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.
The nation's leading shipper executives didn't rise to the top of their profession by accident. It took resourcefulness and determination, honed by decades of experience and results, to get to where they are.
They will need all of those qualities, and then some, to cope with what is coming at them. However, underestimating their cat-skinning abilities could be a mistake.
To be sure, the obstacles are daunting. To begin with, there's the run-up in fuel costs. The average national price of diesel fuel rose to more than $4.10 a gallon as of April 18, according to the Department of Energy's Energy Information Administration. In California, diesel prices reached a near-punitive $4.44 a gallon. As this story was written, the national average had risen by $1.03 a gallon from mid-April 2010 levels, hitting its highest point since August 2008, when diesel reached a monthly average of $4.30 a gallon. As of mid-April, fuel had surpassed labor as the largest expense for many truckers.
At the same time, tractor counts continue to shrink at a rate that has alarmed even the most seasoned shipper executives. A spate of bankruptcies and a weak economy that forced rigs and trailers off the road has led to a 16-percent decline in truckload capacity from the industry's 2006 peak, according to Transport Capital Partners, a transport mergers and acquisitions advisory firm.
A monthly Shippers' Condition Index (SCI) published by the Nashville, Ind.-based consultancy FTR Associates declined in April to levels not seen since 2004, the firm said in mid-April. The index, which sums up all "market influences" affecting shippers, came in at -7.7 in April, FTR said. A reading below zero reflects an unfavorable climate for shippers.
"Shippers are being hit in two ways as ... base rates are moving higher for all major modes and fuel surcharges are surging," said Larry Gross, senior consultant for FTR. "While there might be some relief later in the year on fuel surcharges, we expect base rates to continue to increase." Although estimates vary, consultancy IHS Global Insight says the average fuel surcharge today is equal to one-fourth of the truckers' base rate for line-haul service.
Tactical maneuvers
Transport costs were much on the minds of an elite group of about 100 shipper executives gathered in Atlanta in mid-April at a conference hosted by Georgia Tech's Supply Chain & Logistics Institute. Executives and analysts attending the National Logistics & Distribution Conference voiced concerns that as fuel surcharges course through the supply chain, the result will be a surge in consumer prices—perhaps as early as the summer—to levels the nation hasn't seen for decades.
One executive, speaking without being identified, said that unless oil prices receded quickly and dramatically, "I don't see how we can avoid consumer price inflation in the double digits later this year."
Yet there was also a sense that shippers will find their way through the morass. From the use of "load bars" that can reduce damage claims by securing freight aboard a trailer, to the development of capacity-sharing arrangements, to paying bonuses to drivers to finish local multi-stop routes earlier than planned to save time and fuel, to simply asking partners if they could adjust their delivery schedules to accept less-expensive services, shippers and truckers will look under every rock in their bid to neutralize higher fuel spend with better productivity—and cost savings—elsewhere.
"I can't offset it completely, but I can minimize the hurt," said Gough Grubbs, senior vice president of logistics and distribution for Stage Stores, a Houston-based retail chain with more than 780 stores operating under the Goody's, Bealls, Palais Royal, Peebles, and Stage brands.
Stage has begun a pooling program with other retailers that operate in roughly the same geographic footprint, Grubbs said. Under the program, Stage's competitors bring their small parcels to one of the company's distribution centers, located in South Hill, Va.; Jeffersonville, Ohio; and Jacksonville, Texas. Once those shipments arrive, Stage will break down the trailers and cross-dock the shipments onto its own trailers—along with its own goods—for outbound truckload deliveries to its 21 hubs that augment the DCs.
The pooling agreement has three-tiered benefits, according to Grubbs. Stage's rivals, which were forced to pay much-higher small-parcel rates because they lacked the density to build less-costly truckloads, now have access to truckload pricing because their shipments ride along with Stage's freight. Stage benefits by filling its trailers faster, thus avoiding the cost of holding a rig and trailer overnight to build a truckload. And the trucker gains by having more freight to transport. In addition, service levels increase because the supply chain is effectively sped up, Grubbs said.
Stage has already signed up two retailers, the names of which Grubbs wouldn't disclose. A third was expected to come on board by the end of May, and talks were ongoing with six more retailers, he said.
The agreement and others like it herald a new era in supply chain cooperation, Grubbs said. Today's mantra is "we compete on the shelf and collaborate in the supply chain," he said, adding that the company "welcomes any inquiries from companies who believe their circumstances fit this model."
At the heart of Stage's strategy is to create as many truckload shipments as possible and reduce its reliance on less-than-truckload (LTL) or small-parcel service, where the shipping costs can be up to 40 percent greater. Grubbs estimates that about 90 percent of Stage's annual inbound deliveries of 9 million cartons now move in truckload service, up from about 70 percent four to five years ago.
Going for full loads
Converting freight from LTL to less-costly truckload service is also the holy grail of The Home Depot Inc.'s five-year supply chain transformation plan, which is now nearing completion. The Atlanta-based home improvement giant has created 19 "rapid deployment centers" (RDCs), which are flow-through facilities that, as with Stage's plan, enable the cross-docking of large quantities of merchandise.
By leveraging the RDCs, suppliers who used to ship direct to stores using LTL service can now consolidate their shipments into truckload quantities for shipping to the facilities.
Mark Holifield, Home Depot's senior vice president, supply chain, said the company should realize 40 basis points—roughly 0.4 of 1 percent—of profit margin improvement largely through the savings in converting LTL to truckload. Given the company's $55 billion in annual sales, that level of margin expansion is significant, Holifield said.
In addition, Home Depot is looking to share capacity with other retailers on its dedicated contract carrier network, according to Michelle D. Livingstone, the company's vice president, supply chain-transportation. Under the dedicated concept, a shipper commits to a multi-year contract where it tenders a certain amount of volume and pays for transportation on a round-trip basis. In return, the shipper gets predictable capacity and pricing, no small matter in the current volatile environment.
Holifield said that Home Depot, one of the world's largest users of LTL services, would like to dramatically shrink its use of LTL. Both he and Livingstone stressed, however, that the company would always rely on LTL to some degree, given the requirements of its supply chain.
An orderly approach
Some shipping executives may be loath to re-engineer their networks in response to the current fuel pressures, perhaps not feeling the same sense of urgency today after recalling how the 2008 spike was followed by an equally violent price downdraft after the economy collapsed.
Chuck Taylor, whose firm consults with companies on the interconnections between energy and the supply chain, said shippers and carriers were so focused on surviving the recession and riding the recovery that they paid scant attention to escalating oil prices. The recent run-up, he said, "is catching many off guard."
Taylor, who has long preached that the supply chain must adjust to permanently elevated oil prices, said he has "heard nothing about any new or innovative approaches" to counteract rising energy costs. "It seems to be a stunned acceptance of higher fuel prices followed by the usual beat-the-carrier-down approach," he said.
Starbucks Coffee Co. is trying to take an orderly approach to the problem. For the past year, the Seattle-based giant, which each year consumes about 7 million gallons of fuel moving product from its DCs to its thousands of retail stores, has been modeling various supply chain scenarios and responses with oil at different price points, according to Gregory Javor, Starbucks' senior vice president, supply chain operations, global logistics.
Javor told the conference that with diesel fuel prices at mid-April levels, the company is "ready for a refresh" of its transport network requirements. It is considering expanding its current DC capabilities, and adding to its network of five regional facilities to bring inventory closer to its customers, Javor said. Starbucks has tripled its use of more cost-effective intermodal service on inbound consignments into its DCs and will use more intermodal if necessary, Javor said.
In the past 12 months, Starbucks has cut fuel usage 3.6 percent by reducing delivery frequencies, reconfiguring the location of what it terms its "last-mile facilities," and integrating more energy-efficient vehicles into its fleet, Javor said. The company will continue to drill deep into its transportation system to uncover cost-saving opportunities, he added. "Transportation connects all the dots," Javor said in an interview following his presentation.
Brian P. Clancy, managing director and co-founder of Logistics Capital & Strategy LLC, an Arlington, Va.-based consultancy, said higher fuel prices will force many businesses to shrink the length of haul from DC to retailer, and to ship in large quantities to achieve economies of scale. "To accomplish this, additional and larger warehouses will be needed, which implies more stock and higher inventory levels and costs," he told the group.
Clancy said the big winner in all of this could be Mexico, a country where cumbersome regulations, primitive infrastructure, a reputation for corruption, and language barriers have kept many producers away. With fuel and transport costs on the rise, however, producing closer to the U.S. market is starting to look more attractive than manufacturing in Asia and shipping across the Pacific. In a recent survey by his firm of 250 U.S., European, and Asian manufacturers with a presence in Mexico, 200 said they plan to either maintain or expand operations there.
"Mexico is finally going to get its turn," he said.
Specifically, the new global average robot density has reached a record 162 units per 10,000 employees in 2023, which is more than double the mark of 74 units measured seven years ago.
Broken into geographical regions, the European Union has a robot density of 219 units per 10,000 employees, an increase of 5.2%, with Germany, Sweden, Denmark and Slovenia in the global top ten. Next, North America’s robot density is 197 units per 10,000 employees – up 4.2%. And Asia has a robot density of 182 units per 10,000 persons employed in manufacturing - an increase of 7.6%. The economies of Korea, Singapore, mainland China and Japan are among the top ten most automated countries.
Broken into individual countries, the U.S. ranked in 10th place in 2023, with a robot density of 295 units. Higher up on the list, the top five are:
The Republic of Korea, with 1,012 robot units, showing a 5% increase on average each year since 2018 thanks to its strong electronics and automotive industries.
Singapore had 770 robot units, in part because it is a small country with a very low number of employees in the manufacturing industry, so it can reach a high robot density with a relatively small operational stock.
China took third place in 2023, surpassing Germany and Japan with a mark of 470 robot units as the nation has managed to double its robot density within four years.
Germany ranks fourth with 429 robot units for a 5% CAGR since 2018.
Japan is in fifth place with 419 robot units, showing growth of 7% on average each year from 2018 to 2023.
Progress in generative AI (GenAI) is poised to impact business procurement processes through advancements in three areas—agentic reasoning, multimodality, and AI agents—according to Gartner Inc.
Those functions will redefine how procurement operates and significantly impact the agendas of chief procurement officers (CPOs). And 72% of procurement leaders are already prioritizing the integration of GenAI into their strategies, thus highlighting the recognition of its potential to drive significant improvements in efficiency and effectiveness, Gartner found in a survey conducted in July, 2024, with 258 global respondents.
Gartner defined the new functions as follows:
Agentic reasoning in GenAI allows for advanced decision-making processes that mimic human-like cognition. This capability will enable procurement functions to leverage GenAI to analyze complex scenarios and make informed decisions with greater accuracy and speed.
Multimodality refers to the ability of GenAI to process and integrate multiple forms of data, such as text, images, and audio. This will make GenAI more intuitively consumable to users and enhance procurement's ability to gather and analyze diverse information sources, leading to more comprehensive insights and better-informed strategies.
AI agents are autonomous systems that can perform tasks and make decisions on behalf of human operators. In procurement, these agents will automate procurement tasks and activities, freeing up human resources to focus on strategic initiatives, complex problem-solving and edge cases.
As CPOs look to maximize the value of GenAI in procurement, the study recommended three starting points: double down on data governance, develop and incorporate privacy standards into contracts, and increase procurement thresholds.
“These advancements will usher procurement into an era where the distance between ideas, insights, and actions will shorten rapidly,” Ryan Polk, senior director analyst in Gartner’s Supply Chain practice, said in a release. "Procurement leaders who build their foundation now through a focus on data quality, privacy and risk management have the potential to reap new levels of productivity and strategic value from the technology."
Businesses are cautiously optimistic as peak holiday shipping season draws near, with many anticipating year-over-year sales increases as they continue to battle challenging supply chain conditions.
That’s according to the DHL 2024 Peak Season Shipping Survey, released today by express shipping service provider DHL Express U.S. The company surveyed small and medium-sized enterprises (SMEs) to gauge their holiday business outlook compared to last year and found that a mix of optimism and “strategic caution” prevail ahead of this year’s peak.
Nearly half (48%) of the SMEs surveyed said they expect higher holiday sales compared to 2023, while 44% said they expect sales to remain on par with last year, and just 8% said they foresee a decline. Respondents said the main challenges to hitting those goals are supply chain problems (35%), inflation and fluctuating consumer demand (34%), staffing (16%), and inventory challenges (14%).
But respondents said they have strategies in place to tackle those issues. Many said they began preparing for holiday season earlier this year—with 45% saying they started planning in Q2 or earlier, up from 39% last year. Other strategies include expanding into international markets (35%) and leveraging holiday discounts (32%).
Sixty percent of respondents said they will prioritize personalized customer service as a way to enhance customer interactions and loyalty this year. Still others said they will invest in enhanced web and mobile experiences (23%) and eco-friendly practices (13%) to draw customers this holiday season.
That challenge is one of the reasons that fewer shoppers overall are satisfied with their shopping experiences lately, Lincolnshire, Illinois-based Zebra said in its “17th Annual Global Shopper Study.”th Annual Global Shopper Study.” While 85% of shoppers last year were satisfied with both the in-store and online experiences, only 81% in 2024 are satisfied with the in-store experience and just 79% with online shopping.
In response, most retailers (78%) say they are investing in technology tools that can help both frontline workers and those watching operations from behind the scenes to minimize theft and loss, Zebra said.
Just 38% of retailers currently use AI-based prescriptive analytics for loss prevention, but a much larger 50% say they plan to use it in the next 1-3 years. That was followed by self-checkout cameras and sensors (45%), computer vision (46%), and RFID tags and readers (42%) that are planned for use within the next three years, specifically for loss prevention.
Those strategies could help improve the brick and mortar shopping experience, since 78% of shoppers say it’s annoying when products are locked up or secured within cases. Adding to that frustration is that it’s hard to find an associate while shopping in stores these days, according to 70% of consumers. In response, some just walk out; one in five shoppers has left a store without getting what they needed because a retail associate wasn’t available to help, an increase over the past two years.
The survey also identified additional frustrations faced by retailers and associates:
challenges with offering easy options for click-and-collect or returns, despite high shopper demand for them
the struggle to confirm current inventory and pricing
lingering labor shortages and increasing loss incidents, even as shoppers return to stores
“Many retailers are laying the groundwork to build a modern store experience,” Matt Guiste, Global Retail Technology Strategist, Zebra Technologies, said in a release. “They are investing in mobile and intelligent automation technologies to help inform operational decisions and enable associates to do the things that keep shoppers happy.”
The survey was administered online by Azure Knowledge Corporation and included 4,200 adult shoppers (age 18+), decision-makers, and associates, who replied to questions about the topics of shopper experience, device and technology usage, and delivery and fulfillment in store and online.
An eight-year veteran of the Georgia company, Hakala will begin his new role on January 1, when the current CEO, Tero Peltomäki, will retire after a long and noteworthy career, continuing as a member of the board of directors, Cimcorp said.
According to Hakala, automation is an inevitable course in Cimcorp’s core sectors, and the company’s end-to-end capabilities will be crucial for clients’ success. In the past, both the tire and grocery retail industries have automated individual machines and parts of their operations. In recent years, automation has spread throughout the facilities, as companies want to be able to see their entire operation with one look, utilize analytics, optimize processes, and lead with data.
“Cimcorp has always grown by starting small in the new business segments. We’ve created one solution first, and as we’ve gained more knowledge of our clients’ challenges, we have been able to expand,” Hakala said in a release. “In every phase, we aim to bring our experience to the table and even challenge the client’s initial perspective. We are interested in what our client does and how it could be done better and more efficiently.”