As 2015 comes to an end, many of us take the time to reflect on the past year within the supply chain industry and identify successes, challenges, and new opportunities. From port negotiations to record low fuel prices, the industry was hit with material changes that caused shippers to re-evaluate existing networks. Supply chains continued to evolve, as companies introduced new technologies and innovative strategies to get products to consumers faster while improving customer experiences. With all of these major changes, our NFI executive team sheds their insights on the top trends they saw in 2015.
Warehousing and Distribution
William Mahoney, Senior Vice President
In 2015, there was a major tightening in the warehouse real estate market. This has had a drastic effect on the ability for companies to grow and expand in new markets with minimal notice. For example, as West Coast port negotiations came to an end, demand for space in California began to rise as companies looked to re-balance their inventories on both coasts. In the U.S. market, inventories are rising, causing 3rd party warehouse providers to reach existing capacities. 2015 came to a close with available space at record lows. 2016 space expansions will allow customers to once again find opportunities to regain the flexibility for growth as they’ve had in prior years.
William Mahoney, Senior Vice President
The number one challenge in the transportation industry has been finding drivers. In response, it’s been important for us to continue to look at how we compensate drivers and where we source them from to remain competitive in driver recruiting. Although the capacity crunch was not as bad as originally predicted to close out 2015, it is only a matter of time when capacity tightens once again. Another issue in 2015 has been the variation in fuel cost and how that affects the industry over the past 24 months. Shippers make different decisions in supply chain designs based on fuel costs and depending on the industry, this could have either a positive or negative effect on your overall supply chain costs. Overall, shippers got an unexpected benefit this year which helped offset some of the other rising costs. Lastly, one of the biggest trends has been the investments in technology and equipment. Third party logistics providers continue to invest in fleet equipment, including automatic transmissions and transportation management systems. These investments help us free up assets, increase service levels, and put our customers closer to their markets at a lower overall cost with faster delivery times.
David Broering, Senior Vice President
There were three major topics this year for the non-asset logistics world: mergers and acquisitions, technology, and marketplace demand. Mergers and acquisitions had an intense year in the non-asset world with the acquisition of companies like Command, Coyote, and Menlo as marquee names that were acquired. It’s clear that the low cost of borrowing combined with demand for diversification of some major 3PLs have led the way in this regard. Technology also continues to dominate headlines with the advent of transportation marketplace technologies garnering quite a bit of venture capitalists’ attention. While it remains to be seen if these technologies can make a meaningful dent in the overall freight ecosystem, there is surely a lot of effort going into this space of the market. Marketplace demand has certainly been a topic of conversation the second half of this year as tonnage growth year over year slowed to a crawl and the fourth quarter has seemingly sputtered out. While there are some clear factors that have led to this slowdown, it’s unclear what effect that is going to have on the future transportation marketplace.
Robert Garrison, President
There is a Chinese expression that says, “May you live in interesting times.” Interesting times these are for those of us in the supply chain industry. The West Coast port strike was the biggest story creating disruption throughout the United States infrastructure and a complete rethinking of most large importers’ inbound supply chain. This created major anxiety for both buyers and sellers as there was simply no way to predict when product would arrive so all are seeking more alternatives and contingency plans. There was also a lot of consolidation in the carrier world leaving us to speculate about the rate impact as we plan ahead. Of particular note are the planned merger of China Shipping Container Lines (CSCL) and Costco, sale of Neptune Orient Lines (NOL), and speculated merger of Hanjin and Hyundai. Lastly, 2015 marked the beginning of a slowdown in many of the world’s major markets including most notably China despite their rising middle class. This will have an impact on everything from fuel prices to capacity throughout the world.
Don Aiken, Senior Vice President
2015 was a very dynamic year for Intermodal in North America. The year started with continuing labor disputes at the West Coast ports which drove shippers to make changes to their supply chains. Many shippers chose to reroute much, if not all of their freight to alternate ports. With these diversions of shipments, the traditional flow of goods intermodally became disrupted and underserved corridors became congested, while major freight corridors saw significantly reduced volumes. On top of these network changes, the strong dollar had a downward pressure on exports, many of which move on the Intermodal network to the ports. Another change this last year was fuel. Declining diesel has allowed OTR truck pricing to once again become competitive with Intermodal in some markets. It’s fair to say that many shippers still continue to value the dependability and consistency that Intermodal offers. In many cases the rail network is providing “truck-like” transit at very competitive rates.
Michael Landsburg, Vice President
There were two major real estate topics that emerged in 2015. The first is the continued growth of ecommerce and last mile distribution and its impact on industrial real estate. Facilities are getting more specialized to service this type of operation. While only representing about 7.5% of overall retail sales, ecommerce has been growing at the rapid year over year rate of about 17% – one of the fastest of any sector. The second big impact to the industrial real estate market in 2015 was the consolidation and large scale acquisitions of many of the institutional real estate owners/landlords along with big investment from foreign sovereign wealth funds. It will be interesting to see how this develops into the future as there are now fewer larger landlords that tenants will interact with.