Logistics things to come

The Shape of Logistics Things to Come

The more things change in the industry, the more it takes a collection of industry experts to make some sense of it all. Fortunately, MH&L’s Editorial Advisory Board is up to the challenge.

The Eagles once sang, “Things in this life change very slowly, if they ever change at all,” and certainly for most of the history of logistics, those words rang true. While we can all point to certain major events over the past century that did indeed change things as we knew them—containerization, deregulation, overnight deliveries—by and large, the pace of that change was relatively slow. Not any more.

Thanks largely to the emergence of e-commerce, coupled with an explosion of innovation in supply chain technology, every day seems to bring with it a change of some sort to the status quo. Same-day delivery not fast enough for you? Then you should opt for same-hour delivery. Warehouse real estate too expensive? Maybe you’d be interested in a warehouse blimb, or perhaps an underwater facility. Wondering how you’ll ever be able to fulfill all your peak season orders? Sounds like it’s time to invest in that fleet of warehouse robots, or delivery drones, or autonomous trucks, or… well, we can’t even say “the sky’s the limit” anymore, because there really are no limits to what’s possible in material handling and logistics these days, and in the days to come.

But merely having a plethora of choices doesn’t mean they are all the right choices for your company, of course. And just because something is possible doesn’t necessarily mean it’s a good or—just as importantly—an affordable option.

With the aim of offering some clarity to the situation, we enlisted the input of some of the finest minds in the industry—the MH&L Editorial Advisory Board—to get their takes on what’s really happening out there, in the real world of getting-stuff-made-and-delivered.

Participating in the 2017 roundtable (in alphabetical order) are:

• Roger Bostelman, engineering project manager, Intelligent Systems Division, National Institute of Standards and Technology
• Ron Giuntini, consultant and principal, Giuntini & Company Inc.
• Russ Meller, vice president of R&D, Fortna
• Tan Miller, director of the Global Supply Chain Management Program, Rider University
• Alex Scott, assistant professor, Supply Chain Management, Northeastern University
• David Sparkman, founding editor of ACWI Advance, and head of David Sparkman Consulting
• Enan Stillman, corporate and transportation attorney/partner, Stillman Welch LLP
• Jim Tompkins, CEO, Tompkins International
• Al Will, retired Marine Colonel, logistics specialist, and president of PWG Distribution Solutions.

Dimensional Weight Pricing

TOMPKINS: Dimensional weight pricing remains one of the most critical aspects of freight carrier pricing not only for parcel carriers, but for LTL carriers as well. FedEx and UPS continue their pursuit of improving margins by refusing to alter their dimensional weight divisors as they renew customer contracts. In 2015 and 2016, dimensional weight divisors were reduced to generate higher dimensional weighted packages. Both UPS and FedEx would waive those dimensional factor reductions for some of their larger shipper customers, or increase the dimensional weight divisors for a limited period of time. Both carriers, however, appear to be holding the line on making any concessions now and into the future.

Likewise in the LTL industry, the National Motor Freight Classification continues to publish commodity classifications based on actual dimensional weights as opposed to ratings based solely on a commodity’s description. The goal is to improve revenue as products with actual lower PCF dimensions carry higher rates. LTL shippers bear the full responsibility to prove the “actual” density of their shipments or be subject to considerably higher costs.

FedEx recently reported that increased package volume, higher base rates and international export growth were key elements to their excellent profit picture. Certainly a portion of those improved profits has come from the dimensional weight pricing strategies FedEx implemented and is sticking to.

UPS recently implemented a new “Peak Surcharge” to further compensate them for the large volumes of packages they handle during the holiday shipping season. Two additional surcharges are also being added, which are not restricted to residential deliveries: a $24 surcharge for Large Packages and a $249 Over Maximum Limit Package Surcharge. Both of these surcharges will be effective from November 19 through December 23, 2017. UPS is clearly seeking to shift these larger shipments from their parcel operations to their LTL division, UPS Freight. The jury is still out on whether FedEx will “me too” the peak season surcharges. USPS currently does not assess any dimensional weight pricing for their services.

Shippers looking for relief from these increased costs should continually assess the most cost-efficient packaging solutions for their products or risk paying much higher costs in both parcel and LTL shipping environments. Many packaging options are available, including shipping goods in envelopes vs. cartons and creating packaging specifically designed for the actual contents of a package, as opposed to randomly selecting different size boxes for the various products a company ships.

WILL: With shippers now paying for both weight and volume, equipment capable of making the exact size box for the item being shipped is taking hold. Shipping small items in large boxes where 50%+ is air will become a thing of the past.

Laser sensors and weighing scales can quickly determine the correct size needed for an item and then cutting machines prepare the exact sized box. This also reduces the use of corrugated materials and the carriers become more efficient, carrying actual product rather than air.

Autonomous Vehicles / Drones

GIUNTINI: Autonomous commercial vehicles will be arriving in the not-too-distant future; their impact will be as great upon the commercial goods transport sector as that of the introduction of the railroads over 160 years ago. Many sectors of the economy will benefit from this major disruption in the trucking sector, from lower transport rates, to less road congestion, to less air pollution and much more; but for many participants in the commercial vehicle ecosystem, major challenges will be faced that present both favorable and unfavorable impacts upon their business models.

Obviously drivers will ultimately be eliminated; this process will be gradual in which early employments will include human drivers in the cab for mitigating risks of malfunctions, but all the driving will be done autonomously, and then once the technology is perfected and deemed “safe,” human drivers will be eliminated. Truck drivers who have been able to achieve middle-class incomes without a post-secondary school education will suffer greatly.

But some of the drivers may be retrained to be network administrators to optimize autonomous fleet utilization, though these individual will constitute only a small percent of the current drivers.

The design of commercial trucks will dramatically change, driven by the need to increase their durability due to much higher utilization rates, (i.e., no driver hours-of-service limits will exist), but also by more stringent imposition of safety requirements, as well as the need to enable frequent technology upgrades employed over the life of the vehicle. With future utilization rates approaching 50-100% higher than current rates, it is my belief that truck production will plummet, but the price-per-truck will increase significantly, somewhat off-setting unit volume loss. The current production facilities and direct line workers will shrink proportionately.

Trucks will also be designed to be remanufactured/upgraded on a periodic basis for safety and capability upgrade purposes. As a result of the design for remanufacturing/upgrading, depreciation costs as a percent of revenue generated will be significantly lower than the current business model; trucks will be remanufactured/upgraded multiple times over their economic life. How the OEMs will adapt their business model to this paradigm shift will dictate whether they live or die.

SCOTT: At some point—nobody knows when—autonomous vehicles will significantly impact trucking. To me, the most promising short-term possibilities are with semi-autonomous trucks, where trailing trucks are electronically tethered to the lead truck, which is operated by a human. This type of automation is considerably easier than full automation, and I think regulators and the public will be more receptive to it.

I foresee the structure being similar to the “Pony Express” of old—tethered trucks driving between major city pairs (e.g., Los Angeles to Chicago) and a human making the final delivery to the customer. The cost reductions are considerable: for the inter-city move, driver costs would be reduced by however many trucks are tethered—three trucks would have one-third the cost of hiring a driver. Considering that the final delivery for all trailers would have to be operated by a human, I could see the overall driver wages to deliver loads reduced by up to 50%.

MELLER: The business case for drones in U.S. retail shows greater feasibility inside the warehouse than as a last-mile delivery vehicle. Walmart has been testing drones with a sensor eye attached in an inventory cycle-counting capacity for more than a year. They report that the drones can check a full warehouse inventory in a single day—a process that previously took up to a full month to accomplish.

One current limitation of the technology is that the drones can’t “see” inventory stacked behind the rack face, but in the future, smaller drones or the use of RFID should be able to address that limitation.

TOMPKINS: The need for capacity will fuel the adoption of autonomous trucking. Leading 3PL CEOs believe that anything that adds capacity to the market will be easily accepted by users. Autonomous trucks will be adopted in the near-term by long-haul service providers and to service remote areas. Drivers will be used to route trucks to the entry of a freeway and at the exit of a freeway. This will enable a better work/life balance for truck drivers. For long-haul trucking, cost reduction benefits would be realized in fuel economy, which could be 10-30%. Leveraging the increased hours of service the driver is available and insurance rebates from reduced accidents are additional cost savings.

Another trend will be the use of autonomous trucks by the LTL market. The autonomous trucks lend themselves to routed solutions similar to LTL services. Companies that serve the LTL market will be the first to invest in the technology. Otto trucks estimates it will be approximately $30,000 investment per truck to enable autonomous trucking. The first investments will be by large service providers. We forecast autonomous trucks will be on the road within the next five years.

BOSTELMAN: In May 2014, I began leading a new NIST standards committee on performance of autonomous industrial vehicles called ASTM F45 Driverless Automatic Guided Industrial Vehicles (https://myastm.astm.org/F45). Five subcommittees were formed to develop practices, test methods and terminology for the autonomous industrial vehicle industry. Since formation, F45 has balloted and approved four standards towards measuring the performance of automatic, automated and autonomous unmanned ground vehicles (A-UGVs). New documents are now being developed.

The standards and work items are as follows:

ASTM F45 Standards:
• ASTM F3218-17 Standard practice for recording environmental effects for utilization with A-UGV test methods
• ASTM F3244-17 Standard test method for navigation: defined area
• ASTM F3265-17 Standard test method for grid-video obstacle measurement
• ASTM F3200-17 Standard terminology for driverless automatic guided industrial vehicles.

ASTM F45 subcommittee work items currently being developed:
• F45.02—Standard test method for measuring docking of A-UGVs
• F45.03—Standard practice for capturing A-UGV positions using Grid-Video techniques.
• F45.03—Standard practice for implementing representative obstacles for utilization with A-UGV test methods.
• F45.04—WK54431 Standard practice for testing data communications interruption for A-UGVs
• F45.91—Standard practice for recording the A-UGV configuration.

ELDs

TOMPKINS: A major disruptor in the transportation industry is the increased use of LTL and parcel last-mile deliveries as a result of e-commerce. This has created significant opportunities for transportation service providers (TSPs) serving this space. The TSPs acknowledge current driver capacity is tight. It is expected that once the electronic logging device (ELD) mandate is in effect (all interstate motor carriers will be required to have their trucks equipped with ELDs by December 2017 and truck drivers will have to switch over to electronic logbooks for their hours-of-service logs), capacity will be even tighter.

STILLMAN: As we near the year-end federal mandate requiring carriers to use ELDs, there are still many unanswered questions regarding how the Federal Motor Carrier Safety Administration (FMCSA) intends to enforce the new regulations. In order for a law enforcement officer to check an ELD, the officer must enter the trucker’s cab, plug into the ELD and download data. Given that the U.S. Supreme Court has narrowed search restrictions incident to an arrest and requires law enforcement to obtain a warrant before searching a cell phone or computer, an officer’s examination of an ELD may violate federal and state law, and the truck driver’s civil rights.

Until the FMCSA provides answers, and law enforcement properly coordinates the inspection process with the FMCSA, I expect to see delays in the ELD implementation and numerous legal challenges to ELD inspections.

Internet of Things

SCOTT: There’s a huge opportunity for the Internet of Things to impact supply chains. It’s surprising to many that, when a load leaves a shipper’s dock on a for-hire carrier’s truck, they often don’t know where their load is until it arrives at the customer’s site. The carrier has real-time location information, but sharing it with the shipper is neither easy nor in the carrier’s short-term interest—carriers often don’t like to let the shipper know “how the soup is made” (i.e., sometimes loads sit in a yard somewhere, waiting to be delivered).

Real-time location information has considerable value. Delivery times can be more accurately predicted, receivers can better schedule docks and workers, and planners can be alerted to shortages in real-time should deliveries be delayed. I think for-hire carriers will have to provide real-time information to shippers as a general service in the near future.

TOMPKINS: A connected warehouse is a warehouse where all of the digital information is stored in one place, and that information can be used to get the optimal performance out of a facility. Automation and devices and sensors, IoT and non-IoT enabled are coming. As prices continue to drop for this technology, it will only result in an acceleration of adoption. This will create a digital warehouse, and the need to look at your operation differently in the future.

So if that is a connected warehouse, what is the Internet of Things? IoT refers to the ability of a device, sensor or machine to talk over the Internet to another machine or to some form of software that can collect and make sense of the information. Eventually everything will be communicating over the Internet and a platform will be needed to take in all of this incoming information, collect it, cleanse it and harmonize it into a usable format.

Once that is done, a whole new world of analytics will open up for the warehouse. You will be able to measure anything, anywhere, anytime in a warehouse. It also means that you will be able to see any piece of information, anytime, anywhere in one solution. You will be able to holistically monitor and manage your operations and solve problems that you did not have solutions to in the past.

Talent Development

MILLER: In 2008 I joined the academic world as a professor at Rider University after working many years in the field of supply chain management for several manufacturing firms and a consulting firm. The following are some observations from an ex-practitioner and now academic advisor regarding the firms that seem to have the greatest success recruiting undergraduate supply chain majors from our SCM program. The most successful firms:

• Always attend the career fairs at the university. This provides exposure to many potential student applicants and it keeps the firm’s name fresh in the minds of the students.

• Supplement their firm’s career fair attendance by offering campus wide information sessions on their companies to students. These are sessions where the students can come and meet supply chain and HR colleagues from a firm in a more relaxed setting than a career fair or a formal interview. Again this creates visibility and familiarity for the firm with the student population.

• Request to have a speaker from their firm’s supply chain organization make a presentation about their firm’s supply chain at an actual supply chain class and/or at other campus activities, such as a monthly student supply chain club meeting.

• Have a designated member of their supply chain organization who has responsibility for recruiting from a particular university. This individual works with and coordinates with the firm’s HR and recruiting organization. What seems to work well is having a supply chain professional, in addition to the traditional HR and/or recruiting professional, working directly with a university.

• Offer to have a couple supply chain professionals from a firm “mentor” one or two SCM students at a university.

• Allow an SCM student or students to “shadow” (i.e., follow a SCM professional through his/her day) during university winter or spring breaks.

• And of course, offering SCM internships or co-ops to students is perhaps the most direct way of searching and procuring for university SCM talent prior to a student’s actual graduation.

WILL: Finding qualified personnel needed to operate distribution centers continues to plague the industry. Training programs focusing on necessary skills are available in some geographic areas of the U.S. and are under development in other regions. Getting regional workforce development boards to recognize the need for these training programs is the first step. One organization aiding in the development of training programs is MHI, specifically their Career and Technical Education (CTE) program. This program offers industry expertise, instructional materials and equipment for warehouse labs.

Another more basic factor plaguing supply chain and manufacturing companies in general is finding employees who will come to work on a daily basis. Workforce turnover continues to be high. The jobs are there for those with the initiative to learn skills and demonstrate reliability.

DC automation may be decreasing the number of personnel required to operate a center but the supply chain technician field is a growing occupational field giving those interested an opportunity for a skilled position with the potential for a healthy salary. Highly technical inventory systems and maintenance and repair of automated warehouse equipment require individuals with a background in STEM. A recent University of Tennessee study reports the supply chain technician field is expected to expand by 770,000 jobs over the next 10 years.

SCOTT: In a decade or so, many driving jobs will cease to exist. How we accommodate these valuable, hard-working people will be a major societal question. I think the government will have to offer training programs to help drivers transition to other jobs. The number of drivers is huge, so this will not be a trivial undertaking. However, I doubt there will be much impact in the next three to five years.

Next-day/Same-day Delivery Strategies

TOMPKINS: While “final mile” delivery is an incredibly complex problem to solve, for retailers and brands, it’s actually the least daunting part of the equation in a next-day/same-day paradigm. The far more consequential obstacles shippers must overcome to affordably meet consumers’ increasing delivery expectations are the need for a massive increase in the number of forward-deployed stocking locations and the amount of inventory required to meet anticipated needs. Outside of a couple of mass-merchandisers, no single shipper has the existing scale and network density to efficiently perform against a “next day” expectation in an “each” pick paradigm.

To many retailers, the obvious answer to the same day/next day expectation for e-commerce customers is the most traditional solution: in-store (or curbside) pickup. But even this solution is fraught with challenges, including a (comparatively) limited SKU-count, seasonally-rotated inventory, in an uncontrolled environment (e.g., shrinkage, moved/misplaced merchandise), picked by personnel trained in customer service rather than stock picking. To do it well requires near-real-time, site-specific, inventory levels linked to the online shopping experience and a different (or differently-trained) store staff. Still, it’s a trend that has lots of potential, and is growing.

MELLER: E-commerce is growing steadily, carving out a larger percentage of retail sales. At the same time, Amazon is setting a high bar for service standards. With its growing distribution network, the behemoth can offer same-day delivery on millions of items to more than 77 million Americans. That’s creating a problem for traditional retailers who must now figure out how to rationalize and leverage existing store assets and distribution footprint around a new set of customer expectations. Companies have tried to effectively compete by increasing automation and by adding labor for short-term scale during peaks, but still find themselves limited in their flexibility and ability to respond quickly to change. And with the labor pool further tightening in many key markets, companies must look to alternative solutions.

Amazon is winning mind-share and wallet-share by making shopping convenient, easy and frictionless for customers. They are shifting customer expectations around convenience, speed, price and selection. They’re moving e-commerce away from the store, computer and the phone, and integrating it seamlessly in our lives. All you have to do is “just ask” Alexa. Alexa’s skills number around 15,000 currently, but that’s just the tip of the iceberg. What lies below the waterline is a powerful artificial intelligence engine and platform for commerce that could eliminate brand from the equation and stack the deck in favor of Amazon’s private label offerings.

Fierce competition between Amazon and Walmart is driving service expectations to new levels. The threshold for free shipping has been reduced to a mere $35, while the requirements for speed have increased. Next-day, same-day and even same-hour delivery is what all other companies must strive for—regardless of cost.

In 2016, Amazon’s shipping costs exceeded its shipping revenue by $7.2 billion. Few companies outside of Amazon can afford to take that kind of loss. But it’s forcing companies to look at ways to increase speed and look for other ways to delight customers.

Robots / Automation

BOSTELMAN: Mobile manipulators are being marketed around the world as single manufacturer systems (i.e., robot arm and vehicle manufactured by the same organization) and as independent robot arms integrated with automatic guided vehicles (AGVs) or mobile robots made by two different manufacturers. Test methods for measuring safety and performance of these systems have yet to be developed. Therefore, potential mobile manipulator users cannot compare one type of system to another nor apply these systems to particular tasks.

Safety of mobile robots and mobile manipulators is being addressed in a new RIA 15.08 standards thrust. Additionally, I am leading a team at the National Institute of Standards and Technology to develop test methods for measuring the performance of mobile manipulators using novel artifacts. To date, a test method has been developed and data has been published from an AGV with an onboard robotic manipulator that measured and logged its performance relative to a reconfigurable mobile manipulator artifact (RMMA).

More recently, a research system with a manipulator integrated onto a mobile robot having autonomous navigation capabilities is being evaluated at NIST for similar assembly operations. Also, through a NIST cooperative agreement, Marquette University researchers are developing a dynamic mobile manipulator performance measurement scheme that would allow the mobile base to continuously move while the onboard manipulator is performing assembly operations.

MELLER: New flexible, mobile robotic solutions and warehouse execution software (WES) are now available, which enables more cost-effective each picking. Significant advances in autonomous robots have driven design innovation to increase the each-picking productivity of workers. And the solutions offer more flexibility than ever, with the ability to quickly ramp up and make modifications as needs change.

No longer do you have to create fixed paths and install costly wire routing. Today’s autonomous vehicles have vision sensors that react dynamically to changes in environment and integrate easily with complementary systems. They work alongside humans to increase productivity and flex with the needs of the business. These systems allow a user to get zone-routing capability without the expense and inflexibility of a conveyor system.

Concerns over the cybersecurity of warehouse robotics are giving some investors pause, though. Controls software will need to pass rigorous testing and frequent auditing to ensure that the bots that were implemented to increase productivity don’t end up crippling the operation through the efforts of professional hackers.

Exoskeletons

BOSTELMAN: Exoskeletons are wearable devices that can assist the user with functional (i.e., perhaps below normal), normal, or amplified human capability. These devices are already being used in many industrial settings allowing workers to lift and move heavy loads and in medical settings for patient rehabilitation, among many other applications in both areas. Recent research on exoskeletons has dramatically increased and has driven the current global exoskeleton market to include over 60 manufacturers. However, these devices have yet to show safety and performance impacts on humans. Similarly, this relatively new area uses terms and definitions that vary widely among exoskeleton researchers, manufacturers, and users.

International Organization for Standardization (ISO) 13482 was developed over several years and published in 2014 to address the safety concerns for robots, including exoskeletons, used as personal care devices. However, no normative requirements on data collection and analysis is included in the safety standard to be used as a basis for understanding long-term effects. Test methods are therefore needed to allow manufacturers and users to replicate standard safety procedures allowing exoskeleton users to fully understand their potentially imposed ramifications. Exoskeleton performance is interlaced with some safety considerations for these devices. For example, when used as a lower-extremity assistive device by an exoskeleton user who stands up from a crouched position or walks for an entire day carrying heavy loads - does the device provide full lift, overdrive human joints, cause the wearer strain or chafed skin, or other harm and if so, how should the device instead be designed and used to be safe?

I currently lead an Exoskeleton Terminology Task Group of over 50 members from military, industrial, and medical organizations to develop standard terms and definitions for this technology. Additionally, NIST and other government agencies held exoskeleton technical interchange meetings to educate this community and help move the technology to safe and effective performance levels. Therefore, I recently proposed a standards committee structure to develop practices, terminology, and test methods and NIST has begun a project on exoskeletons to help develop measurement science and support standards development in this area. Please contact me to participate in the development of this new standards committee.

Digital Freight Matching

SCOTT: Uber Freight, Amazon and J.B.Hunt (among others) have all entered the “digital freight matching” game. In essence, they are building software apps to enable shippers to connect with the hundreds of thousands of small truckers on the road without having to go the traditional route of using a broker as a middleman. There’s huge opportunity in this space—billions of dollars of freight spend go through brokers.

While this has been tried in the past, the game changer of the past three to five years has been the advent of smart phones and high speed cellular networks, enabling a driver on the road to connect to an app and potentially compete with the largest of carriers. This technology has a good chance of disrupting the industry, but there are significant barriers. A robust online reputation mechanism would have to be implemented—such as those used by Amazon and Yelp today. Small truckers may be reluctant to adopt new technology. And shippers might not think saving a few dollars is worth not having a person to call and interact with, like they get with the big carriers today. But, I think there is significant promise.

4PLs

STILLMAN: In my practice, I’ve noticed that shippers seem to like the fourth-party logistics provider (4PL) model and are hiring 4PLs with increasing regularity. By way of background, a 4PL serves as the sole interface between a shipper and multiple transportation service providers.

There is a tremendous upside to using a 4PL. For example, working with five different transportation service providers in the ocean freight space is challenging. Hiring five providers means reviewing five sets of reports, negotiating five different rates and interacting with five different groups of people. This multiplication of effort can be very inefficient. However, if a shipper hires a 4PL, then the 4PL may use five different providers but because the 4PL manages the freight, the shipper only reviews one report that is typically integrated into the shipper’s system. If there is an issue, there is only one throat to choke instead of five.

The downside to using a 4PL is that they tend to have preferred vendors who may not be the best fit for your business, lane or type of freight. Moreover, 4PLs often use boilerplate agreements with their preferred vendors and, thus, shippers lose the benefit of having protective market contracts that they may otherwise negotiate independently.

Augmented Reality

MELLER: Vision-picking is in its infancy today, but with improvements being made to expand displays to include the wearer’s full field of vision and headsets designed to be smaller, lighter in weight and overall more comfortable, it will be no time before workers have true, hands-free access in the warehouse.

Intelligent routing software will use geolocation to communicate directly with workers and guide them with picking task direction, maintenance and repair instructions or safety warnings, thereby boosting performance and productivity.

Regulations, Global Trade and the Trump Administration

STILLMAN: President Trump’s economic strategy to provide domestic job growth includes a trillion-dollar infrastructure plan, and a trade agenda that includes revising current treaties and proposing new duties on foreign countries such as China. Hopefully, he realizes that imposing so-called “dumping duties” does not necessarily protect U.S. workers. Rather, the duties only serve to harm foreign economies.

Around 2004, dumping duties were assessed on Chinese furniture. The foreign manufacturers’ response was to move factories to Vietnam and the Philippines. Similarly, in the last five years, dumping duties were imposed on passenger and light truck tires manufactured in China. In response, the tire manufacturers moved their operations to countries in Southeast Asia.

Clearly, a pattern has emerged. When a U.S. President singles out a country by imposing dumping duties, the manufacturers move their operations elsewhere. Thus, the solution President Trump should consider is imposing a duty on all imports of a specific good (e.g., tires) that is being exported to the U.S. with artificially low pricing. Regardless, until Americans are willing to pay for goods whose prices reflect our high labor costs, Americans will continue to import vast quantities of foreign products.

SCOTT: A major driver of supply chain design over the past decade has been free money—interest rates are extremely low by historical standards and have remained that way for some time. Low interest rates mean that the cost of holding inventory has been low, especially compared to the cost of transportation. So what have we seen? A massive growth in the number of inventory holding locations, inventory held closer to the consumer, and short delivery times (which require higher inventory holdings in order to fulfill orders from stock). In fact, Amazon’s entire strategy has been enabled by low interest rates.

Because of the U.S.’s large and growing debt, it seems likely that interest rates will increase at some point—other countries will decide they no longer want to buy debt at the low rates they are getting now. Higher interest rates mean higher inventory costs. Higher inventory costs mean fewer stocking locations, longer lead times and longer transportation legs. It will be interesting to see how things change when interest rates go up again. I predict we’ll see some reversal of recent trends of such short delivery times and inventory held so close to the customer. What if interest rates doubled, tripled, or even quadrupled from today’s rates? Would supply chain strategies change significantly? I think they would.

SPARKMAN: Looking back at the predictions I made last year before the presidential election, most of them seem to have held up pretty well. Where I went wrong was in failing to note the potential political turmoil that would follow Donald Trump’s election—or that it would be seemingly never-ending.

By continually stepping all over his own message President Trump has failed to get across some of what his administration has actually accomplished. One area is regulatory reform. A major plank in his campaign platform, Trump’s administration has shown a serious and ongoing commitment to undo the massive tangle of federal regulations that hurt businesses small and large.

At a news conference a few months ago, it was revealed that 800 such regulations had been or were in the process of being changed or removed from the Code of Federal Regulations. Among these is removing the restart provision of the truck driver hours-of-service regulations, and pulling back the CSA truck safety program to eliminate its widely criticized faults.

Many of these policies were the detritus of a campaign by President Obama and his underlings waged to bypass the Republican Congress by using pen and phone (in Obama’s famous phrase). Instead of instituting formal rulemakings requiring public input and adherence to a time-consuming process spelled out in the Administrative Procedures Act, Obama’s officials issued “enforcement guidance” memos and new interpretations of regulations already on the books, and in one case involving Labor Department enforcement of wage and hour regulations, through an official’s blog entry.

Those kinds of regulations were relatively easy to remove simply by declaring them no longer valid. It was the formal rulemakings and independent commission decisions accreted over the eight years of the Obama presidency that have proven harder to root out.

Another challenge to implementing Trump’s regulatory agenda is the slow pace of getting his federal appointees in place. Some of this can be blamed on congressional Democrats holding up nominees, but a large part of it has to do with a President who hasn’t bothered to make the nominations.

This has been most noticeable at independent commissions like the Equal Employment Opportunity Commission, National Labor Relations Board and even the poor, neglected Surface Transportation Board. For the NLRB and EEOC it looks like we should have new Republican majorities in place at least by the end of the year.

Other agencies operating without top leaders include the Federal Motor Carrier Safety Administration and Occupational Safety and Health Administration. Don’t look for any reduction of their employees’ commitment to safety enforcement. Both are mature organizations that boast a great deal of institutional expertise among their rank and file. However, recent actions by OSHA show it is inclined to take a more cooperative approach with employers in some areas.

Another reason to expect safety enforcement will continue relatively unabated is that Trump declared during his campaign that his sweeping regulatory reforms would not endanger rules pertaining to health, safety and security.

What is clear is that labor unions can no longer count on federal regulators that have nothing to do with enforcing labor laws to work closely with the agencies that do with the goal of giving unions what they want when it comes to things like pushing joint employer status and defining independent contractors as employees.

In fact, this spring the Trump Labor Department withdrew the policies expanded joint liability status for companies using temp staffing firms, and assertions that all independent contractors were really misclassified employees. DOL also has reopened the Obama-era overtime pay rulemaking with a view to making substantial changes.

Infrastructure should be an easy sell. It is popular with the general public, Republicans and Democrats, and unions and business interests. But Trump and the Republican Congress still can’t surmount the one roadblock that has stalled previous proposals: coming up with a way to pay for all these good works. Trump’s idea of using a combination of tolls and bonds can’t raise enough money, and it seems that everyone has sworn off raising fuel taxes—at least at the federal level. However, some states are looking at imposing road usage fees to fund needed highway improvements.

Meanwhile, governments in Blue States are picking up the baton from the Obama Administration when it comes to enlarging the scope of workplace regulation, including raising minimum wages and extending the “ban the box” movement to prohibit employers from questioning applicants about their pay histories. Expect to see more of this kind of action at the state and local level, particularly when it comes to the ongoing battle over independent contractor classification.  

 

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