Above the Fold: Supply Chain Logistics News (November 1, 2019)

If a computer is telling you one thing, but your eyes, experience, and gut are telling you something else, trust yourself more than the computer

I wrote those words in March 2014 in response to a great in-depth article in the Wall Street Journal about Oracle Team USA’s incredible come-from-behind victory in The America’s Cup in September 2013. How did the team do it? This quote from the article sums it up nicely:

With his team’s prospects getting dimmer by the hour, Mr. Spithill [the skipper of Oracle Team USA] decided it was time to stop obeying the computers and start thinking like sailors [emphasis mine].

I was reminded of this post (and a related one I wrote a few months later, Is Software Making Us Dumb?) after watching game 7 of the World Series this week. Houston pitcher Zach Greinke was almost unhittable for six innings during the game. Then in the seventh inning, he threw one bad pitch to Anthony Rendon from the Nationals who hit a solo home run. He then walked a batter. Houston was still leading 2-1 at this point, and Greinke had only thrown 80 pitches and still looked strong. Yet Houston’s manager, A.J. Hinch, pulled him from the game and the bullpen went on to lose the game and the series.

Matt McCarthy from 985TheSportsHub.com summed it up perfectly in a blog post this week:

Hinch took Greinke out because the data warns managers not to let their pitchers face a lineup the third time through the order. The analytics will tell you that starters struggle the deeper into the game they get, but the numbers can’t possibly quantify how a pitcher actually looks in that moment.

And wow, did Greinke look good.

Every decision [in baseball] is based on numbers nowadays. There’s no feel left in the game.

To paraphrase Mr. Spithill, A.J. Hinch needed to stop obeying the analytics and start thinking like a baseball coach.

I’ll repeat what I said back in 2014: In order to spark innovation, you have to get out of your comfort zone. And sometimes that means turning off the computer, turning off the autopilot, turning off the automation, and trusting your human senses and experience to make the right decisions to get you home and across the finish line first.

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

Alphabet Eyes Investments in Logistics Sector

One of my supply chain and logistics predictions for 2015 was that Google would acquire a logistics service provider and/or a logistics software vendor. The prediction did not come true, but I still stand by my reasoning. As I wrote at the time, “logistics is becoming a greater competitive differentiator for companies across all industries, so if Google wants to seriously compete with Amazon on that front, it needs to become a 3PL, and enhance its logistics software and technology capabilities too.”

Well, it looks like Alphabet (the parent company of Google) has logistics on its investment radar. As reported by CNBC, “Alphabet held a closed-door meeting with internal executives and external retailers last week to discuss potential investments and strategies in the logistics sector.” Here are some additional details from the article:

The majority of attendees were from Alphabet, which had several teams present, according to the people, who asked for anonymity when discussing the confidential meeting. It also included representatives from external companies including FedEx, JD.com, Deliv, Flexe and a former Walmart SVP, said one of the people who attended.

The recent meeting’s discussions included predictive analytics, order fulfillment, package tracking, Bluetooth usage and drone delivery, according to the attendees.

Alphabet executives seemed most interested in the analytics side of things, which could help customers predict what products they could buy and sell, attendees said. The company could break through in predictive fulfillment, which is an industry term that describes forecasting demand by predicting buyer and seller behavior. Discussions involved potentially being able to use the vast data from Google’s search queries and keywords.

As I’ve written in the past, I believe that Google, Facebook, and other social media and e-commerce giants have a big opportunity to get more directly involved in logistics. Will 2020 be the year that it finally happens?

For related commentary, see:

A Softening Transportation Market

What is the current state of the transportation market in the United States? Some insights this week from the quarterly earnings report from C.H. Robinson and XPO Logistics:

“The third quarter provided challenges in both our North American Surface Transportation and Global Forwarding segments. Our net revenues, operating income, and EPS results finished below our long-term expectations. We anticipated an aggressive industry pricing environment [emphasis mine] coming into the second half of this year driven by excess capacity and softening demand and knew we faced difficult comparisons versus our strong double-digit net revenue growth in the second half of last year. Our results were negatively impacted by truckload margin compression in North America,” said Bob Biesterfeld, Chief Executive Officer of C.H. Robinson.

“[XPO’s] transportation segment generated revenue of $2.68 billion for the third quarter 2019, compared with $2.85 billion for the same period in 2018. The reduction in segment revenue primarily reflects a decrease in freight brokerage and direct postal injection revenue from the company’s largest customer, lower rates in truck brokerage and unfavorable foreign currency exchange, partially offset by growth in managed transportation.

The softening market is also affecting digital freight companies like Convoy. As reported in a Bloomberg article:

App reviews for Convoy are riddled with complaints from drivers about low prices…This isn’t unique to Convoy. Rates are falling across North America after two years of increases. Spot demand, which excludes long-term freight contracts, plummeted 27% through Oct. 25 [emphasis mine], and most drivers aren’t expecting business to improve over the next six months, according to market research from Bloomberg and Truckstop.com.

To quote Robert Frost, nothing gold can stay.

And with that, have a happy weekend!

Song of the week: “Eat, Sleep, Wake (Nothing But You)” by Bombay Bicycle Club