Competing in a Consumer-Focused Age with an Agile Supply Chain

From a new couch to a week’s worth of groceries, shoppers can summon nearly anything to their doorstep, local store or delivery locker with just a few clicks. Some of the most significant consumer changes impacting supply chains include:

  • Shifting demographics. While in-store purchases still dominate among shoppers of all ages, younger consumers are continuing to migrate to e-commerce, underscoring the importance of a strong omnichannel supply chain.
  • Shifting buying patterns. Emerging trends, including subscription boxes and purchasing large-scale items like furniture online, are creating complexity and forcing businesses to reexamine their last-mile strategies.
  • Shifting technology. In a role reversal from the last few decades, consumers are pulling ahead of businesses when it comes to technologies like artificial intelligence. These tech-savvy customers expect connected yet frictionless experiences from their brands – forcing many businesses to play catch-up.

Increasing agility through technology

Faced with these pressures, business leaders recognize that agility will be the key to success in the coming years. A KPMG survey found that 68% of CEOs believe that being slow to adapt to change will lead to obsolescence, while Gartner revealed that 82% of CEOs intend to change their business models by 2020 to stay relevant.

For supply chains, a technology-enabled approach is essential to drive agility and keep up with consumer demands. According to a World Economic Forum analysis, digital transformation will generate $1.5 trillion in value for the logistics industry over the next five years. Among businesses that adopt digital supply chains, executives report a 3.2% average increase in annual earnings – the highest ROI of any business function.

As supply chain executives recognize the importance of technology investment, an analysis conducted by AGL and Logistics Trends & Insights found that total logistics IT spending will rise 17% to $87.8 billion between 2017-2022. Yet a data-driven, agile supply chain remains a dream for many businesses, with a significant number of organizations still relying on Excel and email to manage complex supply chain functions. For organizations that master digital transformation in the supply chain, the benefits are big – faster time to market, increased efficiencies and better customer experiences.

Improving Supply Chain ROI in a Tough Tariff Environment

After duties on $200 billion in Chinese goods jumped from 10% to 25% earlier this month, businesses barely had time to blink before receiving news of yet another tranche of tariffs. These duties would cover $325 billion in goods, hitting the price-sensitive apparel sector particularly hard and taking a significant bite out of business’ bottom lines.

While no timelines are available yet for the new tariffs, NRF is expecting “unusually high” import levels in the coming months as shippers scramble to beat the duties. In its latest Port Tracker report, the organization estimated that TEUs would hit 1.9 million in May – the first time ever TEUs have risen to that level before July. That surge in shipments could lead to another chaotic peak season and higher prices for shippers, who are already paying 20% higher ocean contract rates than last year.

Some businesses may also turn to more expensive airfreight to get high-profit merchandise like electronics into the country faster. And once goods cross the border, tight warehouse capacity on the West Coast could push up prices as well, creating additional supply chain pain. For businesses grappling with these issues, a focus on optimization is increasingly critical. Here’s how combining a technology-enabled supply chain with the right logistics expertise can help deliver ROI that carries you through whatever comes next.

  • Find cost-effective capacity. With ocean spot rates already 40% higher than they were a year ago, sourcing affordable spot capacity to beat impending tariffs is likely to be a challenge once again during peak season. A centralized supply chain platform makes it easier to compare carriers and routes to find the most cost-effective solution, while an experienced supply chain partner with a deep logistics network can give you extra leverage in negotiations.
  • Shift your sourcing. As the cost of doing business in China continues to climb, many of AGL’s own customers are weighing the pros and cons of moving to neighboring countries. A supply chain platform that offers an end-to-end view, from production to final destination, lets your business compare suppliers and make the right choice based on production and logistics costs, vendor reliability, and more.
  • Check your classifications. For businesses that haven’t reviewed their classifications recently, the latest round of tariffs is a good reminder to keep current. A centralized platform makes it easier to review classifications in one spot to avoid penalties and identify opportunities to substitute products not subject to duties, if possible. A partner with customs expertise can help find additional ways to save time and resources, such as improving auditing procedures.
  • Automate routine activities. A more efficient supply chain starts with understanding all the touchpoints across your operations and seeing where there’s room for improvement. By managing every shipment in a single platform, you can uncover those efficiencies more easily. Technology that enables management by exception, rather than reviewing every single shipment, can also free up significant time for large global importers.
  • React faster to disruptions. Supply chain disruptions are inevitable, but being able to make adjustments on the fly can help keep issues from ballooning into disasters. For example, when faced with fast-approaching tariffs, a technology-driven supply chain can help you decide whether shipping via airfreight or paying additional duties will ultimately be less costly.

As shippers prepare for more tariffs and a potentially wild peak season, investing in effective tools, people and processes can help offset the impact to their operations and their bottom lines.

Winning the Tariff Waiting Game

The last few months have forced many global importers into a holding pattern as they wait for the latest round of tariff headlines. The March deadline has come and gone for 25% tariffs on $250 billion in Chinese goods, and the U.S. administration has said that talks are going well with China, putting additional increases on hold indefinitely. The 10% increases imposed last year are still in effect, however, and the U.S. has hinted they may stay in place, even if the two countries make a deal. Meanwhile, trade tensions continue to flare around the world, with news of $11 billion in potential tariffs on European Union products surfacing earlier this month.

These ongoing uncertainties are having a definite impact on the $6.5 billion in goods that come through U.S. ports each day. After breaking import records in a rush to stockpile inventory last year, businesses have slowed their pace so far in 2019. U.S. ports handled 1.62 million TEUs in February, down 14.3% from January and a 4% year-over-year decrease.

While import volumes for April and May are expected to top 2018 levels, much will depend on the ultimate results of U.S.-Chinese negotiations. If tariffs do rise to 25% on some goods, many shippers will need to make major adjustments to their sourcing and transit strategies to stay afloat. No matter where duties land, however, the current environment is making businesses more aware of the power of tariffs to shape the economy – and the importance of customs compliance. Whether you have an in-house brokerage team or rely on external support, these strategies can help your business stay strong amid tariff uncertainty.

Go to the source. If your business has global production facilities, running what-if scenarios now can help you hit the ground running if massive tariff spikes require a shift in sourcing. An experienced supply chain partner can help you assess alternate transit routes and associated costs for moving production from China to Vietnam or Malaysia, for example. In addition, some shippers are turning to their vendors to handle clearance to mitigate the bite of tariffs – whatever those duties might be in six months.

Double-check classifications. While many classifications, like tires, don’t leave much room for interpretation, businesses should still review all their harmonized tariff classifications if they haven’t done so recently. A customs brokerage expert can help confirm all classifications are correct, so you’re not paying tariffs unnecessarily or putting yourself at risk for fines for missing duties. Depending on your goods, there may also be opportunities to adjust your sourcing to items that aren’t eligible for duties.

Stay on top of customs paperwork. Regardless of what the future brings for tariffs, the increased scrutiny on all U.S. imports is likely here to stay. Establishing a thorough auditing system can help your business avoid errors and fines, while cutting back on time-consuming post-summary corrections. Trading paper-based processes for automated systems can also help you improve compliance and overall efficiency.

While only time will tell whether more tariffs are in store, businesses that invest in a strong customs compliance program now will be better positioned to handle whatever comes next.

3 Strategies for a Smoother Ocean Shipping Season

Efforts by ocean carriers to prop up rates by reducing sailings last year came at the exact wrong time for importers, coinciding with President Trump’s announcement of additional tariffs on Chinese imports. As shippers raced to beat the effects to their bottom lines, imports hit a record 21.6 million TEUs in 2018 – and spot rates skyrocketed accordingly.

Just a few months into 2019, several factors are already keeping spot rates at higher-than-normal levels:

  • High import volumes: Demand for cargo space has remained elevated among shippers looking to beat additional tariffs, with January imports rising an estimated 4 percent over the previous year.
  • Trade uncertainty: While the March 1 tariff deadline has come and gone, continued back-and-forth between the U.S. and China make it unlikely that rates will drop anytime soon.
  • Bunker fuel costs: With carriers facing rising fuel costs and an impending 0.5 percent global sulfur cap on fuel content, shippers will undoubtedly see the effects reflected in their rates.
Navigating contract season effectively

As shippers enter contract negotiations, they will need to work with carriers to find a middle ground that balances cost with capacity to keep their supply chains moving. These strategies can help businesses lock in the capacity they need without compromising their budgets.

  1. Focus on total spend, not on rate. Trying to negotiate contract rates at the lowest possible level will ultimately wind up costing you more. Rather than trying to nickel and dime contract rates, focus on choosing a reliable carrier who will keep your shipments on time and on budget.
  2. Map your supply chain. Truly optimizing your ocean freight spend requires taking a critical eye to your supply chain. A centralized technology platform offers insight into every mode, carrier, shipment and more, so you can spot opportunities for improvement and make informed decisions during negotiations.
  3. Be ready for the unexpected. A provider with a deep network of relationships can be invaluable in accessing affordable capacity when disruptions inevitably arise. A little logistics creativity, such as changing the port of discharge, can also help lessen the impact of disruptions.

Want additional tips on managing ocean freight season without sinking your budget? Read our recent article in the Journal of Commerce, “Navigating 2019 ocean contracting.

The Supply Chain Dream Team: Technology and Human Capital

Anyone who’s ever managed a supply chain knows how fragmented and inefficient the industry can be. The average supply chain has numerous essential handoff points, and individual providers are often resistant to sharing information, creating silos of data and opaque processes. Add in complications like capacity constraints, both real and manufactured; an escalating global trade war; and skyrocketing customer expectations, and many businesses are struggling to manage a dynamic and sometimes chaotic logistics environment.

“My time at the Port of Long Beach was a real eye-opener in terms of how inefficient supply chains tend to be,” AGL CEO Jon Slangerup told the crowd recently during his “Big Idea” presentation at the 2019 NRF conference.

After years at FedEx, which developed track-and-trace technology based on the custodial control of goods, Slangerup says he was struck by the fact that supply chains often don’t have similar control over their data. Creating a single source of truth for all supply chain information is key for gaining visibility, transparency and, ultimately, the agility to react quickly to changing conditions. Technology is key for enabling that control over information, which helps to explain why 72 percent of shippers have plans to digitize their supply chains.

The human side of supply chain

But technology is not enough. Since no two supply chains are alike, it takes a highly customized approach to build solutions around specific organizational needs and goals. Once you go live, supply chains require constant monitoring to ensure data accuracy, resolve issues and identify new opportunities for efficiency – which businesses often don’t have the bandwidth to support. As a result, many organizations with complex supply chains are moving toward a fourth-party logistics, or 4PL, approach. These providers go beyond the typical 3PL relationship to manage the entire supply chain, implementing holistic solutions that drive efficient communication between factories, employees, carriers and other stakeholders.

Regardless of how businesses source their logistics expertise, Slangerup says, here’s why the human touch is a key component of a well-run supply chain.

  • Better supply chain mapping. Businesses need to understand their supply chains first before they can drive operational and cost efficiencies. An experienced partner can help identify the key players, modes and handoff points, along with opportunities for improvement.
  • Validated, actionable information. Supply chains produce a tremendous amount of data, but what shippers really need is actionable insight. A supply chain expert can help you get from A to B by validating data when needed, since primary sources are often inaccurate.
  • Accountable, proactive management. Seventy percent of businesses have experienced a supply chain disruption in the past year, according to the Business Continuity Institute. When problems inevitably crop up, a partner with a deep logistics network can think creatively to help source capacity or adjust route planning.

For businesses just beginning to explore supply chain optimization, the potential upside is great. Case in point: Since partnering with AGL 15 months ago, Slangerup says, one client has trimmed ocean freight costs by 12 percent while simultaneously increasing container volume by 50 percent. The company also slashed processing time in half, allowing it to redeploy logistics-focused employees into more high-value roles.

“The smarts come from interactions with human beings who are experienced, and understand a process for divining all this opportunity,” Slangerup says. “That’s where I think [the real opportunity] lies.”

Interested in hearing more about the high-tech, high-touch supply chain approach from AGL CEO Jon Slangerup? Check out our recording of his full “Big Idea” presentation at NRF.

Mastering the Balancing Act in Retail Supply Chains

With inventory volatility and fulfillment complexities both on the rise, retail supply chains are under tremendous pressure as they adapt to the demands of omnichannel. To meet these demands, 72 percent of retailers are digitizing their supply chains – a landmark shift AGL saw firsthand among the nearly 4,000 companies attending NRF’s Big Show this year[1].

In new research from AGL, we look at changing supply chain realities for retailers and the tools likely to help businesses improve visibility and agility.

Explore the Research

In this notoriously tough industry, retailers need to be ready at a moment’s notice to meet customer demands before a competitor beats them to it. Challenges continue to mount for businesses on both the supply and demand sides of the equation, making a high-functioning supply chain even more indispensable. These challenges include:

  • Rising tariff duties. With yet another round of S.-Chinese tariffs potentially looming in March, retailers must consider whether to continue forward-buying inventory to bear potential cost spikes. Imports rose to a record 21.8 million TEUs in 2018, a 6.5 percent increase over 2017, as many shippers rushed to procure merchandise ahead of impending tariffs.
  • Longer, more complex fulfillment paths. While retail merchandise once followed a predictable path from factory to warehouse to store, today’s deliveries take myriad routes to their final destinations, whether that’s a store or a shopper’s doorstep. Retailers are also picking up the pace on deliveries, with Target and Wal-Mart among the businesses announcing same-day delivery recently in an effort to keep up with retail behemoth Amazon.
  • The boomerang effect. Among e-commerce retailers, what goes out is increasingly coming back. One study shows that shoppers return 30 percent of online purchases, more than triple the number of returns for brick-and-mortar purchases, adding to the supply chain pain for retailers.   

A growing dependence on digital

As they grapple with this quickly evolving environment, more retailers are recognizing the value a technology-enabled supply chain can bring to their operations. In our latest research initiative with Logistics Trends & Insights, AGL explored the rise of retail supply chain technology and the tools that hold the greatest promise in this space. We discovered:

  • Digital transformation is a top priority for retailers… A Zebra study found 72 percent of retailers say they plan to adopt technology to drive real-time supply chain visibility.
  • …But many are still in the beginning stages. Only 15 percent of retailers have made it past the pilot stage for supply chain technology, and 13 percent are still using Excel exclusively to crunch the numbers.
  • Retailers want trusted partners to guide them. Retail businesses spent $50.7 billion on third-party logistics providers in 2018, according to Armstrong & Associates, as many providers develop proprietary tools to improve supply chain visibility and control. Along with fueling innovation, an experienced partner can provide valuable hands-on support to help businesses get the most from their IT investments.

Interested in the five technologies most likely to deliver benefits for retail supply chains? Download a free copy of our latest white paper, “Supply Chain Brief: Eye on Retail.”  

[1] “2018 Demographics,” NRF 2019: Retail’s Big Show.

3 Takeaways to Help You Prepare for 2019

The evidence is undeniable: We’re living in the age of the technology-enabled supply chain. While the last 10 years have focused on physical assets and infrastructure, businesses are now shifting their attention – and dollars ­– to IT investments in logistics. These technologies are transforming the outdated and paper-driven logistics industry, as shippers leverage new tools to improve visibility, planning and responsiveness across their supply chains.

In a recent research initiative with Logistics Trends & Insights, AGL set out to uncover emerging trends in the supply chain technology market and which innovations have the greatest potential to drive value for businesses in the coming years. Our research revealed:

  1. Supply chain tech investments will jump nearly 20 percent.
    Based on CSCMP market data, businesses spent an estimated $75 billion on supply chain technology in 2017, a figure that will rise 17 percent to an estimated $87.8 billion by 2022. The takeaway? For organizations with complex logistics requirements and processes, a technology-enabled supply chain is quickly becoming table stakes for survival. Businesses that put the right tools in place now can improve automation and visibility, allowing them to work more efficiently and react quickly when issues inevitably arise. Meanwhile, businesses that continue to use manual processes will struggle to meet increasingly complex fulfillment requirements and customer delivery expectations.
  2. Venture capital is fueling significant growth in emerging technologies.
    Recognizing the vast potential in the supply chain market, investors are pouring money into tech startups that promise to usher the industry into the modern age. Between 2012 and 2017, supply chain and logistics tech firms received more than $8.4 billion in investments, many of them in tools that didn’t exist in previous investment cycles. For most organizations, emerging technologies like AI and machine learning are just entering the radar: One study found that 95 percent of companies aren’t fully capitalizing on digital technologies in their supply chains yet. Those that can unlock the power of disruptive technology will have a serious edge, however. For example, 74 percent of businesses that have adopted IoT in their supply chains report a related boost in revenue.
  3. Organizations have a vast array of new technologies at their fingertips.
    Planning and execution tools. Customs support. Platforms redesigned to be more UX-friendly. The technologies coming onto the market today are as varied as the organizations that use them. While some may be swayed by flashy dashboards and packaging, tools that enable seamless data sharing and communication have the greatest potential to deliver ROI. A trusted supply chain partner with deep knowledge of the space can help businesses separate the real from the hype to build a high-functioning technology stack.

Advanced technologies are enjoying a long-overdue renaissance in the world of supply chains, giving businesses a choice to either embrace the new or get left behind. While plenty of tech companies are vying for shippers’ attention, those that combine a holistic platform with dedicated logistics knowledge and support offer the best chance at supply chain optimization.

Download a free copy of AGL’s “Supply Chain Investment Report” to get an inside look at the technologies poised to transform your operations for years to come.

 

What’s Next for Supply Chain Tech?

From floods to hurricanes to historically high ocean rates, 2018 has dealt one challenge after another to supply chain professionals. In our recent infographic, we broke down the stories making headlines and causing turmoil for shippers this year, including:

  • April 1’s ELD mandate, which led to a reported drop in productivity for 83 percent of trucking companies
  • The $250 billion in Chinese tariffs President Trump has imposed this year, with more looming on the horizon
  • The shocking 50 percent year-over-year increase in ocean rates, as freight carriers tried to wrestle back control of pricing and improve profitability

As for 2019? More uncertainty and complexity are sure to follow. Measures like the bunker adjustment factor, which many ocean carriers are enacting to offset rising fuel costs, will have an impact on organizations’ bottom lines. Meanwhile, two in three businesses say they lack visibility into logistics processes, and 70 percent of businesses experience supply chain disruptions. These current and impending challenges underscore the importance of an agile, technology-driven supply chain.

Tech Investments Are on the Rise

By preparing with the right mix of tools, people and processes, businesses can equip themselves to handle whatever 2019 brings. Technology is the backbone of that strategy: A centralized platform is key for improving visibility, optimizing operations, gaining insight and delivering value across the supply chain.

Recognizing these opportunities, a new wave of digital logistics startups aims to help businesses enhance nearly every area of supply chain activity. Venture capital continues to pour into the sector, and shippers are increasing their tech investments to gain a competitive edge in the market.

In a report set for release November 13, AGL will reveal:

  • How much businesses are spending on supply chain technology today, and how much that number will rise by 2022
  • The growing role that disruptive technologies play in overall spending
  • The top five areas for technology innovation

Visit our website to download a free copy and get an inside look at the technologies that could transform your operations in the years to come.

Want more competitive insights? Download our infographic for a look back at supply chain in 2018 and strategies to prepare for the year ahead.

What to Look for in Your Supply Chain Partnerships

2018 has been packed with one shakeup after another, leading to one of the most uncertain environments in recent memory for shippers. The biggest headline-grabbers include:

  • Trump’s tariffs. Arguably the biggest supply chain story of the year, the U.S. and China have kept importers on their toes with a barrage of duties. With roughly $250 billion in Chinese goods now subject to tariffs, businesses have been importing record-breaking volumes as they rush to get items in hand before duties take effect. The trade war is poised to escalate further, as Trump threatens to enact tariffs on an additional $267 billion in goods.
  • The ELD mandate. The long-awaited mandate, which required truck drivers to install electronic logging devices (ELDs) that track and cap their total hours in service, has had a ripple effect across modes. The mandate reduced productivity for 83 percent of trucking companies, creating a capacity crunch and rising rates for shippers. Meanwhile, many ocean carriers have been forced to sit at port for trucks, prompting some to impose emergency intermodal fees and restrict door deliveries.
  • Ocean turmoil. The industry’s move to cancel sailings in an effort to improve profitability shocked many shippers this year, and continues to wreak havoc with capacity and rates. Total capacity has shrunk by 7 percent, leading to a 50 percent year-over-year spike in Trans-Pacific ocean rates and a scramble to secure space during peak season – even for shippers under contract. Those hefty prices are slated to continue into 2019, thanks to newly announced bunker adjustment factor surcharges.
  • Disruption from disasters. When Hurricane Florence tore up the East Coast in September, businesses across the country felt its effects. Delivery disruptions rose by 49 percent that week nationwide, despite only a 2 percent drop in shipments. With more than a month to go before hurricane season ends, more disruptions could be looming for shippers.

Dealing with supply chain disruptions

For shippers large and small, the move toward technology-enabled supply chains is helping to improve visibility, control and responsiveness when things go awry. But while a centralized platform is the cornerstone of a high-functioning supply chain, hands-on support is the key to keeping it running day after day.

That’s why more businesses are turning to external providers to help them navigate this disruption-prone environment. Freight forwarders now account for nearly 45 percent of U.S. containerized imports from Asia, a 2 percent year-over-year increase. The right partner can help businesses access scarce capacity, tackle challenges head-on and offer best practices for improving operations. Here are a few areas to consider when choosing yours.

  • Dedicated support. By assigning a single point of contact to your business, your partner can get to know your business goals, rules and requirements better, so they can make more effective recommendations.
  • A deep logistics network. The ongoing struggle to source ocean capacity underscores the importance of a well-connected partner. Look for a partner with a strong network to help find available space at the best possible rates.
  • Customs expertise. As the scope of U.S. tariffs extends to new areas like electronics, food and housewares, more businesses are bracing for the impact to their organizations. A partner with customs brokerage expertise can minimize the pain by ensuring harmonized tariff classifications are correct, helping to apply for exemptions and taking other steps to ensure customs compliance.

For supply chain professionals, dealing with disruptions is a growing part of the job. Finding the right partner can help equip these businesses to face today’s biggest challenges – and whatever comes next.

Prepping for a “Perfect Storm” This Peak Season

Peak season typically begins toward the end of summer, reaching its height during Golden Week in October as businesses work to get their goods in hand before the holidays. But thanks to a perfect storm of factors, shippers have been facing peak-like conditions for months – and the current environment is poised to become even more intense.

Chief among those factors? The significant reduction in ocean capacity this year, a move which has stunned many in the industry. Faced with lackluster financial results and persistent overcapacity, carriers across the board have cancelled lanes in an effort to wrestle back control of rates. Those cutbacks have trimmed capacity by 7 percent so far, the Journal of Commerce reports.

At the same time, businesses working to stay ahead of tariffs have ramped up importing activity, leading to record-breaking volumes at the Ports of New York and New Jersey in July. Add in potential weather disruptions, and you have a recipe for chaos this peak season. As they work to get their goods across the border, shippers are facing:

  • Soaring spot rates. Trans-Pacific spot rates have climbed more than 50 percent year-over-year, putting even more financial pressure on shippers contending with new tariffs.
  • Major service delays. Even a contract isn’t enough to ensure space during this busy season. Some carriers are rolling contracted cargo or enforcing minimum quantity commitments, only allowing shippers one week’s worth of capacity at a time. That capacity crunch promises to intensify during peak season, with ports in China and Thailand already reporting backlogs.
  • Greater need for airfreight. Shippers have already been leaning more heavily on air cargo to meet customers’ “available anytime” expectations. Scarce ocean capacity is forcing even more businesses to use expensive airfreight instead, and that increased demand is prompting China-U.S. air cargo rates to rise further.

Preparing for peak season – and beyond

The factors contributing to the busy peak season appear likely to stick around for a while, so businesses need a plan to navigate the rest of 2018 and beyond. Here are three ways to ease peak season pain.

  • Invest in a centralized supply chain platform. Information is the key to managing this uncertain environment. Supply chain software that provides visibility and control across all shipments and modes can help businesses quickly pinpoint the status of high-priority shipments and adjust allocations or carriers when needed.
  • Communicate clearly, and early, with your supply chain partners. The logistics industry is built on relationships, so a provider with a deep network and knowledge of the space can be valuable for sourcing scarce capacity. Look for providers who take the time to understand your business goals and carrier preferences, and let them know as far in advance as possible when you’ll need bookings.
  • Be open to creative solutions. When things get tight, adjusting your route or timeline can help you meet drop-dead delivery dates without sinking your budget. Talk to your provider to find the best solution, such as changing the port of discharge for cargo traveling inland, or choosing a sailing with a longer transit time to reduce the chance of getting bumped.

With the holidays fast approaching, supply chain professionals need to plan now. The right mix of technology and support can make all the difference in navigating the challenges this peak season will bring.