What to Expect from the Logistics & Shipping Sectors as E-Commerce Grows Up

Driven by new technologies and e-commerce growth, changes in the global supply chain are expected to impact industrial real estate for the foreseeable future.

Since 2012, Amazon has been aggressively expanding its logistics and shipping services worldwide, disrupting traditional supply chain operators with direct competition for their business.

Chinese “e-tail” giant Alibaba, meanwhile, has deployed technology that cuts into a portion of third-party logistics (3PL) operator profits.

Alibaba’s “One Touch” platform automates export-related services, such as customs clearance and logistics, to make it cost-efficient for small/medium-sized merchants to participate in the global marketplace.

Cyclical and structural factors, including overcapacity in the container shipping industry and greater use of technology in manufacturing, retail and logistics industries, are also disrupting the sector.

Automation and robots are replacing manufacturing, logistics and warehouse workers. A survey by PwC found that 59 percent of all U.S. manufacturers are using robots for some tasks.

A recent report from real estate services firm Colliers International analyzes how these changes are impacting the logistics landscape. The report also looks at the impacts on industrial and logistics properties.

Report author Bruno Berretta, associate director with Colliers International who leads the firm’s pan-European research activities, says that Amazon Prime has entered the logistics market to take control of its supply chain and improve delivery times. He notes that unofficially Amazon is becoming a 3PL service to third parties.

The company is making a big push to establish a logistics network, opening smaller distribution facilities near customers, according to Berretta, who suggests that Amazon is likely to start competing with traditional 3PL services as it opens new markets.

Additionally, Amazon wants to reduce shipping costs, which have a big impact on profits. The Colliers report notes that in 2015 Amazon spent $11.5 billion on shipping costs, which equated to 10 percent of its global sales. By delivering its own goods and using technology to streamline deliveries, the company estimates it would save $3 per package, or $1.1 billion annually.

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Why are global supply chains becoming more fragile?

General Motors recently recalled nearly 4.3 million vehicles with defective software. The bankruptcy of Hanjin Shipping, one of the world’s largest ocean carriers, left half a million containers with $14 billion worth of goods stranded at sea.

Fiat Chrysler recalled 1.9 million vehicles worldwide for possible airbag and seat belt failures. Samsung had to recall a million of its newly launched Galaxy Note 7 smartphones after some devices burst into flames. And in Europe, Volkswagen was forced to shut down production of nearly 10,000 vehicles after a supplier refused to deliver key components.

These examples all point to two worrying questions: are global supply chains becoming more fragile and if so, why?

The above Volkswagen example is a good place to start to find answers and begin to address this issue begins it soon becomes apparent this fragility is itself, the first signs of a major shift for global supply chains.

Inherent imbalances – from single company to ecosystem

The automotive industry has come a long way since Henry Ford’s Motor Company mke everything that went into its product in-house. Today, 75 percent of automotive parts are not designed or built by car manufactures themselves but by their suppliers.

That means that manufacturing a car is no longer the job of a single enterprise. It’s the job of a complex ecosystem of supply chain partners. And VW is no exception. Indeed, any manufacturer of a complex product such as a car, hi-tech consumer electronics or even clothing relies upon its ecosystem of suppliers far more than the manufacturer may realize.

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Merchants scramble as shipper goes bankrupt

Major retailers are scrambling to work out contingency plans to get their merchandise to stores as the bankruptcy of the Hanjin shipping line has thrown the retail supply chains around the world into confusion.

Hanjin, the world’s seventh-largest container shipper, filed for bankruptcy protection Wednesday and stopped accepting cargo. With its assets frozen, ships from China to Canada were refused permission to load or unload containers because there were no guarantees that tugboat pilots or stevedores would be paid. It’s also been a factor in shipping rates rising and could hurt trucking firms with contracts to pick up goods.

While some retailers’ holiday merchandise has probably been affected, experts say what’s most important is that the issue be resolved before the critical shipping month of October.

Degree of uncertainty

“Retailers always have robust contingency plans, but this degree of uncertainty is making it challenging to put those plans in place,” said Jessica Dankert, senior director of retail operations for the Retail Industry Leaders Association, a trade alliance with members including Best Buy, Wal-Mart and Target.

Plano-based J.C. Penney said Hanjin is one of several ocean freight carriers it uses and when it learned there might be a problem it began to divert and reroute its containers. It said it uses “a variety of transportation methods and ports” and does not expect a significant effect on the flow of merchandise.

Target Corp. said it is watching the situation closely, and Wal-Mart said it is waiting for details about Hanjin’s bankruptcy proceedings and the implications to its merchandise before it can assess the effect.

As of Friday, 27 ships had been refused entry to ports or terminals, said Hanjin spokesman Park Min. The company said one ship in Singapore had been seized by the ship’s owner.

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Close the Loop on Supply Chain Risk: 5 Strategies to Move Product, Boost Sales and Automate Efficiency

Supply chain management is a critical function for any small to mid-sized business. Yet, too often companies rely on spreadsheets to manage supply chain activities — a risky prospect that’s labor-intensive and error-prone.

A better option is to bring these activities into your financial management or ERP system. Centralizing tasks such as order filling, inventory management and delivery tracking can positively impact sales, improve cash flow and keep you tax compliant.

Here are five ways that ERP supply chain management benefits your bottom line.

Right-sized Inventory

Getting inventory right can be tricky: too low, you risk losing customers; too high and you’re left holding the bag, so to speak.

Control Quality

Dealing with defective materials or products can be a drain on your business. Not only can it hurt sales, but it can also damage your reputation.

Optimize Shipping

Web sales have made fast, affordable shipping a must-do for all businesses. Keeping track of goods coming and going can become burdensome, not to mention the hassle of dealing with lost or late shipments.

Improve Cash Flow

Invoicing practices can greatly impact your cash flow. Moving from a manual process to automation allows you to process invoices faster and shorten the order-to-cash cycle.

Be Compliant

Navigating complex and ever-changing trade and tax rules can be daunting. Being part of a supply chain compounds that risk.

 

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