Stuck in the middle of a canal

One of the biggest supply chain stories of the past week has been the saga of the Ever Given, the ginormous container ship blocking the Suez Canal. Bloomberg has a nice podcast interviewing the head of a global shipping line about the crisis (Baystate Business: Laurence Odfjell, Mar 30).

There are two interesting part to this. First, he gets into some of the physics that likely contributed to how the ship got stuck. Second, he talks about the challenges his firm faced — particularly with ships on the way to the canal and whether those should be sent to a different route.

The Wall Street Journal also has had some interesting reporting — emphasizing the knock on effects of the delays (Suez Canal Traffic Resumes Slowly as Some Ships Weigh Anchor, Others Wait, Mar 30):

Logistics experts were forecasting port congestion in Asia and Europe as some of these diverted vessels arrive at ports around the same time as the delayed vessels now making their way slowly through the canal. That is on top of regularly scheduled traffic.

“This backup risks leading to a concentration of volume,” said Luigi Bruzzone, an analyst for the port of Genoa, one of Italy’s busiest. “What we were expecting to come throughout April will now be concentrated in the last two weeks of the month.”

In short, while the grounding of the Ever Given has been a very visible event, its impact is going to be last for months and likely much less visible to those not in the industry.

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Shipping from stores in a pandemic

We have had a number of posts over the years on retailers filling ecommerce from brick-and-mortar stores (see, for example, here and here). From the perspective of inventory management, treating what’s in the stores and whatever is in a fulfillment center as one giant pool of inventory makes a lot of sense. In theory, there is no reason to turn down a web order just because the fulfillment center is stocked out if the needed item is sitting at some mall. The reality, of course, is more complex since picking and packing at a store is going to be more costly than doing the same work at a dedicated facility. Additionally, there is the question of how taking items to fulfill online orders impacts in-store customer behavior.

Now add to those concerns how shipping items from random locations impacts the logistics provider who has to collect and schlepp those packages. Apparently, FedEx has had enough and is working to rein in retailers shipping from stores (FedEx, Strained by Coronavirus, Caps How Much Retailers Can Ship From Stores, Wall Street Journal, May 14).

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How the air cargo market has adjusted to the pandemic

The ongoing pandemic has created a host of problems for a host of industries and supply chains. Logistics providers have had to scramble as demand for some goods has dried up while demand for other items has surged. On top of that, passenger airlines — which play a large role in international air freight — have been hard hit. How is all that playing out? Check out this video:

 

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UPS and using contracts to share the risk of building new capacity

Imagine you are service provider and you line up a bunch of extra capacity because your customers tell you that they are expecting they are really going to need you. What should you do when your customers turn out not to have that much business for you?

If you are UPS, you don’t have to imagine. This is a problem they face at the holidays. Retailers want to make sure that there will be space for their shipments on the truck, so they have an incentive to talk up their potential. Of course, no one can tell the future so sometimes their big talk will prove to be just hot air. UPS apparently is thinking of making the initial forecasts from retailer a little more binding (UPS Tries a New Twist on Surge Pricing, May 1, Wall Street Journal).

With the retail world in upheaval, UPS is asking retailers to help pay when the extra space and workers aren’t put to use—or even when the boxes don’t match the sizes that retailers promised earlier in the year.

“If there are variations to the plan, let’s see what we can do, but we should be compensated accordingly,” said UPS Chief Executive David Abney in an interview. He said the charge isn’t meant to be punitive but one element of a broader negotiation with retailers over pricing during peak times.

UPS is apparently also thinking of imposing charges at times beyond the holiday — say for flowers at Valentine’s or when a new product release causes volumes to spike.

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Developments in e-commerce fulfillment

There have been a handful of interesting article over the last week or two about online fulfillment centers. The first is from Bloomberg (Amazon’s Robot War Is Spreading, Apr 5) and discusses how many firms have followed Amazon’s lead and have invested in robots to help run their fulfillment centers. (Recall that Amazon bought Kiva, which we have discussed before.)

One interesting point made in the article is that the automation may not be quite what you think. For example, these robots are not reaching and grabbing items from the shelves (form something like that, see here). Rather, they are working with human pickers who load them up and then let the robot carry items from storage shelves to the packing area. That is, the robots takeover time-consuming schlepping so that humans can focus on identifying the right item on the shelves. Check out this video.

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The benefits of supply chain speed

Here is an interesting graph. It comes from Goldman Sachs by way of Quartz (A new generation of even faster fashion is leaving H&M and Zara in the dust, Apr 6).

It is showing that how sales growth relates to lead time. And while I am obliged to say that correlation is not causation, it seems pretty clear that it is good to be fast; firms with shorter lead times have distinctly higher sales growth.

The focus of the Quartz article is on Boohoo and Asos, two British web-based apparel retailers that target young shoppers. As seen in the chart, their recent performance has been smoking everyone — even Inditex, the parent of Zara. An obvious consideration here is that both Boohoo and Asos are younger, smaller firms so it is easier for them to generate rapid growth than older, larger firms. It also seems that at least Asos has done some things recently to juice its sales that are independent of its operational expertise. For example, the Financial Times reports that they took advantage of a week British pound following the Brexit vote to cut price in international markets (Asos cuts its cloth for growth but leaves less margin for error, Apr 4).

But it is still an interesting question of how a web-based retailer can benefit from its distribution structure to execute fast fashion faster.

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A podcast on shipping containers

We have over the years had a number of posts on shipping containers but it’s not like the whole blog is about shipping containers.

But what about a whole podcast on shipping containers?

That now exists. You have to check out the podcast Containers! It is an eight part “audio documentary” on modern logistics. (There are currently five episodes posted.) I am selling it more than a little short in saying that it is just about shipping containers. It really looks at how innovations in moving freight by water have impacted supply chains, cities, and people. It is really fascinating.

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Managing in-store inventory for omni-channel retailing

As we have posted about before, retailers using store inventory to fulfill on-line orders is a thing. It is also a thing that raises an interesting question: At what level of store inventory should a retailer stop using store inventory to fulfill on-line orders? That is, should everything be available first-come, first served or should some store inventory be held back only for those customer that wander into the store? According to the Chicago Tribune, different chains are following different strategies on this (With Hatchimals scarce, who gets dibs — online shoppers, or those in the store?, Dec 13).

Target ships online orders from 1,000 of its stores, up from 460 last year. To avoid empty shelves, Target will turn off the order pickup or ship-from-store option on some items when a store’s stockpile falls below a certain threshold, said Target spokesman Eddie Baeb. Stores that ship also get extra inventory.

An online customer likely doesn’t care which store or warehouse handles their purchase. The shopper already walking the aisles does. Exactly how many items Target holds back depends on the product and how quickly it typically sells. …

Other retailers, like Toys R Us, don’t try to guess how many items to hold back for in-store customers.

Even on Christmas Eve, the retailer doesn’t bump back online orders to help procrastinating brick-and-mortar holiday shoppers. Purchases, whatever the format, are first-come, first-served, said Toys R Us spokeswoman Jessica Offerjost.

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The logistics of fulfilling holiday web orders

It’s the end of the year so it is clearly time to see what is up with how retailers are handling holiday logistics. A useful starting point is this graphic from the Wall Street Journal (As Web Sales Spike, Retailers Scramble to Ship From Stores, Dec 1).

 

This shows how Toys R Us fulfills its web orders. And, yes, that says that over 40% of the web sales were fulfilled from stores. (To put that total in perspective, the company’s revenue last year was $11.8 billion.)

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Surge pricing for storage space at Amazon

There is a good chance that the last time you bought something on Amazon’s website, it wasn’t actually sold by Amazon. It instead came from an independent merchant, and Amazon just handled the logistics of getting the item to you. That arrangement has an implication that I never considered until a recent Wall Street Journal article (Amazon Prods Its Sellers to Free Up Warehouse Space, Nov 4): By inviting in the additional sellers, Amazon is giving up control of just what is in its fulfillment centers. If a merchant wants to sell miscellaneous crap, that is their business. At the same time, however, that miscellanea potentially ties up space that Amazon needs — or at least could use more profitably on other items. This is particularly true as we head into the holiday season when Amazon should reasonably expect business to be booming.

What is a poor e-commerce giant to do?

How about a little surge pricing?

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