This Week in Logistics News (February 22-26, 2016)

By Adrian Gonzalez

It was a relatively quiet week for supply chain and logistics news, so let’s go straight to the items that caught my attention:

It seems like we can’t go a week without some kind of delivery-related news making the headlines. The big news this week was that UPS has invested in same-day delivery startup Deliv, one of several investors in a $28 million Series B funding round. As reported in the Wall Street Journal:

“UPS is the world’s largest transportation carrier,” said [Deliv Chief Executive Daphne Carmeli]. “There has got to be something I can learn from them about delivery.”

“We’ve had our eye on Deliv for quite a while,” said Rimas Kapeskas, head of UPS’s Strategic Enterprise Fund, which made the investment.

Specifically, UPS is interested in Deliv’s software, which allows the firm to connect directly with retailers’ websites. The investment will also help UPS to determine consumer demand for same-day deliveries and learn about that behavior.

It’s the old guard learning from the new, and vice versa, as they both try to figure out how to succeed and grow (profitably) in this new era of quick and as-cheap-as-possible (often free) delivery.

Amazon, of course, has been the main catalyst in shaping consumer expectations regarding delivery time and cost — and in getting competitors to pursue unprofitable delivery programs of their own. Amazon made another move this week — it increased the minimum for free shipping from $35 to $49, the first increase since 2013. Analysts say this move is meant to drive more people to sign up for its Prime service, which for $99 per year includes free two-day delivery on most orders. In its last quarterly call, Amazon reported a 51 percent increase worldwide in Prime memberships in 2015 (47 percent increase in the US).

Why is signing up more Prime customers important? According to a study last year by Consumer Intelligence Research Partners, “Amazon Prime now has 40 million US members [estimated as of December 31, 2014], spending on average about $1,500 per year, compared to about $625 per year for non-members.”

I’m just one data point, but I can tell you that ever since we signed up for Prime more than a year ago, our spending with Amazon has definitely increased. We’re not only ordering more goods, we’re also consuming more streaming video and music content. Simply put, Amazon Prime is the company’s strongest competitive weapon, and rather than just focusing on the delivery aspect of it, competitors need to develop a compelling response to Prime’s overall value proposition in order to attract more customers and get them to pay more too.

How many slaves are in your supply chain? I first asked that question more than three years ago, and I asked it again last month in Still Don’t Know How Many Slaves Are In Your Supply Chain? Not knowing the answer can potentially impact your ability to import goods into the US. As reported by Reuters:

President Barack Obama signed a bill on Wednesday barring the import of goods produced by forced labor from entering the United States, throwing the weight of the U.S. market into the fight against global slavery.

Shipments derived from slavery, from fish to electronics and cocoa, will be kept out of the country under the new law that closes a legal loophole that allowed import of goods derived from forced labor if U.S. demand exceeded domestic production, officials said.

Enforcement of the new law should benefit from data from the U.S. Department of Labor, which has been listing goods, classified by nation, that are likely made by forced labor, officials said.

As I’ve said before, you can’t outsource the responsibility of creating a socially-responsible supply chain; the buck ultimately stops with you, the brand owner. You have to see and walk your supply chain, from start to finish, with your own eyes and feet.

Finally, in trucking news, the ATA Truck Tonnage Index dropped 1.4 percent in January, while the Cass Truckload Linehaul Index increased only 0.4 percent year-over-year in January, “a fifth consecutive month of waning truckload pricing strength.” Here’s what ATA Chief Economist Bob Costello had to say:

“Clearly, 2016 started soft for truck tonnage. There was a deceleration in freight volumes during the second half of 2015 which continued into the first month of 2016. The winter storms that hit in January likely suppressed volumes some, but by falling 1.4%, I doubt tonnage would have been positive without the storms. So, that tells me that the inventory situation continues to weigh on truck freight volumes. The sooner the supply chain cleans out the excess stocks, the better for trucking.”

How will shippers respond to this trend? Will they beat up their carriers for rate reductions or hold steady knowing the pendulum will eventually swing in the other direction? The answer depends, I suppose, on how carriers treated them when the market was in their favor.

A few years ago, when the market was similar to today, I wrote about a Fortune 500 company that could have saved millions of dollars in transportation costs by putting its freight out to bid. But after much internal debate, the company decided to honor its current rates with carriers. Why? The company knew that capacity would tighten again down the road, and when that day came, it expected its carriers to maintain their commitments to them and not abandon them for other shippers offering a cent or two more per mile.

When that day came, when truckload capacity tightened, I reached out to the logistics executive to see what happened: “The jury is still out on whether our strategy has worked or not,” the logistics executive told me. “We don’t know yet if we are going to have an advantage [relative to other shippers] or if carriers are going to decide that the temptation for quick outsized profits is just too hard to resist. How the carriers respond will ‘train’ the buyer for the next time this changes.”

Depending on how you view it, shippers and carriers either have short memories or they never forget getting burned in the past.

And with that, have a happy weekend!

Song of the Week: “Put the Gun Down” by ZZ Ward