The Supply Chain Outlook, Innovation and Challenges, and Implications for Military Transportation.

Author:Gordon, Benjamin
 
FREE EXCERPT

The supply chain sector is in the news today. Rising tariffs, the trade war with China, Amazons quest for same-day delivery, autonomous vehicles, and drones are all in the news. What does it mean, and how does it impact the overall supply chain, as well as military transportation?

We see three major challenges facing the supply chain market today.

Trade: War and Peace

The first challenge is the choppy political climate. On the one hand, we averted a trade war with Canada and Mexico when the Trump Administration canceled the North American Free Trade Agreement (NAFTA), but then replaced it with a similar deal in September.

On the other hand, we may be entering a bigger battle with China. President Trump and Chinese Core Leader Xin Jinping agreed to postpone retaliatory tariffs on December 1. But if they fail to reach agreement, the US will impose 25 percent tariffs on $200 billion of Chinese goods, and China will re-impose 40 percent tariffs on US cars.

The US supply chain is already feeling the consequences. West Coast shipping data shows a drop in exports to China. In November, over 186,000 containers in Long Beach were shipped empty back to Asia, reflecting an 11 percent increase. It appears that China is finding non-US sources for products wherever possible.

In the short term, the data is mixed. In fact, the US imported record levels of products in the first quarter of this year. In addition, at the port of Long Beach volumes are at all-time highs, and exceeded 7.5 million containers handled. Many analysts believe US retailers pursued a surge in Chinese purchases in late 2018, to beat the 2019 tariffs. If true, this pre-buy could lead to a 2019 slowdown.

An unintended consequence of the Trump trade policy is the trend toward reshoring. Tariffs are intended to encourage American consumers to buy American. In turn, Trump has sought to bring manufacturing jobs to the US. Some companies, like Carrier, announced plans to expand manufacturing in the US. However, others have announced plans to increase manufacturing in China, in order to avoid US-China tariffs for products aimed for non-US consumers. BMW, for instance, began building their X3 Sport Utility Vehicles in China, and announced plans to make China an export hub for the electrified X3.

For supply chain companies, one silver lining is volatility. More uncertainty typically means more margin opportunities for freight forwarding and other asset-light companies.

Labor: The $100,000 Truck Driver

The second challenge is the tight labor market. Consider the truck driver--At Walmart, entry-level drivers are now earning record salaries of $86,000. Fully-loaded to reflect the cost of benefits, this costs Walmart over $100,000 per year. Meanwhile, at YRC, the Teamsters are beginning steps toward a new collective bargaining agreement, replacing a five year extension that expires on March 31. The contracts cover 20,000 Teamsters. In the words of the Teamsters' Ernie Soehl, "we are not...

To continue reading

FREE SIGN UP