This Week in Logistics News (February 16-20, 2015)

By Adrian Gonzalez

This was a busy week for supply chain and logistics news, so let’s go straight to it.

Mergers and acquisitions are an ongoing trend in the third-party logistics (3PL) industry, and the big deal this week was Kintetsu World Express (KWE) buying APL Logistics (APLL) for $1.2 billion — “far higher than the $750 million to $900 million range that sources said Singapore-based NOL had been looking for, [which] would have valued the unit at 10 and 12 times its earnings before interest, taxes depreciation and amortization for 2013,” according to Reuters. Here’s Kintetsu’s statement about the deal:

The KWE Group considers the establishment of a management base that can compete on a par with European and U.S. competitors in the global market to be one of the Group’s management priorities…APLL is a logistics company with strengths in logistics services and various high-value-added services for companies in the automobile industry and retail industry, among others, and it is expanding its business globally, with a focus on North America and Asia. By welcoming APLL into the KWE Group, we can expect to complement the KWE Group’s freight forwarding services in terms of both commodities handled and regions for expansion, and we will be able to combine the logistics services and various high-value-added services that are the strengths of APLL with the air and sea freight forwarding services that the KWE Group is expanding globally, and these synergies will, in turn, make it possible to create new value and provide a broad range of optimized logistics services to customers.

In other words, the deal was driven by KWE’s desire to expand its solution footprint and geographic reach — the usual factors in most 3PL deals. The road less traveled remains untraveled: acquisitions and other actions focused on getting more small and midsize customers, which was one of my predictions for 2015.

No resolution yet on the West Coast ports slowdown, but Labor Secretary Tom Perez and Commerce Secretary Penny Pritzker, along with Los Angeles Mayor Eric Garcetti, are now involved in the negotiations in an effort to reach an agreement between the PMA and ILWU as soon as possible. In addition, according to Reuters, “eight congressional Republicans who chair House or Senate panels with jurisdiction over transportation and labor sent a letter to Obama on Wednesday urging him to take further unspecified action if a settlement is not reached by March 2 – two months from the date the federal mediator was appointed.”

What more can I say about this situation? Companies will just have to deal with this supply chain disruption as best they can, and those that took action to mitigate this risk months or, ideally, years ago will be in the best position to minimize the damage and time to resolution. For related commentary, see Do You Have a “Top 25” Supply Chain?

Depending on how you look at it, the FAA’s much- awaited new rules for small unmanned aircraft systems are either a step forward or backward for the commercial use of drones. As summarized by Reuters:

The long-awaited draft rules from the Federal Aviation Administration would require unmanned aircraft pilots to obtain special pilot certificates, stay away from bystanders and fly only during the day. They limit flying speed to 100 miles per hour (160 kph) and the altitude to 500 feet (152 meters) above ground level.

The rules also say pilots must remain in the line of sight of its radio-control drone, which could limit inspection of pipelines, crops, and electrical towers that are one of the major uses envisioned by companies.

What does this mean for Amazon and others that are developing drones for package delivery? These new rules “wouldn’t allow Prime Air to operate in the United States,” said Paul Misener, Amazon’s vice president for global policy. “The FAA needs to begin and expeditiously complete the formal process to address the needs of our business, and ultimately our customers. We are committed to realizing our vision for Prime Air and are prepared to deploy where we have the regulatory support we need.”

So, it’s a step backward from that perspective, but a step forward from the standpoint that after ten years there’s finally a formal a proposal on the table to discuss and debate, a process that has already begun. “These FAA rules are a solid first step but need a lot more refining,” said Sen. Charles Schumer from NY. “The inclusion of the rule that drones must be flown within the operator’s line of sight appears to be a concerning limitation on commercial usage; I urge the FAA to modify that as these rules are finalized.” Meanwhile, Senator Cory Booker from NJ said, “The United States cannot afford to lag behind other countries in technological innovation because of regulatory foot-dragging.”

If other countries take the lead on drone delivery, and maybe that’s already the case, I’m betting we’ll see revisions to these proposed rules in the not too distant future.

Finally, last week in The Most Overlooked Cloud Opportunity, I wrote that “the big cloud opportunity is less about the software and how it’s paid for and more about the network — that is, the community of companies linked together on a common platform, much like people are on Facebook and LinkedIn, and the business intelligence and analytics possible with all the data flowing through the network.” One of the examples I cited was Ariba, and this week SAP announced that “more than two thirds of Global 2000 connect to Ariba® Network to simplify commerce.” Here’s an excerpt from the press release:

Social networks have made it easier than ever to shop, share and consume. Companies want this same simplicity…More than 1.7 million companies, including two thirds of those on the 2014 Forbes Global 2000 list, are connected to Ariba® Network. And a new company is added every 13 minutes. In 2014 alone, 200,000 selling organizations joined the network where more than $700 billion in commerce is transacted on an annual basis. What’s driving their adoption?

To date, what’s been driving the adoption has been a push to streamline and automate the purchasing and accounts payable/receivable (AP/AR) processes, along with the ability to search and discover new suppliers. But companies can unlock so much more value by leveraging the network (and the apps that reside on it) to communicate, collaborate, and execute cross-enterprise supply chain processes in more efficient, scalable, and innovative ways. As I said last week, companies that see and embrace this opportunity will have a significant advantage over those that remain blind to it.

And with that, have a happy weekend!

Song of the Week: “Budapest” by George Ezra