Today’s Top Supply Chain and Logistics News From WSJ
Cosmetics company Sephora’s announcement that it will work with China’s JD.com to expand its business in that country will cause only a modest ripple in the retail world. But the pact may loom much larger in the logistics world because of what it says about the direction of online commerce. WSJ Logistics Report’s Loretta Chao reports that JD.com is a major force in e-commerce — not as well-known abroad as Alibaba but an operator with ambition to advance the convergence of retail marketing and industrial-scale distribution channels. JD.com started as a brick-and-mortar electronics retailer, but likeAmazon.com it is an online business now. With Sephora, the company will press ahead with a business that connects sellers to a payment system and, significantly, to an expanding network of logistics operations serving a huge country beset by highly fragmented delivery services. It’s a model that Amazon is trying to build in the U.S. – Amazon Prime, anyone? – and may change the nature of distribution aimed at retail customers, putting the care and delivery of purchased goods entirely in the hands of the sellers themselves. If the e-commerce companies can make it work financially, that will present a major challenge to the traditional parcel carriers.
As if to underscore the fact that retail sales and logistics are converging, Alibaba Group Holding Ltd. went out and bought a piece of a logistics provider this week. WSJ’s Chelsey Dulaney reports the minority stake in Shanghai YTO Express Co. Ltd. is aimed at helping improve the general state of logistics in China. Alibaba’s ambitions go beyond China, however, as WSJ’s Carlos Tejada reports. The new chief executive, Daniel Zhang, has strong international experience and this week informed his staff that the e-commerce company’s goal is “global buy and global sell.” The only thing missing from that, of course, is global deliver. If Alibaba, as well as JD.com and, of course, Amazon, can blend the online buying, payment and delivery of consumer goods into one seamless process – and make it profitable – they can change the way supply chains operate.
E-commerce is already triggering changes in the shape and scope of distribution channels. WSJ Logistics Reports’ Robbie Whelan writes that logistics real-estate specialist Prologis Inc. is building a warehouse in Tracy, Calif., that is notable not for its one-million-square-foot footprint but for the eight feet that are being added on top. That is, the site is being built with 40-foot clearance rather than the typical 32 feet. It’s entirely because of the e-commerce boom, which is altering how distribution managers think about space. Simply put, an e-commerce company needs taller ceilings to handle a multitude of small items that must be picked and packed. It’s a big difference from traditional industrial warehouses that are designed to handle bulky shrink-wrapped pallets. The added wrinkle is that the Prologis site is being built without a tenant. This is known as a speculative building and suggests the company has a strong idea of the direction of distribution channels.
TRANSPORTATION
The U.S. Federal Maritime Commission said three years ago that nearly 13% of the international cargo moving through U.S. West Coast ports was susceptible to diversion to ports in Canada or Mexico. Canada is doing all it can to build a big welcome mat for those shipments. WSJ’s David George-Cosh writes that plans for a sprawling intermodal rail hub outside Toronto are the latest piece of an effort that already has helped fuel strong growth in container shipping volume at Canada’s ports and big business for Canada’s two major railroads. Canadian National Railway Inc. is investing more than $200 million in the Toronto hub, which Canadian transport officials believe can help upend some North American rail-based supply chains by drawing more U.S.-bound cargo and, along the way, pulling in some of the inbound Canadian shipments that now come into the U.S. West Coast and then travel to Chicago before heading into Canada. The diversion strategy is one Canada’s carriers have to follow: the U.S. intermodal market is 10 times the size of Canada’s, and so the Canadian railroads need that U.S. traffic if they are going to grow at all.
TECHNOLOGY & INNOVATION
Technology is upending one of the world’s longest-standing supply chains, Japan’s famously colorful fish markets. WSJ’s Eleanor Warnock reports the seemingly impenetrable distribution system that begins at the world’s largest seafood market outside Tokyo is being buffeted by a new generation of startups that are using applications to slide out the middlemen. One company, Hachimenroppi, is offering an iPad-ready app that allows supermarket chains to bypass the wholesale-market system and buy directly from big distributors. The idea is as an old one in supply-chain management: have the product pass through as few hands as possible and lower prices as distribution gets leaner. Government figures show the volume of fresh fish purchased through Japan’s wholesale markets has fallen to about half, compared with three-quarters more than two decades ago.
QUOTABLE
“It was a stellar result on account of falling oil prices.” – Shipping analyst Lars Jensen of SeaIntel Maritime Analysis to the WSJ’s Costas Paris on strong growth in earnings at A.P. Møller-Mærsk A/S that partly reflected robust results at container ship operator Maersk Line.
IN OTHER NEWS
FedEx lost a motion in a legal case that is an important test of how much responsibility parcel carriers bear for the contents of the packages they carry. The WSJ’s Laura Stevensreports a judge on Thursday denied a motion to dismiss federal charges of conspiracy to distribute illegal prescription drugs, refusing to go along with FedEx’s argument that it is protected as a common carrier. Also at stake is a fine that could be double the $820 million that the Department of Justice says FedEx took in from “rogue Internet pharmacies.”
Don’t bother telling one of the largest importers that labor strife at West Coast ports will spur shippers to rethink their supply chains. Costco Wholesale supply chain chief John Thelan told WSJ Logistics Report the shipping delays that marred logistics operations in the past year are “over now,” and that nothing has changed the compelling economics of dropping goods at the gateway closest to their end destination.
The railroad industry has argued loudly against the federal government’s new crude-by-rail rules, claiming they are too stringent. But environmental and local groups are taking the first legal steps against the regulations – because, they say, the rules aren’t tough enough. The WSJ’s Laura Stevens reports the first challenge came from two Illinois municipalities that want a court to review the rules. Environmental groups issued a separate court complaint, arguing the rules were “clearly influenced by industry.”
Get ready for a long slog toward congressional approval of trade authority for PresidentBarack Obama. WSJ’s Siobhan Hughes writes that after an initial procedural slap at the president, the U.S. Senate voted Thursday to move ahead on the trade authority known as fast-track. It’s only one step, though, and with the details of the Trans-Pacific Partnership still being negotiated by 12 trading nations, the drama over trade is likely to continue until the 2016 elections and potentially into the next presidential administration.
After slashing the number of operating drilling rigs for months following crude’s price collapse, U.S. shale-oil companies are poised to bring some rigs back into service, report WSJ’s Georgi Kantchev and Bill Spindle. A rig revival would be good news for logistics operators on two counts: Additional production would likely tamp down oil prices that have risen some 40 percent since March, keeping fuel costs lower heading into the busiest shipping part of the year. And the carriers would have more crude to haul after a spring season marked by lackluster shipping demand.
India’s prime minister, Narendra Modi, wants to bulk up the country’s coal production by revitalizing a troubled industry that many believe limits the country’s economic growth potential. The big obstacle, report WSJ’s Raymond Zhong and Niharika Mandhana, is state-run Coal India Ltd., a state-run, sclerotic dinosaur. Should Modi manage an industrial breakthrough, the impact would be felt around the world. For all of its problems, Coal India is the world’s largest coal producer.
A manufacturing industry research group has a grim outlook for 2015 U.S. factory production. Industry Week reports the Manufacturers Alliance for Productivity and Innovation scaled back its forecast for manufacturing growth from 3.7% to 2.5%, a rate that could be a drag on the overall American economy
The labor strife on the U.S. West Coast hit Singapore-based Neptune Orient Lines hard, helping send the parent of ocean carrier APL to an $11 million net loss during the first three months of this year. The Journal of Commerce reports that the carrier’s revenue fell 13% compared with the first quarter last year, and actual container volume fell 15% from last year. NOL pointed in part to the West Coast problems, but the severity of the container decline suggests APL also suffered from competition from bigger carriers with bigger, more cost-effective ships.
[“source-wsj.com”]