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.
It's not every day that trade association executives talk candidly about the economic pressures facing the industries whose interests they are paid, often handsomely, to represent. But Jeff Bergmann, chief operating officer of the Cincinnati-based Toy Shippers Association (TOYSA), could not sugarcoat his response to a query about the outlook for toy sales this winter.
"It's not going to be a very good holiday season for our members," he said in a late October interview.
Bergmann has valid reason for concern. According to a mid-October survey from the National Retail Federation (NRF), the typical U.S. consumer will spend $682 on holiday items this year, down 3.2 percent from 2008 and the lowest level since 2003. (The survey didn't solicit responses specific to purchases of toys.)
Not surprisingly, a separate NRF paper that tracks U.S. containerized ocean traffic entering U.S. ports has reported the weakest activity since 2003, as worried retailers pare back new orders in response to tepid end demand.
"We see stock levels (at retailers) that are significantly lower than in previous years," Eric Levin, executive vice president of Techno Source, a Hong Kong-based toy and game manufacturer, said in late October.
Levin said the financial crisis stands to reshape the entire supply chain landscape for the toy business. Traditionally, retailers placed their orders early in the year and suppliers shipped holiday stock throughout the summer for delivery to stores by early September. This year, retailers concerned about buying too much too soon spread their orders over a five- to six-month period that began in July and ran through November, Levin said. This has wreaked havoc on many supply chains, which were ill-prepared to make the adjustment, he said.
The executive said it's too early to tell if the shifts in order patterns are a one-time event in response to the downturn, or the start of a long-term trend. If it's the latter, "it will change a lot of the business flow in Chinese factories going forward," he said.
The retailers' cautious stance is not new. In 2008, toy import tonnage from China—by far the main source for U.S.-sold toy and game products—declined 8 percent over 2007 levels, according to consultancy IHS Global Insight. By contrast, import tonnage from China in 2007 rose 14 percent over 2006 levels, the firm said. It has not made projections for 2009's import activity.
Tight capacity
Weak demand is not the only challenge facing the toy industry. Another is a shortage of ocean liner capacity. In response to the global downturn and a non-compensatory pricing climate, a number of ocean carriers have taken ships out of service, leaving toy shippers and importers hard pressed to secure cargo space when they need it. TOYSA's Bergmann lauded the steamship lines for being flexible and accommodating to his industry's needs, but acknowledged the group has fielded "a few calls" from members looking for capacity during peak season and not finding it.
Should the space become available—and steamship lines can quickly get mothballed vessels back in the water if demand warrants—it will likely cost more to procure. Or at least it will if the carriers have their way. In August, the toy supply chain was hit with a $500 rate increase per forty-foot equivalent unit container (FEU); most of that increase has stuck. That increase was followed by a peak-season surcharge and "equipment repositioning" charges, as carriers look to shore up their bottom lines any way they can.
The third-party logistics service providers (3PLs) have been the main targets of the carriers' rate hikes. That's because so-called beneficial cargo owners—typically manufacturers or retailers—had language in their contracts barring rate increases or absorption of peak-season surcharges.
Bergmann noted that 3PLs are absorbing the increases or trying to pass them on to their customers. Some shippers have accepted relatively small increases from the 3PLs, he added.
Bergmann said TOYSA believes carriers just want to return to some level of pricing normalcy and are not looking to gouge his members. But that's little solace to an industry already facing sluggish demand during its most important selling period. "It's quite a conundrum for us," he said.
Get in gear!
The toy industry's challenges won't stop when Santa Claus packs it in for another season. In August 2008, President Bush signed legislation requiring that by this February, manufacturers and importers must certify that their toys have been tested and are in compliance with mandatory safety standards. Importers are required to have compliance certifications available to inspectors at the time the products are examined.
The legislation arose from several incidents in recent years involving the safety of U.S. toy imports, notably a 2007 incident when Mattel Inc. had to recall nearly 1 million Fisher-Price toys after discovering its supplier had coated their surfaces with lead paint.
David J. Evan, a New York-based attorney who advises companies on the new law, said the testing process and the potential for negative test results could disrupt the supply chain at any point. If inspectors snag a non-compliant product or product component, the goods can't be distributed until the affected item is removed or replaced. This could result in shipment delays, product recalls, and stockouts, Evan warned.
The New York-based Toy Industry Association has developed what it calls an industrywide process—which includes extensive product testing—to ensure compliance. In October, the group announced that manufacturers could start applying for certification under its new "Toy Safety Certification Program." Toys certified under the program are expected to appear on store shelves in 2010, the association said.
Amy Magnus, district manager at A.N. Deringer Inc., a St. Albans, Vt.-based customs broker, freight forwarder, and 3PL, said manufacturers and importers should expect government inspectors to be aggressive in enforcing the law. Magnus added that other agencies aside from the Consumer Product Safety Commission (CPSC) now have the power to place manifest holds on cargo to satisfy their own requirements. She suggested that companies seek the help of a broker or an import specialist to avoid stiff fines for non-compliance.
Evan said the CPSC is adding staff at U.S. ports, which will result in more inspections. If a product is stopped at a port due to compliance issues, the CPSC and the U.S. Bureau of Customs and Border Protection will conduct a field test and send samples to CPSC facilities, where examiners can place a hold on the goods until they determine if the product is in compliance. Goods that fail the compliance test will not be released into U.S. commerce.
Levin of Techno Source said toy manufacturers must balance the ability to test thoroughly with the need to quickly move products through the process so they can hit store shelves on schedule. They must also convince retailers to accept testing reports that manufacturers already have on file so they can avoid paying for the same tests to be re-run for each retailer, he added.
"If every retailer begins to require tests be re-done just for them, it will create significant unwarranted expenses and delays," Levin warned.
Regardless of the different issues that could potentially fracture industry interests, Levin said all the players are on the same page as to the overriding priority.
"We as an industry are all aligned in wanting to ensure that toys are safe for kids," he said.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.