Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
If ever there was a year for U.S. multinationals to rethink their China sourcing strategies, it might have been 2008.
The spike in oil prices and mounting labor and raw materials costs made sourcing in and shipping from China a more expensive proposition than ever before. The near two-month shuttering of factories and mines in readiness for the Summer Olympics put a crimp in supply chain flows, especially for foreign importers who failed to craft contingency plans. The financial meltdown left credit scarcer and more expensive, making it difficult for suppliers to secure financing and driving up the costs of carrying inventory that can spend 20 days or more in transit from Asia to North America. And the severe global economic downturn shut down tens of thousands of Chinese factories. By one Chinese government estimate, 67,000 Chinese businesses failed in the first half of 2008 alone. By another, half of China's 3,630 toy making plants—mostly smaller, lower-tier operators—had gone out of business by the end of August.
Then there are such chronic concerns as intellectual property infringement. In the fiscal year ending Sept. 30, 2007, China was the origin of 80 percent of counterfeit and pirated products seized by U.S. Customs and Border Protection, according to the International Anti-Counterfeiting Coalition. The seized products were valued at about $158 billion, IACC says.
In addition, businesses still struggle with the inefficiencies of a relatively primitive Chinese logistics infrastructure and a dearth of skilled practitioners. As a result, shipping costs from China run as high as 10 percent of a product's retail value, compared with 3 percent in the United States and Europe, according to data from consultancy AMR Research. And worries linger over the quality and safety of Chinese imports in the wake of toymaker Mattel Inc.'s massive 2007 recall of Chinese-made toys after they were found to contain excessive amounts of lead.
Companies that had built much of their global sourcing platforms around China had a lot to think about during 2008. Suddenly, the idea of "reverse globalization"—or bringing supply chains closer to home—didn't seem far-fetched.
But with the new year comes a settling of the dust. The Olympics are history, along with the production hiccup that accompanied the games. The Chinese government has launched a $586 billion stimulus program, much of it aimed at improving the nation's infrastructure. There are glimmers of hope that the turmoil in global credit markets will recede so normal lending can resume.
Most notably, oil and raw materials prices have fallen considerably from their 2008 peaks. The sharp commodity price declines have given global companies a badly needed respite from the cost pressures experienced during most of last year. It also gives them an opportunity to re-evaluate their sourcing strategies and determine if the issues that drove their supply chains to China in the first place are still valid today.
Sticking with the plan
To be sure, no one is counseling businesses to act on what could be short-term price or market fluctuations and dismantle intercontinental supply chains that took years and significant capital to build. And there are indications that, for all the heightened risks and costs, many U.S. companies now in China plan to remain there.
According to a preliminary survey of 108 manufacturers in China by the American Chamber of Commerce-Shanghai and management consultant Booz & Co. (formerly Booz Allen Hamilton), 90 percent of the respondents say they don't plan to move their production capacity out of China in the next five years. That is higher than the 87 percent positive response rate in 2007, says the chamber.
The potential of selling into China's vast and growing domestic market could be a compelling reason to keep production there. In the survey, most respondents say the opportunity to penetrate the country's domestic consumer base is the most important factor in their decision to remain.
As for competition from other low-cost Asian contenders, Steve Ganster, senior vice president, Asia, for Tompkins Associates, a Raleigh, N.C., firm that advises mostly U.S.-based Fortune 500 and mid-size companies, has analyzed the costs of sourcing in nearby Vietnam and found that with the exception of savings in the value-added tax regimes, there is no appreciable benefit. India, he says, is hampered by an inferior infrastructure and a multilayered bureaucracy that makes it virtually impossible to develop and implement projects in a timely fashion.
"China is unparalleled in its economic scale and size for both exports and domestic demand," says Ganster. "None of the countries we've looked at will be able to match China's will and ability" to continue to make offshoring an attractive sourcing option.
Ganster advises companies now in China but mulling a shift in their sourcing plans to first examine ways to optimize their existing distribution networks. He says that might include more effective consolidation practices at origin or streamlined transportation strategies such as shipping direct to customers and bypassing warehouses and distribution centers in the United States.
The risks remain
At the same time, however, the factors that led businesses to question their China sourcing strategies are still very much in play. Chinese wages are on an inexorable upward march. From 2002 to 2006, "total manufacturing wages" in China rose by nearly 70 percent, according to consultancy IHS Global Insight. A September study by McKinsey & Co. found that Mexican workers today make only 1.15 times that of their Chinese counterparts; in 2003, Mexican wages were double that of Chinese workers.
And while a barrel of oil in early December traded in the low $50 range, the consensus is that it's just a matter of time before oil prices return to or near historical highs. In the early fall, when oil prices were hovering around $100 a barrel, the fuel costs embedded in shipping an ocean container equaled an 11-percent tariff on U.S. imports; in 2000, when oil prices were around $20 a barrel, the figure was close to 3 percent.
Fuel and labor expenses can make or break an intercontinental sourcing strategy, according to McKinsey. The firm compared the costs of building a mid-priced computer server in the United States, Mexico, and China and distributing it in the U.S. market. McKinsey found it has become more profitable to make the server in Mexico than in China because of China's rising freight and labor costs. What's more, after factoring in all the elements that make up a product's "landed cost," the server manufacturer would actually spend $16 more per unit making and shipping the product from China than building it in the United States.
In a global survey of nearly 350 senior executives conducted by the Economist Intelligence Unit and sponsored by UPS, nearly half of all respondents said low-cost sourcing had created significant problems, especially in the areas of product quality and delivery reliability. Although most companies surveyed plan to increase their low-cost sourcing, 10 percent intend to reduce it.
Findings like that are welcome news to countries like Mexico, which had hoped for a southward migration of U.S. businesses following the North American Free Trade Agreement only to watch many of them head instead to China. This time around, it's a safe bet that Mexico will aggressively tout its value as a sourcing alternative to China. "The Mexicans missed their first chance with NAFTA. They aren't going to miss it again," an executive of a major U.S. transportation company said at the recent National Industrial Transportation League meeting in Florida. The executive asked not to be identified.
Nathan Pieri, senior vice president, marketing and product management for the consultancy Management Dynamics Inc., says Mexico offers a number of advantages for companies seeking to place or move production closer to North American markets. Beyond the fuel savings and the narrowing of the wage gap with China, Pieri cites the ability for companies producing in Mexico to handle product returns faster and more effectively, and to engage in "postponement"—a strategy that allows them to delay investing in a product until the last possible moment and still get goods to all major U.S. markets in one to five days without relying on pricey airfreight services.
Pieri says the "risk factor" in doing business in China is about double the risk of trading with NAFTA countries. He adds that many businesses don't fully factor in the cost of intellectual rights infringement when developing their sourcing strategies. "It is surprising how slow the international trade community is in reacting to this issue," he says.
Ganster of Tompkins acknowledges that intellectual property violations are an important issue. "But you have to balance those risks with what might be the bigger risk of not doing business in China at all," he adds.
Song of the south
Those companies looking to source their production farther south in the Americas may find the existing infrastructure poses a significant impediment. As of year-end 2004, of Brazil's 1.75 million kilometers (about 1.1 million miles) of roadways, only 96,353 kilometers (59,871 miles) were paved, according to data from the Central Intelligence Agency's World Fact Book. In Argentina, about one-fourth of all of the country's roads were paved, according to the CIA book.
Michael B. Berzon, who spent 27 years at DuPont Co. before forming his own consultancy, which is actively involved in Latin American logistics, says there has been little change in Argentina's infrastructure since then, and at best modest improvement in Brazil's. Berzon says most of the paved roads in the two countries link their commerce centers. However, he adds that the vast majority of trucks travel over those relatively few paved roads, creating enormous congestion.
In Brazil, the problem is compounded by an inadequate rail intermodal network, says Berzon. The country's rail system is capable of handling only bulk agricultural commodities moving from Brazil's vast interior to the major cities and ports, he says. Virtually all merchandise traffic to and from the nation's ports moves by truck, Berzon says, creating an enormous bottleneck at ports and highways.
In the end, analysts contend, multinationals are best able to control their global sourcing risk by diversifying their geographic sourcing locations instead of using just one, and by increasing their IT investment to obtain clearer visibility across the supply chain. Above all, these analysts say, executives must do a better job of analyzing the total landed cost of each offshore product and understand the changing tradeoffs between the cost savings from offshoring and the rising labor and shipping expense that accompanies it.
"We don't expect to see low-cost sourcing go away," Dan Brutto, head of UPS International, said in a statement accompanying the Nov. 1 release of the joint survey with the Economist Intelligence Unit. "But it will look different in the future. The keys to successful sourcing from low-cost countries are like those of supply chain resilience in general: understand the issues, structure the supply chain appropriately, monitor performance, and work with suppliers to improve operations." Brutto added that diversified sourcing and "near-sourcing" are likely to become supply chain management best practices in the future.
Women in supply chain tech don’t always have it easy. That’s particularly true when it comes to building a career in the male-dominated field, where they may face gender bias, limited advancement opportunities, and a lack of mentorship and support.
“Across many professional industries, women have made strides in breaking down barriers; however, supply chain and digital technology are two sectors that are often seen as being male-dominated,” Stephan de Barse, o9’s chief revenue officer, said in a release. “Through the o9 Minerva community, we aim to elevate the incredible knowledge, drive, and experiences of women working in the supply chain space.”
The new group will host networking events and panel discussions that feature expert guidance from “Minerva Ambassadors,” high-ranking professionals who will discuss their career paths and experiences within the supply chain and digital tech space. During the events, Minerva Ambassadors will also address key career advancement challenges, such as gender disparity, access to mentorship and sponsorship opportunities, and the opportunity for more diversity in leadership roles.
“As a supply chain risk management (SCRM) expert and Minerva Ambassador, I am excited to share my own professional journey alongside fellow supply chain leaders and speak to some of the unique challenges that women face as they advance their careers,” Lara Pedrini, global head of sales at risk-management tech company Exiger, said. “I am committed to the advancement of women in the workplace and digital tech, and look forward to discussing ways to close the gender gap for women in STEM fields and foster more inclusive corporate policies and work environments where women can thrive.”
Some of Americans’ favorite condiments include ketchup, salsa, barbecue sauce, and sriracha. Toppings like marinara and pizza sauce are popular as well. The common denominator here is the tomato, and food producers need many tons of them to make these and other tasty products.
One of those producers is Red Gold, an Elwood, Indiana, company whose brands include Red Gold, Redpack, Tuttorosso, Sacramento, Vine Ripe, and Huy Fong. The company works with more than 30 family-owned Midwestern farms to source sustainably managed crops.
In the 80 years since its founding, Red Gold has grown to become the largest privately held manufacturer of tomato products in the U.S., with 23 different product categories and nearly 400 combinations of flavors and cuts. Today, it serves both the grocery market and institutional customers like schools and hospitals.
But a food supply chain of this scale can be expensive to operate. So Red Gold recently launched an initiative to modernize its logistics processes with an eye toward boosting efficiency and increasing resilience while also cutting costs.
The timing was right for such a project. Freight rates in the trucking sector have been depressed for nearly two years, giving the company a rare opportunity to invest some of its savings into process improvements, the company said. “The current transportation market is extremely shipper-friendly and has been for the past 18 months,” James Posipanka, Red Gold’s supply chain manager–logistics, said in a press release. “Now is the time for us to plan and prepare for when it swings the other way and carriers can choose which customers they want to work with. When that happens, we want to be a ‘Shipper of Choice.’ By putting strategies and processes in place now, we’ll be successful when the market does flip.”
STEP-BY-STEP SAVINGS
For help streamlining its processes, the company turned to Loadsmart, a Chicago-based logistics technology developer that specializes in helping clients optimize freight spend, increase efficiency, and enhance service quality. Step by step, Red Gold began implementing three of Loadsmart’s technologies and digital services, moving to the next phase only after it had realized a return on its investment in the previous one.
First, Red Gold implemented Opendock, Loadsmart’s online dock-scheduling platform. That move alone saved thousands of hours of staff time by eliminating the need to make carrier pickup appointments via phone and email. Today, 100% of the carriers that do business at Red Gold’s facilities book their appointments through Opendock—which amounts to some 60,000 appointments annually. Among other benefits, the new platform has drastically reduced the amount of time it takes for a carrier to book an appointment—with Opendock, appointments are scheduled one to two days out instead of 10 or more.
Second, the company installed Loadsmart’s ShipperGuide TMS, a transportation management and request-for-proposal (RFP) management system. The platform helps Red Gold avoid spreadsheets and administrative work. For example, instead of individually emailing RFPs to a few carriers, the company can now send RFPs through the TMS to many more carriers than was feasible in the past and easily compare the rates carriers submit in response. In addition, Red Gold was able to automate some 70% of its load tenders, or about 25,000 shipments, which allowed the company to reduce headcount without any interruptions in workflow.
Third, Red Gold began working with Loadsmart’s digital freight brokerage team to convert some of its full truckload movements to partial truckloads. That move expanded both its carrier base and its freight mode options, saving it $200,000 annually.
All in all, since it began using Loadsmart’s technology and services, Red Gold has reduced appointment leadtimes by 90% and saved 17% on annual LTL freight costs, according to the two companies. Red Gold is so pleased with those results that its logistics team has already begun working with the technology vendor on additional opportunities for improvement.
With that money, qualified ports intend to buy over 1,500 units of cargo handling equipment, 1,000 drayage trucks, 10 locomotives, and 20 vessels, as well as shore power systems, battery-electric and hydrogen vehicle charging and fueling infrastructure, and solar power generation.
For example, funds going to the Port of Los Angeles include a $412 million grant to support its goal of achieving 100% zero-emission (ZE) terminal operations by 2030. And following the award, the Port and its private sector partners will match the EPA grant with an additional $236 million, bringing the total new investment in ZE programs at the Port of Los Angeles to $644 million. According to the Port of Los Angeles, the combined new funding will go toward purchasing nearly 425 pieces of battery electric, human-operated ZE cargo-handling equipment, installing 300 new ZE charging ports and other related infrastructure, and deploying 250 ZE drayage trucks. The grant will also provide for $50 million for a community-led ZE grant program, workforce development, and related engagement activities.
And the Port of Oakland received $322 million through the grant, which will generate a total of nearly $500 million when combined with port and local partner contributions. Altogether, that total will be the largest-ever amount of federal funding for a Bay Area program aimed at cutting emissions from seaport cargo operations. The grant will finance 663 pieces of zero-emissions equipment which includes 475 drayage trucks and 188 pieces of cargo handling equipment.
Likewise, the Port of Virginia said its $380 million in new funding will help to reach its goal of eliminating all greenhouse gas emissions by 2040. The grant money will be used to buy and install electric assets and equipment while retiring legacy equipment powered by engines that burn gasoline or diesel fuel.
According to AAPA, those awards will demonstrate to Congress that the Clean Ports Program should become permanent with annual appropriations. Otherwise, they would soon cease to be funded as backing from the Inflation Reduction Act (IRA) comes to a close, AAPA said. “From the earliest stages of legislative development in Congress, America’s ports have been ecstatic about and committed to the vision of implementing a novel grant program for the port industry that will complement and strengthen existing plans to diversify how we power our ports,” Cary Davis, AAPA’s president and CEO, said in a release. “These grant funding awards will usher in a cleaner and more resilient future for our ports and national transportation system. We thank our champions in Congress and the Biden-Harris Administration for committing to us and we look forward to working closely with our Federal Government partners to get these funds quickly deployed and put to work.”
The majority of American consumers (86%) plan to reduce their holiday shopping budgets this year, with nearly half (47%) expecting to cut spending by more than 50% compared to last year, according to consumer research from Relex Solutions.
The forecast runs against some other studies that predict the upcoming holiday shopping season will be a stronger than last year, with higher sales and earlier shopping than 2023.
But Finland-based Relex says its conclusion is based on the shorter holiday shopping period of 27 days in 2024 (five days shorter than 2023), combined with economic volatility and supply chain disruptions. The research includes survey responses from 1,000 U.S. consumers in October 2024.
According to Relex, those results reveal a complex landscape where price sensitivity and decreased brand loyalty are reshaping traditional retail dynamics. That means retailers and manufacturers must carefully balance promotional strategies with profitability while maintaining product availability, since consumers are actively seeking better value and may switch between brands more readily.
"Retailers are facing a highly challenging season, with consumers prioritizing value more than ever. To succeed, retailers must not only offer attractive promotions but also ensure those deals don’t erode their margins. At the same time, manufacturers need to optimize their operations and collaborate with retailers to deliver value without sacrificing profitability," Madhav Durbha, Relex’ group vice president of CPG and Manufacturing, said in a release. The company says it provides a supply chain and retail planning platform that optimizes demand, merchandising, supply chain, operations, and production planning.
"This holiday season represents a critical juncture for the retail industry," Durbha added. "With reduced brand loyalty and a shorter shopping window, there’s no room for error. Retailers and manufacturers need to work together closely, leveraging AI-powered tools to anticipate demand, manage inventory, and run effective promotions," Durbha said.
In additional findings, the survey found:
Brand loyalty is eroding: About 45% of consumers say they're less likely to remain loyal to brands without meaningful discounts, while 41% will switch brands if faced with both poor deals and out-of-stock products.
Digital channels dominate deal-seeking behavior: Store and brand apps (60%) and email promotions (60%) are the primary channels for finding deals, while only 32% of consumers primarily search for deals in physical stores.
Supply chain concerns remain significant: Nearly 85% of shoppers express concern about potential disruptions, with electronics (60%) and clothing/accessories (57%) being the categories of highest concern.
Age significantly impacts shopping behavior: Consumers from age 45-60 show the highest economic sensitivity, with 60% cutting budgets by more than 50%, while shoppers aged 18-29 prioritize product availability over price.
Electric yard truck provider Outrider plans to scale up its autonomous yard operations in 2025 thanks to $62 million in fresh venture capital funding, the Colorado-based firm said.
The expansion in 2025 will be focused on distribution center applications, but Outrider says its technology is also well-suited for use in intermodal rail and port terminals, paving the way for future applications across freight transportation.
“Outrider’s proprietary safety systems; consistent, predictable movement through complex and chaotic environments; and patented robotic-arm-based system for trailer air and electric line connections have allowed us to stay far ahead of any competition," Bob Hall, Chief Operating Officer at Outrider, said in a release.
The “series D” round was led by Koch Disruptive Technologies (KDT) and New Enterprise Associates (NEA), with additional investments from 8VC, ARK Invest, B37 Ventures, FM Capital, Interwoven Ventures, NVentures (NVIDIA’s venture capital arm), and Prologis Ventures. Other investors joining the Series D financing are Goose Capital; Lineage Ventures, the investment strategy of Lineage, Inc.; Presidio Ventures, the venture capital arm of Sumitomo Corporation; and Service Provider Capital. In total , the new backing brings the company to over $250 million in equity capital raised to date.