With the drop of the ball every New Year, it's only natural to take out the Magic 8 Ball and divine what supply chain trends loom large on the horizon. Inbound Logistics editors and writers thumbed through their notes, clicked through their digital Rolodexes, and checked with sources to ascertain what shippers should keep an eye on in 2012. All signs point to the supply chain once again playing an integral role within the private sector. Here are our predictions:
- Socially responsible supply chains extend beyond sustainability. The balloons have burst and the green party has come down to earth, as economic stresses continue to focus attention on transportation and logistics measures that first and foremost reduce costs and waste—even if they do carry tangible sustainability benefits. Environmental concerns are still relevant, especially as they relate to reducing bottom-line costs, but many companies are now looking to address corporate social responsibility in its entirety—from raw material sourcing to greener best practices to supply chain transparency. Businesses are also tackling issues such as conflict minerals and labor rights. Protecting and growing the brand means driving visibility and securing the supply chain at point of origin—and that goes beyond simply being green.
- SMB nearshoring follows lean. Many small and medium-sized manufacturers that have pushed production offshore to find more competitive labor rates are now embracing lean principles to expand production bandwidth domestically, bring manufacturing home, and reduce total transportation and logistics costs. While lean best practices have value across any enterprise, the facility with which small companies can execute sweeping change makes return on investment faster and more effective.
- Panama Canal deadline dictates distribution. The Panama Canal's 2014 expansion deadline is quickly approaching, and companies will continue to make important location and logistics decisions with New Panamax containerships in mind. Select East and Gulf Coast ports have already dredged their harbors and made necessary facility enhancements to support growth. Third-party logistics providers (3PLs) have similarly positioned assets to build out capacity. Now, shippers and consignees will be pressed to align U.S. distribution networks and offshore sourcing locations with an expected Panama surge.
- Intermodal goes mainstream. When fuel prices soared in the summer of 2007 and hit a record high later that year, many companies began exploring ways to reduce transportation costs with their logistics service providers, including the use of intermodal. Those tentative incursions now allow shippers to more easily scale transportation mode to need and grow their intermodal footprint. As capacity and driver shortage concerns rally with the economy, over-the-road shippers that have diversified their transportation footprint will be in the driver's seat.
- Supply chain splintering continues. Offshore networks will continue to fracture rather than consolidate as U.S. companies explore sourcing options beyond China, in hopes of finding cheaper labor costs, more redundancies to circumvent supply chain exceptions, and opportunities to sell into new consumer markets. Secondary and tertiary sourcing strategies have become commonplace given inherent global risks. Larger companies have similarly become more accustomed to operating regional supply chains as a means to reduce total landed logistics costs and respond faster to demand. Taken as a whole, these factors place additional pressures on companies to increase visibility among disparate suppliers.
- Risk management becomes expectation rather than exception. Volatility in the Mideast, piracy, the Japan earthquake and tsunami, Thai floods, and Icelandic eruptions all contributed to a greater awareness of supply chain vulnerability. Much like security after Sept. 11, 2001, risk management and contingency planning are now standard operating procedures, and many companies are partnering with 3PL providers to allay risk and create additional flexibility.
- Supply chain social networking expands. While consumers have been sucked into the virtual communication vacuum that social media sites such as Facebook, Twitter, and LinkedIn provide, the private sector has been leveraging it to enhance supply chain collaboration. At a base level, logistics technology has followed this course. The software-as-a-service (SaaS) network effect continues to help shippers tap a critical mass of information and more easily on-board new customers, suppliers, and supply chain partners, then communicate necessary information in real time. Companies are now entertaining the value of using social media and online user groups to network and communicate with internal departments, and among external partners, more intuitively and informally.
State governments are focusing attention on measures to finance infrastructure development, enhance freight movement, and create new avenues for business growth and expansion. Here is a roundup of recent news:
One new law ushered in in January 2011 is California's Transparency in Supply Chains Act of 2010. The legislation, which covers all companies with worldwide sales of more than $100 million and sales of more than $500,000 in state, specifically targets supply chains for tangible goods.
Provisions include: verification of product supply chains to evaluate and address risks of human trafficking and slavery; supplier audits to evaluate compliance with company standards for trafficking and slavery in supply chains; internal accountability standards and procedures for employees or contractors failing to meet company standards regarding slavery and trafficking; and training for employees on human trafficking and slavery, particularly with respect to mitigating risks within product supply chains.
Lexington and Louisville have teamed with non-profit public policy organization the Brookings Institution to develop the Bluegrass Economic Advancement Movement, a joint regional business plan focused on supporting advanced manufacturing job growth and increasing Kentucky export activity. The effort will use Brookings' Metropolitan Business Plan framework to guide the initial research and the project's implementation phase.
Although the plan's focus is advanced manufacturing, a variety of other economic sectors such as energy, health care, defense contracting, and the equine industry will likely be impacted.
The latest bad news for California is that companies in sunny San Diego are being recruited by South Dakota. South Dakota Governor Dennis Daugaard and Office of Economic Development Commissioner J. Pat Costello recently made an economic development trip to meet business leaders interested in learning more about South Dakota's business and regulatory climate. The state touts a stable regulatory environment, low taxes, and financial health as primary incentives.
It appears to be working. In 2010, nearly nine percent of South Dakota's business prospects came from California.
Most Washington residents don't think the state is in immediate need of money for transportation, yet they may agree to pay more if convinced the new dollars will actually fix roads, keep ferries afloat, and expand bus service, according to a statewide poll solicited by state lawmakers. The survey proposed nine options for raising revenue. Among the results: 61 percent of respondents support imposing a fee on vehicles with high emissions; 60 percent favor a licensing fee on electric vehicles; 52 percent endorse tolls; and 46 percent agree with hiking the gas tax.
Retailers will prioritize product lifecycle management and reverse logistics, if the latest prediction by industry analyst TrendWatching.com manifests itself. In an effort to capitalize on revolving-door demand for newer and better electronics, cell phones, tablets, and other media, some retailers are looking to compensate consumers who "trade in and trade up" with store credit and gift cards.
While "reCommerce" is by no means novel, the idea that mainstream big-box retailers may tap demand for refurbished first- and second-generation electronics is. The economy is having an impact in terms of how much consumers are willing to spend on high-end products. At the same time, the promise of capturing some trade-in value may spur other shoppers to upgrade.
For retailers, it's a win-win. They can artificially create demand in a depressed economy by offering more affordable products and trade-in incentives, while at the same time present themselves as environmental stewards by recycling after-life goods.
If the current land grab around some of the United States' top airports is any indication of future prospects, the airfreight industry is poised for sustained growth, according to Jones Lang LaSalle's third annual Port, Airport, and Global Infrastructure (PAGI) report. A banner year for the air cargo industry, despite muddled economic fortunes, has spurred demand for warehousing space around U.S. airports. Cargo volumes throughout the country increased by 11 percent in 2010 to 28.2 million metric tons, just short of the 2007 peak of 30.4 million tons, according to the study.
This year's research by the global real estate services firm introduces an airport index to gauge the performance of industrial real estate markets around top cargo hubs.
Los Angeles International Airport tops Jones Lang LaSalle's list, thanks to strong cargo volumes, a low 3.8-percent industrial real estate vacancy rate, and several multi-million-dollar investment plans in the works.
New York's Kennedy Airport comes in second, with high demand for warehouse space in the metropolitan area driving vacancy rates to a low 3.4 percent. JFK is also one of the most space-constrained airports—with the highest rents.
While Chicago O'Hare Airport has a relatively high vacancy rate at 14.2 percent, it ranks third on the index because it serves as a hub for major airlines such as United and American, and has a vigorous modernization program in place. It also boasts one of the largest annual cargo volumes at 1.4 million tons, third behind Memphis (3.9 million tons) and Miami (1.8 million tons).
Miami also ranks high on the Jones Lang LaSalle list, with an average vacancy rate of 9.9 percent, reasonable rents at $5.83 per square foot, and high cargo volumes.
"Markets such as Los Angeles and New York have held strong with low vacancy rates owing to high demand and lack of new construction," says John Carver, head of the PAGI group at Jones Lang LaSalle. "Airport submarkets that saw a rise in new development before the recession, such as Dallas-Fort Worth and Miami, suffered higher vacancy rates during the recession and are taking longer to recover."
Leading Airport Real Estate Markets
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Airline pilots would fly shorter shifts and enjoy longer rest periods under new rules the Federal Aviation Administration (FAA) finalized recently in a landmark effort to reduce potentially dangerous fatigue. The FAA developed the most sweeping changes in pilot hours-of-service rules in 50 years after a Colgan Air crash near Buffalo in February 2009 killed 50 people.
The new rules, which will be enforced in two years, stipulate that:
- Flight-duty times range from nine to 14 hours. For the first time, rather than just counting flight time and rest time, flight-duty time would count the time spent flying to the job.
- Flight-time limits will be eight or nine hours, depending on the time of day and number of flights flown.
- Minimum rest periods will be 10 hours between shifts. The pilot must have an opportunity for eight hours of uninterrupted sleep during that rest period.
- Pilots must have 30 consecutive hours of rest each week, a 25-percent increase over current standards.
The FAA mandate has come under fire from labor unions—notably the Independent Pilots Association, which backs UPS pilots—because it does not include freight airlines. Cargo carriers are exempted from the rule because "the benefit didn't justify the cost," according to the FAA.
Because freighters generally fly at night, when restrictions are most constrained, the industry would have had to make greater concessions to accommodate cargo carriers. Airlines for America, an airline trade group, estimates it would cost $2 billion more each year if air cargo carriers were included in the rule. Given current trade economies, that would be a difficult tab for freighters to pick up.
Atlanta-based Coca-Cola partnered with the World Wildlife Fund and turned its iconic red cans white during the 2011 holiday season to unveil a new marketing campaign in support of polar bear conservation—another Coke icon.
Behind the white aluminum cans is a commitment to green that has turned the cola manufacturer into a renewable plastic-packaging pioneer. The company recently launched multi-million-dollar partnership agreements with three biotechnology firms—Virent, Gevo, and Avantium—to expedite commercial development of next-generation PlantBottle packaging made from 100-percent plant-based materials. Coca-Cola's goal is to move its $60 billion-per-year global supply chain entirely to plant-based bottles by 2015.
In 2009, Coca-Cola launched its first-generation PlantBottle, the first recyclable PET beverage bottle made from plants (with 30 percent plant-based material). To date, more than 10 billion units have been distributed in 20 countries, and the company estimates that PlantBottle packaging has helped save the equivalent annual emissions of more than 100,000 metric tons of carbon dioxide.
Coca-Cola is also taking its mission to the masses. In 2011, it announced a partnership with H.J. Heinz Co. that allows the ketchup manufacturer to also use PlantBottle technology in its products.
After much debate and speculation, the Federal Motor Carrier Safety Administration (FMCSA) issued its final hours-of-service (HOS) rule, offering a compromise to some and a compromising mandate to most. While rejecting the much-maligned 10-hour daily work limit for commercial truck drivers—from the current 11-hour rule—the agency imposed a 70-hour cap on a driver's work week, down from 82 hours.
More pressing for shippers and carriers, the final rule requires drivers who maximize their weekly workload to take at least two nights rest between 1 a.m. and 5 a.m. That rest period is part of the rule's 34-hour restart, a provision that allows drivers to use the restart only once during the seven-day period. Barring a change in political proclivity or policy, enforcement of the new regulations will go into effect beginning July 1, 2013. The agency warns that blatant violations of the rule could result in fines of up to $11,000 per offense for trucking companies and $2,750 per offense for drivers.
Supporters of the HOS changes cite increased driver safety as the primary objective. At least one consumer lobby, Advocates for Highway and Auto Safety, has publicly lambasted the FMCSA for not going far enough.
The trucking industry has also panned the changes as unnecessary—citing a positive safety record since the last rule went into effect in 2004—and punitive, warning that increased driver constraints will only reduce efficiency and add costs throughout the supply chain. While the 10-hour veto is welcome news, it comes across as an inconsequential concession meant to allay criticism on both sides.
The greater concern among shippers is the "one to five" provision that forces truckers to rest during early morning hours, a preferred delivery time, especially in heavily congested and urban areas.
Yours, Mine, and Hours of Service
While final implementation of the hours-of-service mandate is 18 months away, the issue continues to elicit strong opinions. Here's what some industry observers are saying:
"Though FMCSA preserved the 34-hour restart provision, these changes dramatically increase the disruptiveness of such rest periods by mandating that they take place between 1 a.m. and 5 a.m. The effect is that downtime due to restarts will increase significantly, and many drivers will start driving on Monday mornings, forcing thousands of trucks onto our roadways in rush hour and dramatically increasing traffic congestion."
—Jay Cutler, counsel, National Shippers Strategic Transportation Council
"Supply chain optimization is the bread and butter of America's most successful retailers. Their ability to move goods efficiently has changed the retail landscape and benefited consumers by reducing prices and increasing product assortments. The new Hours-of-Service rule will upend the advances in efficiency made over the past decade."
—Kelly Kolb, vice president for government relations, Retail Industry Leaders Association
"What is surprising and new to us is that for the first time in the agency's history, FMCSA has chosen to eschew a stream of positive safety data and cave in to a vocal anti-truck minority and issue a rule that will have no positive impact on safety. From the beginning of this process in October 2009, the agency set itself on a course to fix a rule that isn't broken, and by all objective accounts is working to improve highway safety."
—Bill Graves, president and CEO, American Trucking Associations
"This industry operates on a razor-thin margin. Any increase in operating costs will have to be passed on to customers in the form of higher prices."
—Glen Keysaw, executive director of transportation and logistics, Associated Food Stores
"Compliance with any regulation is already a challenge because everyone else in the supply chain is free to waste the driver's time loading or unloading with no accountability. The Hours-of-Service regulations should instead be more flexible to allow drivers to sleep when tired, and to work when rested, and not penalize them for doing so. It's the only way to reach significant gains in highway safety and reduce non-compliance."
—Todd Spencer, executive vice president, Owner-Operator Independent Drivers Association
"We're pleased that regulators have seen the wisdom of keeping the current 11-hour limit, but longer overnight breaks create the potential for more big trucks to be mixing with passenger cars during congested daylight hours. These new regulations will still drive up costs for businesses and consumers while making our highways and city streets more dangerous rather than safer. This is a case where something that might sound good on paper doesn't work in the real world."
—David French, senior vice president for government relations, National Retail Federation
"Unfortunately, by re-packaging and re-issuing an unsafe rule, the FMCSA has failed once again to protect the health and safety of working truck drivers and American families on our roads and highways."
—Jacqueline Gillan, vice president, Advocates for Highway and Auto Safety
Compliance Date: February 27, 2012
PROVISION: On-duty time
CURRENT RULE: Includes any time in commercial motor vehicle (CMV) except sleeper-berth.
FINAL RULE: Does not include any time resting in a parked CMV. In a moving property-carrying CMV, does not include up to two hours in passenger seat immediately before or after eight consecutive hours in sleeper-berth. Also applies to passenger-carrying drivers.
CURRENT RULE: "Egregious" hours-of-service violations not specifically defined.
FINAL RULE: Driving (or allowing a driver to drive) three or more hours beyond the driving-time limit may be considered an egregious violation and subject to the maximum civil penalties.
PROVISION: Oilfield exemption
CURRENT RULE: "Waiting time" for certain drivers at oilfields (which is off-duty but does extend the 14-hour duty period) must be recorded and available to FMCSA, but no method or details are specified for the recordkeeping.
FINAL RULE: "Waiting time" for certain drivers at oilfields must be shown on logbook or electronic equivalent as off-duty and identified by annotations in "remarks" or a separate line added to "grid."
Compliance Date: July 1, 2013
PROVISION: Limitations on minimum "34-hour restarts"
CURRENT RULE: None
FINAL RULE: Must include two periods between 1 a.m. and 5 a.m. home terminal time. May only be used once per week.
PROVISION: Rest breaks
CURRENT RULE: None except as limited by other rule provisions.
FINAL RULE: May drive only if eight hours or fewer have passed since end of driver's last off-duty period of at least 30 minutes. [HM 397.5 mandatory "in attendance" time may be included in break if no other duties performed.]