Globalization, technological innovation, and supply chain efficiency explain the current resilience of U.S. corporate profits—one of the few drivers of the U.S. economy at the moment.
Globalization, technological innovation, and supply chain efficiency explain the current resilience of U.S. corporate profits—one of the few drivers of the U.S. economy at the moment. The U.S. Department of Commerce recently reported that corporate profits (which includes both domestic and foreign profits) now make up the largest percentage of the country's gross domestic product (GDP) since the 1950s. This ratio currently stands at just under 13 percent of GDP, amounting to a total of US $1.9 trillion (see Figure 1). However, wage and salary disbursements have been slowly trending downward from 47 percent of GDP in 1985 to 44.4 percent in the second quarter of 2011 (see Figure 2). These trends seem to point to increased inequality between workers and managers, driven to some extent by the outsourcing of lower-skilled jobs to Asia.
U.S. domestic corporate profits—defined as American corporations' profits generated from operations in the United States—trended downward from the 1950s through the mid-1980s. But then that trend reversed, with profits experiencing wild swings during recession cycles. In the 1960s, domestic corporate profits were slightly less than 11.0 percent of GDP, falling to 7 percent by 1985.
Article Figures
[Figure 1] Corporate profits as percentage of U.S. GDPEnlarge this image
[Figure 2] Wage and salary disbursements as percentage of U.S. GDPEnlarge this image
Currently, domestic corporate profits stand at 10.1 percent of GDP. Analysts have been amazed at the rate at which domestic corporate profits have been able to spring back following the "Great Recession" (December 2007 to June 2009). Indeed, domestic corporate profits as a percentage of GDP fell to their lowest point in over 60 years during the recession and then rebounded to their pre-recession levels in just over one year. One reason why is that greater supply chain efficiency is allowing domestic companies to maintain lower inventories and avoid overshooting (accumulating inventory) when a slowdown occurs. This helps corporate profits to snap back more quickly. Inventory-tosales ratios adjusted for inflation have been trending down for the retail and wholesale trade over the past 15 years.
The innovation of business-to-business e-commerce has also changed the cost and profit picture for many companies. In 2003, approximately 21 percent of U.S. manufacturing sales and 14.6 percent of wholesale sales were e-commerce-related. By 2008 those percentages had increased to almost 40 percent for manufacturing and 16.3 percent for wholesale trade.
A major game changer in the last couple of decades has been the increasing influence of foreign profits—the profits U.S. corporations earn from overseas receipts. In the mid-1960s, U.S. corporations were making approximately 6.5 percent of their profits from foreign operations, which translated to less than 1 percent of GDP. By the mid-1990s, foreign profits started playing a stronger role in overall corporate profitability. Foreign profits are now slightly less than 4.3 percent of GDP—up more than four-fold from the mid-1980s—and American corporations now make 30 percent of their profits from foreign sources.
Comparative advantage comes into play
One of the central concepts behind the idea of "comparative advantage" advanced by British economist David Ricardo (1772-1823) is that countries specialize in what they do best (that is, most efficiently and cost-effectively), and trade is the central mechanism for exchanging those goods and services. Thus, globalization, trade liberalization, and free trade benefit all nations. Domestic and foreign profits benefit from increased globalization in different ways, and today technological and supply chain innovations are making world trade more profitable in ways David Ricardo could not have imagined.
U.S. and European companies have discovered the advantages of outsourcing low value-added production and service operations to countries with an abundance of productive yet low-wage laborers. Call centers in India and assembly plants in China are just two of many examples. (Approximately 60 percent of Chinese exports, in fact, are sanctioned by U.S. and European corporations.) Outsourcing enables companies to retain the more skilled and higher value-added distribution, design, and technical production processes in their home countries while importing services and goods with lower valued-added components. By doing so, they are optimizing their production cycles and minimizing their costs, thereby improving margins.
As emerging countries continue to develop, demand for high value-added exports from the United States and Europe is growing. Oddly, 30 percent of current U.S. exports are services. This is in addition to domestic corporate profits and makes them more resilient in times of domestic recession. There is considerable anecdotal evidence suggesting that service exports have higher margins than goods and material exports because there are no inventories to worry about and transportation costs (if any) are lower.
Foreign corporate profits have been a blessing for U.S. companies, since the global slowdown in 2008 through 2009 in China, Brazil, and India was relatively mild while U.S. and Western European economies were still dragging. Increasing consumer spending in foreign markets, especially Asia, continue to play a major role in improving U.S. corporate profitability by helping to prop up profits when U.S. domestic consumer spending is anemic.
Protect your profitability
Early in her political career, the British Prime Minister Margaret Thatcher often said that "there is no alternative" to trade liberalization, free trade, and globalization. That appears to be true for U.S. corporations, whose performance is becoming increasingly dependent on overseas operations to bring higher and more stable profits. However, the rising productivity of many Chinese and Indian industries is placing considerable wage and price pressure on U.S. companies' outsourcing operations. Many countries want to move up the value-added chain. In addition, the extensive, very specialized production concentrations that have developed due to some countries' comparative advantage have created considerable supply chain risks from such factors as natural disasters or political instability. Companies might want to think about building a few redundancies in their supply chain networks in order to hedge against events that may be improbable, yet if they happen—and unfortunately they do, as we saw in Japan earlier this year—can make the difference between profit and loss.
Artificial intelligence (AI) tools can help users build “smart and responsive supply chains” by increasing workforce productivity, expanding visibility, accelerating processes, and prioritizing the next best action to drive results, according to business software vendor Oracle.
To help reach that goal, the Texas company last week released software upgrades including user experience (UX) enhancements to its Oracle Fusion Cloud Supply Chain & Manufacturing (SCM) suite.
“Organizations are under pressure to create efficient and resilient supply chains that can quickly adapt to economic conditions, control costs, and protect margins,” Chris Leone, executive vice president, Applications Development, Oracle, said in a release. “The latest enhancements to Oracle Cloud SCM help customers create a smarter, more responsive supply chain by enabling them to optimize planning and execution and improve the speed and accuracy of processes.”
According to Oracle, specific upgrades feature changes to its:
Production Supervisor Workbench, which helps organizations improve manufacturing performance by providing real-time insight into work orders and generative AI-powered shift reporting.
Maintenance Supervisor Workbench, which helps organizations increase productivity and reduce asset downtime by resolving maintenance issues faster.
Order Management Enhancements, which help organizations increase operational performance by enabling users to quickly create and find orders, take actions, and engage customers.
Product Lifecycle Management (PLM) Enhancements, which help organizations accelerate product development and go-to-market by enabling users to quickly find items and configure critical objects and navigation paths to meet business-critical priorities.
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
The Raymond Corp. has expanded its energy storage solutions business with the opening of a manufacturing plant that will produce lithium-ion and thin plate pure lead (TPPL) batteries for its forklifts and other material handling equipment. Located in Binghamton, N.Y., Raymond’s Energy Solutions Manufacturing Center of Excellence adds to the more than 100-year-old company’s commitment to supporting the local economy and reinvigorating Upstate New York as an innovation hub, according to company officials and local government and business leaders who gathered for a ribbon cutting and grand opening this week.
“This region has a rich history of innovation,” Jennifer Lupo, Raymond’s vice president of energy solutions, supply chain, and leasing, said in welcoming attendees to the ribbon cutting ceremony Monday.
Lupo referred to the new factory as an “exciting milestone” in Raymond’s history and described it as the next step in the company’s energy storage solutions business, which began nearly 10 years ago with the development of a lithium-ion battery to power its “walkie” pallet jack. That work has expanded to include larger batteries and other technologies to support battery-electric equipment.
“We’re not just keeping up with the electrification movement,” Lupo said. “We’re leading it.”
Raymond, a business unit of Toyota Material Handling, has been building forklifts, pallet jacks, and other material handling equipment at its nearby Greene, New York, headquarters since 1922. The Binghamton factory supports local efforts to boost manufacturing and innovation in New York’s Southern Tier, which was recently designated as a regional technology and innovation hub by the Biden Administration.
Raymond is leasing the 124,000 square foot facility at 196 Corporate Drive, situated in an established industrial park. The manufacturer is currently utilizing just 10,000 square feet of the space to produce its 8250 lithium-ion battery, which can power Raymond’s class 1 and class 2 fork trucks, as well as a smaller TPPL battery for powering pallet jacks.
The Binghamton factory employs 15 people, but the company expects to scale up quickly in space and personnel, adding 12 to 25 employees next year and ramping up to 60 employees by 2027, according to Jim Priestly, battery manufacturing manager for energy solutions at Raymond.
The Binghamton facility also represents Raymond’s larger commitment to helping develop greener, more sustainable supply chains, according to company President and CEO Michael Field.
“We recognize energy’s critical role in shaping our future,” Field told attendees at the grand opening, adding that Raymond is seizing the opportunity to participate in the clean energy transition locally and beyond.
“This facility is just the beginning,” Field said.
Economic activity in the logistics industry expanded in August, though growth slowed slightly from July, according to the most recent Logistics Manager’s Index report (LMI), released this week.
The August LMI registered 56.4, down from July’s reading of 56.6 but consistent with readings over the past four months. The August reading represents nine straight months of growth across the logistics industry.
The LMI is a monthly gauge of economic activity across warehousing, transportation, and logistics markets. An LMI above 50 indicates expansion, and a reading below 50 indicates contraction.
Inventory levels saw a marked change in August, increasing more than six points compared to July and breaking a three-month streak of contraction. The LMI researchers said this suggests that after running inventories down, companies are now building them back up in anticipation of fourth-quarter demand. It also represents a return to more typical growth patterns following the accelerated demand for logistics services during the Covid-19 pandemic and the lows of the recent freight recession.
“This suggests a return to traditional patterns of seasonality that we have not seen since pre-COVID,” the researchers wrote in the monthly LMI report, published Tuesday, adding that the buildup is somewhat tempered by increases in warehousing capacity and transportation capacity.
The LMI report is based on a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).