This Week in Logistics News (December 31, 2018 – January 4, 2019)

Happy New Year! I hope everyone had a fun and relaxing holiday.

How did I spend my time off? Allow me to tell you via Bitmojis, which is the main way I communicate with my wife and kids these days:

One of my goals for this year is to write a supply chain report completely in Bitmoji. Stay tuned.

In the meantime, here’s the supply chain and logistics news that caught my attention this week:

“Alexa, ship me some more toilet paper!”

As reported by The Mercury News, Amazon “says it shipped more than 1 billion items for free in the United States with its Prime service during this holiday season.”

Of course, it didn’t really ship them for free; Amazon did have to pay UPS, FedEx, USPS, and other couriers to make the deliveries. It would be more accurate to say “Amazon shipped more than 1 billion items without customers having to pay for it.”

Nonetheless, shipping 1 billion items in a few short weeks is impressive and it further illustrates how Prime (with its “free” delivery and other bundled services) remains a powerful competitive weapon for Amazon.

And it looks Amazon’s connected devices (eg., Echo, Dot) powered by Alexa are emerging as another competitive weapon. According to the article:

Amazon said its connected home products continued to drive the way people shopped over the holidays. Use of its Alexa voice-command technology for shopping “more than tripled” this year compared with 2017 [emphasis mine].

The future of shopping is already here (even though I’m still a few steps behind). When you get past the coolness factor of calling out to Alexa to order more toilet paper, perhaps from the convenience of your bathroom, you realize the logistics implications: a lot more single-item orders and shipments, which will make “free shipping” even more expensive.

It’s not surprising, therefore, that Amazon and others are working with manufacturers to innovate their product packaging. As I wrote about last November, and the Hartford Courant reported last week, Procter & Gamble is introducing Tide Eco-Box this month. This new packaging “has 60 percent less plastic and uses 30 percent less water in its soap than its 150 ounce bottles.” Smaller and lighter translates into reduced transportation costs. In addition, “the boxed detergent doesn’t need to be packed in another box: online retailers can just slap an address on it, another way to save costs.”

As I said back in November, it’s taken a long time, but at last, packaging, transportation, and merchandising are starting to collaborate to create smarter packaging that reduces material and transportation costs and provides environmental benefits too.

Running Out of Warehousing Space

With many retailers stocking more inventory in anticipation of import tariffs rising again in April, coupled with another record holiday season for e-commerce returns, retailers are running out of warehousing space to store it all. As Erica E. Phillips writes in the Wall Street Journal:

U.S. companies are so inundated with inventory that some are renting truck trailers to use for storage space, parking them on warehouse lots or behind storefronts to hold goods until a surge in imports is cleared from crowded distribution hubs.

A handful of Airbnb Inc.-like companies are also helping major retailers get through busy periods. Flexe Inc. offers warehouse tenants and owners the ability to sublease empty portions of their facilities to short-term tenants, which have included Walmart Inc., Ace Hardware Corp. and others.

Across the U.S., warehouse vacancy currently stands at 4.3%, according to real-estate firm CBRE Inc., the lowest the real-estate firm has recorded since it started tracking the figure in 1980.

As noted, the pulling in of imports to avoid potential tariff increases is a contributing factor here. This should (hopefully) be a short-term issue. But there’s another factor at play: the fact that much of our distribution and logistics networks were designed and built for the pre-ecommerce era. As I wrote last summer in Supply Chain Transformation: Not Just Digital, But Physical Too, “you cannot overlook the importance of physical transformation — that is, the importance of recognizing that your supply chain and distribution networks, which were originally designed to flow truckloads of products from large distribution centers to stores, are becoming outdated in this new market where speed of delivery and inventory reduction are paramount.” While this physical transformation takes place, which will take years, companies will have to put bandaids on the networks — like using trailers in parking lots for storage space.

And with that, have a happy weekend!

Song of the Week: “One Day More” by Les Miserables Cast