Editor's note: We received the following comments in response to Editor James Cooke's Perspective column ("U.S. logistics costs: Are we measuring the right things?") when it appeared in an electronic newsletter prior to publication in the print edition. We welcome your comments on this or any other article in CSCMP's Supply Chain Quarterly via e-mail to jcooke@supplychainquarterly.com. (Letters may be edited for length and/or clarity.)
Managers can control the amount of inventory
With regard to your comment, "Since logistics managers can't really manage carrying costs, then perhaps it's time to change the calculation for U.S. logistics costs to include only those elements that are under the sway of practitioners": Logistics managers can manage a significant factor in carrying costs—the amount of inventory carried. Don't absolve them from this responsibility because they cannot control interest rates.
Now, if you wanted to create a normalizing factor, that would be good. For example, you could establish a baseline "cost of money" at a given percentage, and then translate current carrying costs to that cost of money. It would be a relatively easy calculation to set up. All you have to do is get agreement on the baseline cost of money. Which is easier said than done, as everyone will have an opinion on what it should be.
Mike Ledyard
Partner
Supply Chain Visions Ltd.
Memphis, Tennessee, USA
Interest rates might rebalance ocean flows
In a weak economy, containerized shipping has embraced the [trade-off of] price/cost versus transit time and predictable shipment availability. As interest rates rise, the cost of inventory may require more stringent carrier/vendor management criteria, with more focus on transit time and schedule integrity than on lowest price.
In the 1980s, U.S. Lines failed with their slow and low-cost 4,000-TEU "Econ" ships. Interest rates in those days were in the double digits, and competition based on faster transit time was favored. Today 16,000-TEU ships are flooding the market with excess capacity based on their lower cost advantage. Perhaps rising interest rates will promote a healthier balance of supply, demand, and time to market. Meantime, according to the "State of Logistics Report," international shipping represents a whopping 2 percent of total U.S. logistics costs, and trucking about 50 percent.
Rick Wen
Vice President, Business Development
OOCL (USA) Inc.
San Ramon, California, USA
What about transportation costs?
I enjoyed reading your recent piece on U.S. logistics costs, but I have to disagree a little with your statement.
You conclude that inventory carrying costs are out of the control of logistics managers and that, therefore, this may not be a good yardstick for logistics performance.
Please consider this:
1. Logistics managers can control inventory holding costs by holding less inventory. When interest rates (part of the total cost equation) rise, logistics managers will decide to hold less inventory.
2. Is it not the same with transportation costs? Fuel prices are also out of the control of logistics managers. Yet they can manage how much to ship by which means of transportation. Thus, they only affect what the fuel price is multiplied with—which is the same with the inventory and the interest rate.
Carl Marcus Wallenburg, Ph.D.
Professor of logistics and service management
WHU-Otto Beisheim School of Management
Vallendar, Germany
Why we should consider "administered prices" in calculations
I am the co-author and research principal of South Africa's annual logistics cost survey, of which the ninth measurement has just been released (www.csir.co.za/sol). I would like to comment on your perspective piece, "U.S. logistics costs: Are we measuring the right things?"
I call the phenomenon you refer to "administered prices" (exogenous risk)—elements industry has no control over, such as the interest rate and the fuel price. We should, as you infer, measure the activity (representing the real productivity measurement) and the price attached to the activity, separately. Both should, however, be measured, since this speaks to the heart of logistics—the trade-off between transport costs and inventory carrying cost.
Over the 30 years of Delaney's measurement (and Wilson's since his passing away), transportation's portion of logistics costs rose steadily and inventory carrying costs declined. We need to understand how much of the possible improvement in inventory carrying costs were as a result of lower inventories (the activity) and how much as a result of a lower paper rate. What we do from time to time is to run scenarios such as, "What would the logistics cost percentage have been if the prime rate stayed the same?" (we use prime and not the paper rate), or "What would it have been if the fuel price stayed the same?"
There is, however, a more significant problem to consider. We configure large-scale logistics systems based on, among other things, trade-offs between carrying costs and transport costs. In the case of South Africa's survey, we correctly predicted, over the decade since the survey's inception, that the core cost driver of administered transport costs (the oil price) will rise faster than administered inventory charges (the prime rate). The longer-term view of the changing global economic structure is, however, not yet considered sufficiently in infrastructure investments in many countries, including South Africa. If, for instance, the paper rate rises by 1 percent and the oil price increases to US $300 a barrel in 10 years (which is not unlikely), where will that leave us? Not having engineered a modal shift, for instance, will leave many economies vulnerable.
Both the activity and its administered costs therefore need to be included in macro-level logistics cost measurement, including scenario development. This will allow the development of industry discussion themes, such as this, that could lead to more sustainable logistics practices but also, importantly, policy formulation on a national level to reduce nations' exposure to exogenous risk.
Jan Havenga, Ph.D.
Director, Stellenbosch University Supply Chain Management Centre
Stellenbosch, South Africa
Logistics managers do control inventory
I disagree with the editorial. Logistics and supply chain managers do have a tremendous amount of influence over the amount of inventory held by their firms or within their supply chains. If interest rates are low, they take advantage of the situation by holding inventory and shipping in larger volumes to reduce their transportation costs and lower overall logistics costs. When interest rates increase, they reduce inventory and ship more frequently, again to lower overall total cost. If they're not concerned with the inventory carrying cost, then they definitely are concerned about the availability of working capital or the amount of current assets appearing on their balance sheets.
In addition, the inventory carrying cost should reflect the risk associated with holding those inventories. The inventory-to-sales ratio for retailers has recently been relatively low as compared to prior to the recession. Retailers recognize the risk [cost] associated with holding those inventories and have pushed the inventory back on the manufacturers, whose inventory-to-sales ratio is higher than pre-recession levels. The risk [cost] associated with holding components and raw materials is lower than for finished goods. If they had no control over these costs, then why does their behavior reflect the risks [costs] associated with holding inventory?
If we extend the argument of interest rates being uncontrollable, then why not eliminate transportation costs? Most shippers and carriers have little to no control over the cost of fuel. However, they do have control over the amount of fuel consumed, similar to the amount of inventory being held. The cost of fuel definitely affects logistics and supply chain behavior despite the lack of control over fuel prices.
The challenge of logistics and supply chain management stems from these uncontrollable variables and how executives must attempt to address them in their decision making.
Terrance L. Pohlen, Ph.D.
Director, Center for Logistics Education and Research
University of North Texas
Denton, Texas, USA
The original notion was that if you control the physical inventories, you control the costs. Of course, as you pointed out, that is not necessarily true.
Clifford F. Lynch
C.F. Lynch & Associates
Memphis, Tennessee, USA
Fuel costs, real numbers, and inventory strategy
Your commentary prompts several observations:
If the thought is to remove those elements one cannot control, and thus cannot measure, then couldn't one make the argument to take out fuel costs, which looks to be under no one's control?
The paper rate attaches a dollar cost to the **italic{real number,} which is the actual inventory levels.
Just-in-Time was not on the radar screen when Mr. Delaney started the "State of Logistics Report," and it has cycled through as the "next big thing." However, to those who control and match inventory levels to demand, they were, are, and will be the winners. After all, isn't this supply/demand challenge going to be solved by technology?
The venture-backed fleet telematics technology provider Platform Science will acquire a suite of “global transportation telematics business units” from supply chain technology provider Trimble Inc., the firms said Sunday.
Trimble's other core transportation business units — Enterprise, Maps, Vusion and Transporeon — are not included in the proposed transaction and will remain part of Trimble's Transportation & Logistics segment, with a continued focus on priority growth areas following completion of the proposed transaction.
Terms of the deal were not disclosed but as part of this agreement, Colorado-based Trimble will become a shareholder in Platform Science's expanded business. Specifically, Trimble will have a 32.5% stake in the newly expanded global Platform Science business and will receive a Platform Science board seat. The company joins C.R. England, Cummins, Daimler Truck, PACCAR, Prologis, RyderVentures, and Schneider as a key strategic investor in Platform Science along with financial investors 8VC, Activant Capital, BDT & MSD Partners, Softbank, and NewRoad Capital Partners.
According to San Diego-based Platform Science, the proposed transaction aims to enhance driver experience, fleet safety, efficiency, and compliance by combining two cutting-edge in-cab commercial vehicle ecosystems, which will give customers access to more applications and offerings.
From Trimble customers’ point of view, they will continue to enjoy the benefits of their Trimble solutions, with the added flexibility of the Virtual Vehicle platform from Platform Science. That means Virtual Vehicle-enabled fleets will receive access to the Virtual Vehicle Marketplace, offering hundreds of new and expanded applications, software, and solution providers focused on innovating and improving drivers' quality of life and fleet performance.
Meanwhile, Platform Science customers will enjoy the added choice of Trimble's remaining portfolio of transportation solutions which will be available on the Virtual Vehicle platform, the partners said.
"We believe combining our global transportation telematics portfolio with Platform Science's will further advance fleet mobility and provide our customers with a broader portfolio of solutions to solve industry problems," Rob Painter, president and CEO of Trimble, said in a release. "Increased collaboration between the new Platform Science business and Trimble's remaining transportation businesses will enhance our ability to provide positive outcomes for our global customers of commercial mapping, transportation management, freight procurement, and visibility solutions. This deal will result in significant synergies along with tremendous opportunities for employees to continue to grow in a more-competitive business."
The acquisition comes just five months after Platform Science raised $125 million in growth capital from some of the biggest names in freight trucking, saying the money would help accelerate innovation in the commercial transportation sector.
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.
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).
That hiring surge marks a significant jump in relation to the company’s nearly 17,000 current employees across North America, adding 21% more workers.
That increase is necessary because U.S. holiday sales in 2023 increased 3.9% year-over-year as consumer spending grew even amidst uncertain economic times and trends like inflation and consumer price sensitivity. Looking at the coming peak, a similar pattern is projected for this year, with shoppers forecasted to drive a 4.8% increase in holiday retail sales for 2024, Geodis said, citing data from Emarketer.
To attract the extra workforce, Geodis says it will offer competitive wages, peak premium pay incentives, peak and referral bonuses, an expedited payment option, and flexible schedules. And it’s using an AI-powered chatbot named Sophie to serve as a virtual recruiting assistant.
“We acknowledge the immense responsibility we have to our customers to deliver exceptional service every day, and this is especially true during peak season,” Anthony Jordan, GEODIS in Americas Executive Vice President and Chief Operating Officer, said in a release. “Because peak season is the most business-critical sales period of the year for many of our retail clients, expanding our workforce is vital to ensure we have a flexible, dynamic team that can handle anticipated surges in demand.”