The No-Nonsense Newsletter - Freight Cost, Recession, M&A Continue to Highlight The Need For Supply Chain Visibility

Welcome to our No-Nonsense Newsletter, where we bring the latest no-nonsense industry trends, expert viewpoints, and best practices to #GetShipDone.

The No-Nonsense Newsletter Blog

While supply chain problems persist, a divergence in performance is emerging - even between companies competing in the same industry. For example, FedEx’s problems appear more systemic and company-specific (albeit air cargo demand has plunged). In contrast, rival UPS has affirmed its quarterly guidance thanks partly to aggressive cut costing for more than two years.

In the automotive sector, Ford plans to restructure its global supply chain after reporting roughly $1 billion in Q3 unexpected supplier costs. Ford’s supply problems have resulted in parts shortages (including model nameplates and company logos), affecting roughly 40,000 to 45,000 (primarily high-margin) vehicles that have not been sent to dealers.

On the other hand, Bombardier Recreational Products successfully tackled the same exact problems and was recently awarded with record earnings.

More uncertainty poses to shippers as Trimble announced to shutdown Kuebix, the Transportation Management System it had acquired in 2020.

Time to prepare your to-do list to navigate the rest of 2022 and 2023!

No-Nonsense Supply Chain News

Shippers think a little less of 3PLs’ value, supply chain report finds (Freight Waves)

According to the 27th Third-Party Logistics Study, about 83% (versus 90% or higher historically) of shipper respondents said their 3PL relationships are successful. About 80% of shippers (versus 42% two years ago) said they have taken or are planning to reposition their inventories to mitigate supply chain disruptions; about 69% said they had implemented or were planning to develop strategies to find new source supply, and about 80% said they were moving toward more regionalized or domestic production networks.

Fall in container spot rates ‘much steeper,’ ‘less orderly’ than expected (American Shipper)

During their quarterly calls, shipping liner executives emphasised a continued drop in spot rates. Carriers do have more of their volume on annual contracts, with rates, that are still dramatically higher than they used to be. A port of this year’s contract business is expected to be renegotiated or not honoured, but the remainder will allow carriers to offset spot-business declines. However, more blank (cancelled) sailings are also predicted after China's Golden Week (Oct 1-7).

UPS unveils all-in pricing without delivery surcharges (Modern Shipper)

Sources say the new formula will be offered to all customers, but rates in the new program (which took up to eight years to develop) will not be as deeply discounted as they are in the original pricing version. UPS is mindful that parcel shippers loathe delivery surcharges (now numbering around 100) and believe they are meant to generate revenue rather than pass-throughs offsetting costs. Carriers do little to change that perception and even tout their value in meeting financial projections during earnings calls. UPS is banking on customers being so sick of surcharges; they will go for a consolidated rate based on package weight and geographic delivery zones.

Amazon Is Refining Delivery Operations as It Resets Logistics Network (Wall Street Journal)

Amazon has shut down, called off or pushed back the openings of 66 planned or existing facilities in what experts say amounts to a reconfiguration of its fulfilment in local U.S. markets. Fourteen of the 15 buildings closed have been delivery stations, the smaller facilities where the company prepares online orders for delivery to customers’ homes. Ten of the planned 25 projects cancelled have been larger, more capital-intensive fulfilment centres.

Newell Brands Boosts Supply-Chain Investments to Cut Shipping Costs (Wall Street Journal)

The maker of Sharpie markers is spending about $100 million this year on a project to consolidate its distribution centres from over 20 down to 7 and will increase its reliance on East Coast ports to reduce transportation costs. The Company also expects inflationary pressures (including shipping and transportation) to account for about 9% of its cost of goods sold in 2022.

No-Nonsense Chart of the Week

Shipping cost slump

The cost to send a 40-foot container from Shanghai to Los Angeles has halved in the last three months.

Shipping cost slump_Bloomberg.png

*Source: Bloomberg

No-Nonsense Quote of the Week

In our meetings [with shipper Matson], management indicated that… the downward softening has been much steeper and less orderly in the past two months… There is no clarity with respect to when or where market rates may bottom.

Stifel Analyst, Ben Nolan

No-Nonsense Best Practices & Insights

How BRP mastered the supply chain game, stoking record earnings (Financial Post)

Bombardier Recreational Products found a clever way to deal with a shortage of parts: They offered dealers a choice of reducing production or ramping it up with one caveat. The catch was that BRP would ship dealers an incomplete product, missing a part, due to supply chain issues. Once BRP received the missing part, they would then ship it to dealers, who would retrofit it at their store. The dealers chose the latter and BRP was rewarded with record earnings.

Surviving the pandemic and supply chain issues (Times Online)

Supply chain woes during the pandemic and high fixed costs forced New Zealand tissue manufacturer Cottonsoft to get creative. The company culled their product range from about 50 products to 10 products to eliminate time-wasting machinery changeovers. They even went so far as to source and charter their own ships as the “cost of not having tissue is higher than the cost of excessive inventory.”

Top 3 Actions for CPG Brands to Overcome Supply Chain Imbalances (SDC Executive)

  1. Switch to a sophisticated Available To Promise (ATP) system that accounts for irregularities in near-term demand and supports intelligent order promising (IOP). Sticking with a first in/first out order promising strategy may be suitable for customers who act fast when demand shifts, but it doesn’t serve your business well in an unstable market.
  2. Set some clear boundaries for what you can and can’t do: One of the reasons IOP is so powerful is because it uses artificial intelligence (AI) and machine learning (ML) to help automate order prioritisation based on flexible business rules and conditions that account for short-term supply and demand volatility.
  3. Leverage additional data and demand sources to help manage disruptions in near-real time. This means integrating weather, events and consumption data into your calculations).

Until next time!

Related blog posts