%
A.T. Kearney 13
Note: Includes fuel.- Source: Truckstop.com
In 2017 dry van spot market rates leapt 30%
Dry van spot market rates by week
1.4
1.6
1.8
2.0
2.2
2.4
2.6
Week
$/mile
Spot: +30%
Contract: up to +15%
540 45 142520 355 10130151 5010
2017 2018
• Prices soared in 2017: spot market (up to 30%) and contract rates (up to15%)
• Carriers largely responded by purging their least profitable customers and ordering record numbers of new assets
• Variety of tactics deployed to soften the blow: researching dedicated models, operational improvements and freight efficiency initiatives
• Load-truck ratio peaked in 2017, as manufacturing activity peaked
A.T. Kearney 14
Thousand carloads
Sources: Association of American Railroads; A.T. Kearney analysis
• Much of the gain was on strong demand for intermodal
• Operating ratios continued to decline as railroads cut headcount, optimized asset utilization and rolling stock inventory, and increased train speeds and lengths
• Coal shipments for domestic utilities stabilized after years of considerable declines
• Increased demand and precision railroading triggered a rise in complaints
250
255
235
265
240
270
260
245
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+3%
2016 2017 2018
Rail: In 2017 carloads rose 3% to 3.1 million
US Class I rail traffic
For the first half of 2017, carloads trended higher than 2016; 2018 is following a similar trend
A.T. Kearney 15
Note: TEU is twenty-foot equivalent unit.- Sources: port statistics; A.T. Kearney analysis
• East and Gulf Coast ports’ volume growth of 7.9% outstripped a 1.3% rise on the West Coast
• Shippers took advantage of lax pricing discipline to negotiate 2018 contracts at or below last year’s rates
• Over 2018, fundamentals are expected to be more or less balanced with rising fuel prices increasing costs for shippers
• Ultimately, capacity and pricing discipline will determine whether carriers or shippers benefit more from the strong global economy
The spread between East and West Coast rates has been declining$1,000 per FEU (Forty Foot Equivalent Unit)
Water and ports: a stormy year
-1000100030005000
2010 2011 2012 2013 2014 2015 2016 2017
USWC
A.T. Kearney 16
Parcel: e-commerce growth drives growthE-commerce grew 15.5% to reach $448.3 billion, 9.1% of GDP
• Parcel expenditures rose 7% to almost $100 billion in 2017
• Rising volumes and customer expectations force a capital-intensive “re-think” of last mile supply chain
• Carriers have room to raise prices while markets are figuring out who will bear investment burdens
• Same day/shorter expectation will continue to grow
• Parcel cost headwinds may impede e-commerce strategies, particularly in cost-sensitive segments
150
9,0
250
400
300
10,0
2,0
7,0
8,0
0 0,0
5,0200
6,0
350
1,0
4,0
3,0
450
100
50
2016
448
Expenditures (billions of dollars)
2013 2014
% of GDP
201720152012
+15,5%
9,1%
20112010
E-commerce SalesPercent of Nominal GDP
A.T. Kearney 17
Note: Index shows average of all-in airfreight buy rates paid by forwarders to airlines for standard deferred airport-to-airport airfreight services.Source: Drewry's Sea & Air Shipper Insight
• Air freight volumes rose 9% in 2017 due to surging demand for ultra-fast shipments while the prices rose 4%
• The increases came mostly in Q4
• IATA forecasts 4.9% growth between 2018-2022
• Although we expect the pace of modernization and digitization to accelerate, we don't foresee short-term digital disruption
3.0
3.2
2.4
3.4
2.8
2.6
+4%
2016 20182015 2017
Airfreight: Need for speed drove volumes and prices up$ per kiloDrewry East-West Average rate
A.T. Kearney 18
Note: Total US private inventories includes manufacturing, retail, and wholesale and represents stock or goods available for sale . Annual numbers are the yearly average.- Source: Bureau of Economic Analysis
After 3 years of stability, inventory levels increase 3.9% to ~$2.6 trillion$ billionTotal US private inventories
2,196
1,9332,032
2,2712,344
2,4132,536 2,505 2,511
2,608
2008 2009 2013201220112010
+3.9%
2017201620152014
A.T. Kearney 19
Source: Cushman and Wakefield; MARKETBEAT U.S. Industrial Q1 2017 - US_Industrial_MarketBeatSnapshot_Q117.pdf; MARKETBEAT U.S. Industrial Q1 2018 - US_Industrial_MarketBeatSnapshot_Q118.pdf
Warehousing: innovate or die
• Rents rose 4% nationally, with West 6.1%, Midwest 4.4%, South 4.1%,Northeast 2.6%
• Pop-up warehouses are back by popular demand
• Warehouse efficiency becomes paramount for companies striving to meet ever-shrinking e-commerce delivery lead times
• Autonomous mobile robots (AMRs) are popular again, to address rising pressure to improve worker productivity
• Robotic-centric solutions are easier to set up and use; and are faster, smarter, cheaper
• Space availability tumbled to a historic low of 7.3 percent in the first quarter of 2018
Rental rates rose 4% in 2017 and increases accelerated in 2018
5,1
5,2
5,0
6,0
5,7
5,8
5,5
5,4
5,9
5,3
5,6
$5,99
$5,84
$5,70
2017
$5,63
$5,44
2016
+4.0%$5,80
$5,68$5,57
$5,44
Weighted Average Asking Rent $ PSF
2018
Proliferation of Distribution Centers
Source: Tompkins International
• DCs more than tripled in 4 years, almost doubled in 2• Retail and manufacturing• Average size is dropping: small paired with large Driven by need for faster time to market
Amazon Influence Holds Down Retail Inventory Turns
Source: Alix Partners, CapIQ
Fewer turns mean more inventory and more room to hold it
Percentage of Online Orders with Same Day Delivery
Source: Alix Partners- National survey conducted 11/17
• Same day is small but growing• 56% of people surveyed are Amazon Prime members = free delivery• Amazon cultivates fast by making it free Because fast closes the convenience gap vs. storefront retail
New Prologis Seattle Multi-story Warehouse
• Opening 2018, 5 miles from downtown = fast delivery• Designed for e-commerce fulfillment activities using 53’ trailers• 590,000 SF in 3 stories on 13.7 acres - vs. typical 47 acres Triples the volume of freight generated per acre – as can automation
A.T. Kearney 24
Note: IoT is Internet of Things. UAV is Unmanned Aerial Vehicle. OTA is Over-The-Air.- Source: A.T. Kearney Analysis
• Projections of a healthy growing economy, tight capacity and e-commerce expansion promise a steep grade
• Artificial Intelligence, Autonomous Mobile Robots and “Uberization” of Freight are expected to have the most disruptive impact in the near term
• Crumbling infrastructure will exacerbate logistics efficiency until serious investments are made
• Looming threat of global trade wars casts of fog of uncertainty
Trends and Outlook: Shifting currents
Innovation Grid: a Ten-Year Outlook
Rising demand and tight capacity put carriers back in the driver’s seat
Timing
ImpactHigh
Medium
Low5 Years 10+
Years0 Years
Predictive cruise control
Uberization of Freight
Warehouse sharing
Blockchain
Fleet monitoring systems
Logistics marketplace
Coopetition supply chains
On-demand courier delivery On-demand
3D printing
Artificial Intelligence Applications
Electric Fleets
Hydrogen Fuel CellsTube logistics
Circular Economy Logistics
Airless Tires
Fully Autonomous Trucks
Drone / UAV delivery
Platooning
Semi autonomous vehicles
Remote diagnostics
Autonomous Mobile Robots
Sharing Economy IoT & Big Data On-Demand Logistics Autonomous / Equipment Solutions
Alternative Energy
Supply Chain Concierge Service
Join the Community – visit CSCMP.org!
CSCMP’s Evolving Role
• GoalConnect, Educate and Develop the
world’s Supply Chain Professionals!
Tariffs and Trade Wars
Assessing Impacts of Tariffs on Trade and the Economy
• Historic Perspective • Rationale and Mechanics• Affected Classes and Impacts • War Games
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Historic PerspectiveStages of Economic and Container Trade Growth
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Imports of Apparel in $Billions
Historic PerspectiveStage III. Great Recession and Recovery
Change in Real Inventories in Billions of 2012 Dollars
Historic PerspectiveStage III. Great Recession and Recovery
Change in Real Inventories in Billions of 2012 Dollars
Tariffs and Trade Wars
Rationale and Mechanics• Rationale:
– Protect intellectual property– Increase economic growth by reducing trade
imbalance– “Bring jobs back to the U.S.”
• Mechanics – Both sides escalate base of commodities and
tax rates– Importers taxed, collections to governments
Tariffs and Trade WarsAffected Classes and Impacts• Governments Collect Tariffs (Taxes)
– Business net income decreases and/or – Consumers pay higher prices, inflation rises– Government deficits decrease unless revenues are
spent (e.g. on trade adjustments) or compensatory tax cuts
• For a limited range of commodities demand may be inelastic, or there may be limited substituition, expecially in the short term– Consumers just pay more and the government collects
the taxes (see above)– Almonds, soybeans, lobster, water chestnuts?
Tariffs and Trade WarsAffected Classes and Impacts• For many products 2018 imports may be
accelerated to avoid Jan. 1 increases to 25% rates.– Increase in imports will add to 2018 trade
imbalance and lead to a decline in 2019 – Impact on GDP growth should be neutral as
increases in inventories will be offset by increases in imports.
– Government deficits decrease unless revenues are spent (e.g. on trade adjustments) or compensatory tax cuts.
Tariffs and Trade WarsAffected Classes and Impacts
• Shifts in Foreign Sourcing– For some “commodity” products importers’ sources may be shifted
to other competitive countries relatively quickly.– For importers of many other products, modifying supply chains by
switching to alternative country sources may take years.• Shifts in Manufacturers’ Locations
– A subset of U.S manufacturers may ultimately decide to move production of imported products to the U.S. but such decisions may be delayed by the possibilities of trade disputes being resolved.
– Other global manufacturers may move their some U.S. production to other countries where imported products are not subject to high tariffs or where their exports to China are important.
Tariffs and Trade Wars
Affected Classes and Impacts• Closely Integrated Product
Trade – A Fishy Example– U.S. fish exports are shipped
to China where they are processed (filleted) and then shipped back to the U.S.
Tariffs and Trade WarsWar Games
Does China’s large share of U.S. imports give it an advantage since it may be difficult to quickly move sourcing to other countries?
$ Billions U.S. Imports China China %Total All Products 2,342 505 22%Computers/Printers/Parts/Monitors 148 83 56%Line Telephony/Cellphones 112 72 64%Apparel/Footwear/Leather Goods 109 43 40%Furniture 63 32 51%Toys/Games/Sporting Goods 31 26 82%
Tariffs and Trade WarsWar Games
• Trade War Casualties
– An ongoing trade war is likley to cause damage to the economies of both China and the U.S. as well as the rest of the world.
– It is therefore in both countries’ interests to come to a solution to the developing trade war. But if the trade war becomes a game of “chicken” from which neither of the countries can extract itself, the damage could become a significant reality.
.
Questions???
Tim Feemster MBAPresident
Foremost Quality Logistics
Moderator
Scudder SmithPrincipal Consultant
Freight & Logistics Practice, WSP
Joseph G.B. BryanVice President, Freight
Transportation and Logistics Policy, Planning, WSP
41