Thursday, November 30, 2017

SUPPLY CHAIN AND LOGISTICS DISRUPTORS

It is interesting that many of the disruptors of Supply Chain Management are also disruptors of logistics.




HOW TO MEET E-COMMERCE CUSTOMER EXPECTATIONS

E-commerce success is meeting customer expectations; those expectations are about Service driven by Supply Chain Management.    #SCM







SUPPLY CHAIN TECHNOLOGY

Much logistics technology used in Supply Chain Management is a micro manage of a slice of the supply chain. Need is for supply chain macro management and end-to-end supply chain visibility.   #SCM




TECHNOLOGY--GLOBAL TRADE AND GLOBAL COMMERCE

Am in the middle of evaluating interesting technologies for global trade and for global commerce.




CORRECT WAY TO MEASURE SUPPLY CHAIN MANAGEMENT?


That Supply Chain Management is defined and measured by its logistics components tells you something is not right.






Wednesday, November 29, 2017

YANG MING FINANCIALS

This may also reflect the years of accepting being #2 Taiwan carrier and not leading more

Analysis: Yang Ming cash call a positive, but its share price is now a fear gauge

© Philippilosian |yang ming_53779592
© Philippilosian
“Every little helps” – this motto perfectly sums up the outcome of Yang Ming’s latest fundraising round.
Let’s set the record straight: this week was very important for the container shipping industry, because the Taiwanese carrier – one of the weakest links in the container supply chain, based on financial fundamentals – proved to be able to raise NT$6bn ($198m) in new equity capital, with reports suggesting the deal was oversubscribed after launching at NT$5bn ($165m).
Yang Ming rights issue, press release (Source Yang Ming)
Yang Ming rights issue, press release (Source Yang Ming)
Elsewhere, I was rather impressed by CMA CGM’s results, too.
Breathing
Admittedly, Yang Ming’s cash call suggests the situation is more reassuring than it was only a couple of months ago, although its financials remain shaky and its capital structure ultimately untenable, which means more equity is surely needed to fix the balance sheet.
In short, Yang Ming remains on life support as it still needs, for example, up to NT$5bn to cover its short-term funding needs, but if trends in the freight market are benign and previous economic results are confirmed over the next couple of quarters, with a surprising twist, this so far painful corporate story could even boost confidence in the liner trade.
Of course, Taiwan is pumping money into the ailing shipping line, actively supporting Yang Ming with a stake now up to 38% from 33% previously, and that is a smart way to conceive state aid, rather than waiting for disaster to materialise and then intervene – “smart”, so long as the market recovers and overcapacity doesn’t return to haunt it.
Demand
Some of my sources pointed out there was little “natural demand for the shares”, meaning the government and state-owned companies moved the demand needle, but that is normal when the situation, as with Yang Ming, is challenging in terms of material funding constraint.
In my previous coverage – click here (April), here (July) and here (November) – I argued the Taiwanese carrier was on the verge of running out of time to secure the necessary funding that would cover for its short-term needs, but as long as its equity valuation finds a floor around its current level of NT$12 ($0.39), the sun might continue to shine in Keelung, where it is headquartered.
Yang Ming Share price (Source Google Finance)
Yang Ming share price (Source Google Finance)
Its share price action this week was essentially a “non-event”, which testifies to the uncertainty still surrounding its financial health.
Its share price, however, is important and serves as a benchmark because, as the company also said this week in a filing with the Taiwan Stock Exchange, it affects the value of other securities that are ranked higher in its capital structure.
“The conversion price of Yang Ming company 4th unsecured convertible bonds was adjusted from NT$28.39 to NT$24.42 on 2017/11/27,” it said, adding that “the conversion price of first private placed secured mandatory convertible bonds was adjusted from NT$25.42 to NT$22.17 on 2017/11/27.”
These amendments reflect a structurally lower share price, which at current levels is now a fear gauge: if it falls significantly below NT$12, rumours will start again to question the suitability of its huge debt load, although the maturity profile of its obligations and its ability to raise funds in a market where junk-rated debt is perceived as being overvalued should still offer some relief.
Elsewhere
This week, France’s CMA CGM also displayed a quarterly performance that, with all due respect to Maersk Line and Hapag-Lloyd, was stunning, particularly considering its core cash flows, which are shown in the table below.
CMA CGM cash flow statement (Source CMA CGM)
CMA CGM cash flow statement (Source CMA CGM)
It is a balancing act between profitable volume growth and rising return on equity that cannot be spurred by significantly higher margins and asset turnover, but where leverage does the trick in this market.
Yang Ming still cannot afford the luxury of having to deal with such a nice problem, and equity dilution is the lesser evil at the moment, although there remains one serious problem: surging bunker prices.

LOGISTICS RISK AND UNCERTAINTY

The disruption, chaos, change, and transformation in logistics is creating uncertainty and risk. This is not a time of one-size-fits all for 3PLs, logistics providers, and investors. There are more diversity and tiers for both logistics assets and logistics providers.




MASKING SUPPLY CHAIN PROBLEMS

Standard retail and manufacturing supply chains mask design and operating problems that e-commerce exposes.




Tuesday, November 28, 2017

INVESTORS--LOGISTICS PROVIDERS AND LOGISTICS ASSETS

Logistics, 3PLs, and logistics providers are going through the early stages of disruption, chaos, change, and transformation.  And there are two interrelated parts to this--logistics providers and logistics assets.  Where do investors want to be positioned as this happens?




INVENTORY VELOCITY AND TIME COMPRESSION

If you need Inventory Velocity for e-commerce Customer Expectations and/or for Lean, then you must have Time Compression.

http://www.ltdmgmt.com/time-compression.php



WHAT SUPPLY CHAINS ARE

Supply Chains have/are--
*length
*supply chains within supply chains
*not linear
*cross the company
*external--both directions
*complex






MANUFACTURERS, ERP, AND THE PERFECT ORDER


Do manufacturers with ERP have a more difficult time with the perfect order—delivered complete, accurate, and on time?  ERP systems can struggle outside the walls of factories where supply chains are.




LEAN AND SUPPLY CHAIN MANAGEMENT--INVENTORY

Both Lean and the New Supply Chain that drives e-commerce success know it is about inventory velocity.  Inventory that sits in warehouses adds no value, is waste—of Working Capital.




Monday, November 27, 2017

E-COMMERCE--AMAZON, WALMART, AND THE CRUMBS

Is this what retailers and manufacturers have let happen?  That e-commerce has come down to Amazon and Walmart.  While the rest fight for crumbs?
http://money.cnn.com/2017/11/27/investing/cyber-monday-online-retail-stocks-amazon-walmart/index.html

Amazon vs. Walmart: Rest of retail fights for crumbs





Amazon's stock is up more than 60% this year to above $1,200 due to healthy sales -- and that's helped lift the net worth of CEO Jeff Bezos past the $100 billion level.

Walmart's shares have soared 40% to a near record high of $100 thanks to robust growth in its online commerce operations.
But the rest of retail? It's not exactly a happy Cyber Monday -- or year -- for traditional stores like Nordstrom, Target, Macy's, JCPenney and Sears.

Powered by SmartAsset.com
Shares of Nordstrom (JWN) have fallen nearly 15% so far in 2017. And that, perversely enough, makes them one of the better performers in the downtrodden retail sector.
Target (TGT) shares have lost almost a quarter of their value. Macy's (M) stock has plunged more than 40%. JCPenney (JCP) and Sears (SHLD) are both down a whopping 60%.
Why is Wall Street so confident that the retail battle is simply one between Amazon and Walmart? It's because both of them are growing increasingly dominant -- particularly in digital -- leaving the rest of retail to scramble for any scraps they can get.
"The holiday shopping weekend was extraordinary for online retailers," said Sucharita Mulpuru-Kodali, an analyst with Forrester.
Mulpuru-Kodali added she now thinks that e-commerce sales for the entire weekend, including Cyber Monday, will be up 16% from last year. She was originally expecting sales to be up 12%.
And she said in an email to CNNMoney that "Amazon and Walmart seem to be benefiting quite a bit."
Amazon (AMZN, Tech30) is already the clear leader in online retail and it has stepped up its presence in the physical retail world thanks to its purchase of Whole Foods and opening of Amazon Books stores in many big cities.
And Walmart (WMT) is becoming a bigger player in digital due to the purchases of Jet.com and specialty online retailers ModCloth, Bonobos and Moosejaw.
Chuck Grom, an analyst with investment research firm Gordon Haskett, said in a report Monday that according to a survey of 1,000 individuals his firm did over the Thanksgiving weekend, Walmart and Amazon were the biggest winners.
Related: Walmart is killing Target and making Amazon sweat
Gordon Haskett asked consumers which retailers they shopped at over the weekend -- both in-store and online. Walmart ranked well ahead of Macy's, JCPenney, Target, Sears/Kmart, Nordstrom, Dillard's and other department stores.
And when looking at just the online component, Gordon Haskett found that consumers overwhelmingly chose Amazon and Walmart/Jet over Target's website as well as pure online retailers eBay and Overstock.
"Wal-Mart (when combined with Jet.com) is not only a powerhouse among discount retailers, but in close competition with Amazon when measuring online traffic only," Grom wrote.
More than three-quarters of those surveyed said they shopped at Walmart (online or at the store) over the Thanksgiving weekend and nearly 70% bought something at Amazon. The next closest retailer was Kohl's, with about 56% of consumers shopping there.
Related: Your shopping guide to Cyber Monday
And Kohl's (KSS), interestingly enough, has two partnerships with Amazon. Kohl's is selling Amazon hardware like the Alexa-enabled Echo, in some stores and is also letting consumers return and ship merchandise back to Amazon for free in several stores too.
But is the retail world really going to remain a battle of just Amazon and Walmart? Not necessarily. There may be room for international online commerce companies and specialty online retailers to thrive.
Christian Magoon, CEO of Amplify ETFs, an investment firm that runs the Amplify Online Retail ETF (IBUY), noted that Alibaba (BABA, Tech30), the most significant online retailer in China, has done even better than Amazon this year. Its stock has more than doubled.
Shares of Groupon (GRPN), Etsy (ETSY)and Canada's Shopify (SHOP) have surged too.
"There is a ton of opportunity in online retail beyond Amazon and Walmart," Magoon said.
But there may not be a ton of opportunity for traditional retailers finding themselves increasingly squeezed by Amazon and Walmart.

CBP AND BLOCKCHAIN FOR TRADE

CBP to Examine Use of Blockchain in Trade Environment

Tuesday, November 28, 2017
Sandler, Travis & Rosenberg Trade Report
U.S. Customs and Border Protection is moving ahead with an evaluation of the implications and potential application of blockchain technology to trade processing. As part of that effort, CBP’s Commercial Customs Operations Advisory Committee has established a working group to examine this issue.
A blockchain essentially functions as a distributed ledger that records transactions in a verifiable and permanent way. Blockchain records are transparent to all who have access to the network but are decentralized across that network, making them virtually incorruptible. This security has made blockchain a promising technology for recording a wide range of activities, including customs and trade-related transactions.

 

Earlier this fall the Department of Homeland Security conducted a two-day workshop on blockchain for COAC’s new emerging technologies working group. On the first day DHS provided an overview of blockchain and how it is currently being used, while on the second day participants discussed various cases where the use of this technology might be feasible.
More than a dozen proposed uses were identified, including capturing and keeping track of partner government agency licenses and permits, certificate of origin reporting, free trade agreement product qualification, carnets, and bonded movement tracking. CBP now plans to work with the COAC working group to further evaluate the workflow processes of some of these cases and how blockchain technology could be used, although no specific timeframe has yet been established.
According to press reports, companies and organizations in other parts of the world are also testing how blockchain may aid international trade flows, including tracking cargo containers, transferring shipping documents, and confirming cross-border payments.

SECRET INGREDIENT OF SUCCESSFUL E-COMMERCE SUPPLY CHAIN MANAGEMENT

The secret ingredient of the New Supply Chain that drives e-commerce customer expectations success is Velocity—Order to Delivery Velocity and Inventory Velocity.




MAERSK VS HAPAG-LLOYD, AS THE NUMBERS SHOW

Analysis: Maersk vs Hapag-Lloyd with D-Day just round the corner

maersk-blur
Reaction in the financial markets said it all when AP Møller-Maersk Group (APMM) and Hapag-Lloyd reported their quarterly figures on 7 and 14 November respectively.
APMM stock fell 7% in just one trading session, while Hapag shares soared over 10% at one point soon after its trading update was published. But that rally was short-lived and the hefty paper gains were swiftly pared in less than 24 hours.
Hapag share price in the wake of Q3 results (Source Yahoo Finance)
Hapag share price in the wake of Q3 results (Source Yahoo Finance)
Volatility in their share prices is not just a nuisance for the trade. It comes as the shares of freight forwarders could have topped this year, which signals more downside risk throughout the supply chain.
The valuation of the main listed players with ocean exposure – clear market leader Kuehne + Nagel, DSV, Panalpina as well as their US rivals – clearly demonstrates a shipping market that is as unpredictable as ever.
Share price performance of the main listed freight forwarders with ocean operations: DSV, Kuehne + Nagel, Panalpina, Expeditors and CHRW (Source Yahoo Finance)
Share price performance of the main listed freight forwarders with ocean operations: DSV, Kuehne + Nagel, Panalpina, Expeditors and CHRW (Source Yahoo Finance)
The container shipping trade, I gather, is perceived as being increasingly speculative by investors, and rightly so, because mounting uncertainty about future capacity and prospects of possibly rising bunker prices – which I consider to be “bad inflation” affecting operating costs rather than benefitting top lines – does not bode well for profitability, and inevitably makes me wonder whether another wave of consolidation is due sooner rather than later.
There are many moving parts here, but the problem today is that, while the first wave of M&A over the course of last year forced many players to lever up bidding for scale and synergies, the second wave of the consolidation tsunami could be more violent, with potentially devastating effects on supply chains globally.
In this context, if you think the demise of Hanjin was the tip of the iceberg – well, think again.
Am I too bearish?
I generally lean to being a tad too bearish, but the spread between short-term and long-term interest rates in the US and other developed economies points to little “good inflation” kicking around (the one that boosts revenues more than costs), despite years of quantitative easing that is slowly but surely coming to an end, and that means operating expenses for many capital-heavy businesses, such as shipping lines, will become heavier over time.
10/2 year interest rates spread; shaded areas indicate recession in the US, which historically brings pain globally (Source FRED)
10/2 year interest rates spread; shaded areas indicate recession in the US, which historically brings pain globally (Source FRED)
Undoubtedly, this is a business long cycle characterised by unusually low interest rates, and e-commerce trends continue to boost consumption, so it may take time for a worst-case scenario to materialise, but further evidence of the eroding container freight rate environment has not passed unnoticed and the outlook remains mixed.
Trust me, if container shipping trends and the valuation of the majors turns out to be a leading indicator, you’d be better taking a year off, or just retire early, in 2018.
Investment
Cyber woes were already priced in APMM’s valuation before quarterly results hit the wires, so these were only side issues in its interim update.
In a way, APMM is more problematic than Hapag, due to a conglomerate structure that has been only partly addressed since management split it between good (transport and logistics) and bad assets (energy).
Despite the effort, which was remarkable, the stock of the Danish behemoth is now down almost 30% from the 2.5-year high it hit earlier this summer, and its year-to-date performance, too, reads -17% – meanwhile, Hapag’s remains comfortably above IPO mainly thanks to the integration of UASC, which secured the combined entity precious cash, but also loaded it with a huge amount of debt.
Maersk share price (Source Yahoo Finance)
Maersk share price (Source Yahoo Finance)
Maersk Line is particularly important because it remains the market leader and dictates global strategies for the others. While it now expects a “positive underlying profit”, heavy capital investment needs remain significant, and could be higher if it goes for market share more proactively.
As it said, “gross capital expenditure for 2017 is now expected to be around US$4.5bn ($3.1bn)”, based on figures according to which both profits and capex are adjusted for the discontinued operations of Maersk Oil, Maersk Tankers and Maersk Drilling.
Maersk Line noted it “expects an improvement of around $1bn in underlying profit (previously in excess of $1bn) compared with 2016 (loss of $384m)”, adding that the change relates to expected continuing higher cost, to recover services and reliability after the cyber­ attack, combined with increasing bunker costs.
The guidance for 2017 excludes the acquisition of Hamburg Süd, and comes as global demand for sea­borne container transportation is projected to increase 4-5%.
The company also acknowledged guidance “is subject to considerable uncertainty, not least due to developments in the global economy and the container freight rates”.
Despite that, it’s investing top dollar in its growing fleet.
Fundamentals
Unsurprisingly, APMM’s free cash flow is under pressure lately and paltry returns on invested capital have been the outcome at group level, and Maersk Line has a lot to do with that performance, given that the ‘new Maersk’s’ success mainly hinges on its container shipping activities.
APMM free cash flow, return on invested capital, break-down by unit for the first nine months of the year (Source APMM Q3 results)
APMM free cash flow, return on invested capital, break-down by unit for the first nine months of the year (Source APMM Q3 results)
On this basis, trends were not particularly encouraging in the third quarter, as the table below shows.
APMM free cash flow, return on invested capital, break-down by unit in the third quarter (Source APMM Q3 results)
APMM free cash flow, return on invested capital, break-down by unit in the third quarter (Source APMM Q3 results)
Capacity grew, but the picture remains mixed.
APMM volumes, rates, fuel costs ((Source APMM Q3 results)
APMM volumes, rates, fuel costs ((Source APMM Q3 results)
Meanwhile, some regulatory risk continues to surround its multi-billion purchase of Hamburg Süd and I am afraid that rising oil prices are more important than freight rates trends here, although some experts have suggested otherwise.
Oil trends (USO) vs Maersk and Hapag stock price (Yahoo finance)
Oil trends (USO) vs Maersk and Hapag stock price (Yahoo finance)
By comparison, Hapag’s ROIC figures are not great either.
Hapag-Lloyd ROIC, cash balances, and other figures (Source Hapag Q3 results)
Hapag-Lloyd ROIC, cash balances, and other figures (Source Hapag Q3 results)
Its latest update confirmed that its fleet grew, volumes were up, and margins strengthened, but all that glisters is not gold.
Headline free cash flow is much better than previously – although one caveat is that core free cash flow, which should not factor in cash inflows of €357m from deal-making, is significantly lower than headline figures suggest.
Hapag FcF (Source Hapag Q3 results)
Hapag FcF (Source Hapag Q3 results)
And that is relevant, because its ebitda rose almost 19% since the end of 2016, but its net debt pile is 71% higher than at the turn of the year, as the table below shows, implying a demanding 6x projected net leverage, based on my calculations.
Hapag Ebitda, net debt, others (Source Hapag Q3 results)
Hapag ebitda, net debt, others (Source Hapag Q3 results)
Return on invested capital is still well below acceptable levels when gauged against its weighted average cost of capital, or WACC, which traditionally is in the high single-digit range. This is the first warning flag, and also a key variable worth paying attention to going forward – another, of course, is its amount of debt, as I previously argued.
Also, cash balances look much nicer than before, but that is a gift from UASC, which confirms the Middle Eastern carrier was acquired to prevent a possible cash drought, while filling up the debt can and pushing it down the road – brilliant financial engineering rather than a sound corporate strategy, in my view.
Hapag cash balances (Source Hapag Q3 results)
Hapag cash balances (Source Hapag Q3 results)
Ultimately, D-day could be around the corner: my model still flashes a worst-case scenario for a technical recession in the US in the third quarter of 2018, which could spread globally.
So, we’ll soon learn if Hapag was smart and whether Maersk could be even smarter by flipping some of Hamburg Süd’s assets to third parties at a paper gain, if and when the takeover goes through.
Until then, good luck if you are invested in either.

ARE LOGISTICS PROVIDERS LOSING RELEVANCE?

In the world of e-commerce supply chains, how many logistics providers are losing context and relevance? In a time of disruption, are they adding to their own chaos?




OMNICHANNEL AND INVENTORY

The more channels retailers and manufacturers sell thru—stores, e-commerce, catalog, pop-up store, shelf space as a service (SSaaS)—the more their supply chains require inventory flow velocity through the total supply chain. Traditional stop and start/ node-link approach does not meet performance requirements.




Sunday, November 26, 2017

THE SILK ROAD--CHALLENGING CONTAINER LINES

And filling a supply chain need that shipping lines created and ignore.



The New Silk Road: Challenging the Shipping Industry

map-china-rail-mos_112414052931.jpgmap source: http://energypost.eu...nge-face-world/
Less than ten years ago, the idea of rail cargo between China and the EU was…bar talk; at best. However in 2016, according to The Economist, in excess of 500,000 tonnes shipped by rail from a variety of Chinese rail hubs into an equally large variety of EU destinations as far west as Dublin. Should ocean carriers be worried?

3PSCM, NOT 3PL

E-commerce supply chains with their emphasis on inventory velocity and order-delivery velocity need 3PSCMs with their emphasis on the supply chain--as contrasted to 3PLs with their logistics focus.  Big difference.  This is not about renaming/rebranding existing 3PLs.  This is about a new breed of service providers.




POP UP RETAIL AND SHELF SPACE AS A SERVICE SUPPLY CHAIN MANAGEMENT

Both Pop Up Retail and Shelf Space as a Service (SSasS) need strong Supply Chain Management for success.




LOGISTICS INVESTORS

How do investors deal with the chaos, disruption, and transformation in logistics with digitization, blockchain, platform business, Being Amazoned and Amazon Effect, demand for velocity, disintermediation, IoT, robotics for warehouse and delivery, driverless vehicles, drones, 3D printing, and more?




Saturday, November 25, 2017

E-COMMERCE AND 3PSCM

E-commerce supply chain management demands end-to-end inventory velocity flow. A significant change to the present standard node-link / stop-start supply chain built around logistics components. It requires new providers.  The 3PSCM; not a 3PL. Not renaming / rebranding the 3PL. Part of the disruption, chaos, change, and transformation that is coming to Logistics.




Wednesday, November 22, 2017

MOVE ASIDE 3PL FOR 3PSCM / SCMaaS

Will the New Supply Chain that drives e-commerce customer expectations success become SCMaaS--Supply Chain Management as a Service?  A change from the 3PL model to 3PSCM!  It makes sense.




BLOCKCHAIN VS DIGITIZATION FOR SCM

Blockchain.  Digitization. Is one a bigger game changer for Supply Chain Management?




CPG MANUFACTURERS AND E-COMMERCE

With the retail chaos, why are so many CPG manufacturers slow at developing an e-commerce selling program and transforming their supply chains to meet Customer Expectations?




IT IS NOT REALLY BRICKS VS CLICKS

Bricks vs clicks is an oversimplification of what is happening. The reality is the new selling (not retailing) duality.  Same with the reality of Supply Chain Management that drives the new selling—the New Supply Chain duality.




Tuesday, November 21, 2017

RETAIL COMMODITIZATION

Omnichannel E-commerce. The New Selling. The New Supply Chain that drives its success. Disruption. Chaos. Change. Transformation. Amazon Effect. Being Amazoned. The risk of disintermediation for retailers and wholesalers/distibutors. The size of the B2B e-commerce market is larger than B2C. Global revolution of selling and supply chain management that crosses industries, markets, and borders. How well are you doing with e-commerce and the supply chain that drives it and meets customer expectations? Leaders and laggards.





DO RETAILERS PUT STORES AHEAD OF CUSTOMERS?

Are retailers who put bricks ahead of clicks really saying that customers are not #1 important?  Customer convenience is secondary?  Are they afraid to transform their supply chains to deliver the customer experience?




COST AND A NARROW TAKE ON OMNICHANNEL SUPPLY CHAINS

This narrow take on a logistics component shows a lack of understanding of the New Supply Chain that drives e-commerce success of meeting Customer Expectations. SCM


Omnichannel sales pushing B2B deliveries towards more costly B2C supply chains

dreamstime_s_45953063
© Jerry Coli
The growth of e-commerce business has led to a convergence of B2B and B2C traffic, with parcel logistics providers increasingly embracing both to serve clients’ omnichannel supply chains.
“Now almost all shippers have both and we are seeing more companies transition to online platforms and omni-channel distribution,” said John Ferguson, president and CEO of Purolator Courier, the largest express parcel operator in Canada.
Telecoms firms used to move their equipment to stores, now they also deliver straight to consumers, he noted.
“B2B and B2C are converging,” he said, adding that this is leading to a new paradigm, labelled ‘X2X’. Retail companies are leading this convergence, but other sectors are following, he said.
In fact, a recent Transport Intelligence report, Global e-commerce logistics 2017, found that 49% of B2B e-commerce buyers prefer to make purchases on B2C sites, noting that this led B2B operators away from the use of legacy systems such as EDI.
For Purolator, this means more consumer deliveries as well as more on weekends. Volumes are also higher on Mondays and Tuesdays, as many consumers order items during the weekend, Mr Ferguson noted.
Consumer expectations benefit express operators as they do not want to wait several days for their order, he said.
However, other ramifications are less positive for providers, said Horst Manner-Romberg, principal of parcel logistics research at consulting firm M-R-U.
“B2C affects your sort processes and also your route structures.”
Purolator is in the process of developing new solutions in handheld technology, which will help with processes like route optimisation and sorting on trucks, Mr Ferguson said.
The surging volume of consumer parcels is translating into more density for Canadian operator.
“It’s mostly single packages, but we get more stops per shift, which means more density,” Mr Ferguson said.
However, Mr Manner-Romberg cautioned that a lot hinged on factors like population density.
The mix of products also plays a role, he added. Royal Mail subsidiary GLS retreated from the car tyre market, for example, after finding that the returns were undermined by the room a tyre takes up on a truck, thereby reducing space for other shipments.
A standard UPS truck carries 150-180 parcels and on average makes about 50 fewer stops for B2B traffic than for B2C shipments, Mr Manner-Romberg pointed out.
And consumer deliveries are more expensive – traffic operators in Germany need €2.60-€2.70 per parcel to cover the cost of B2C traffic; for B2B traffic that figure is €2.30.
GeoPost subsidiary Dynamic Parcel Distribution (DPD) embarked on a drive to raise its brand in the B2C sector in 2014 with the aim of doubling the share of that traffic in its mix within two years. In the process, its operating result dipped 78%, sending the firm’s balance sheet into the red, said Mr Manner-Romberg.
Operations were also affected. DPD introduced an application that notified recipients of the anticipated delivery window. Over time, the accuracy deteriorated, he said.
He added that GLS appeared to have avoided some of the B2C pitfalls by limiting its exposure. For the most part it contrived this through prohibitive pricing and a clear focus on which products to carry and which to avoid.
Overall it is difficult for parcel firms to minimise their exposure to B2C, let alone avoid it, as their B2B clientele ask for comprehensive solutions that cover both elements.
“It’s usually one deal for all. It’s very rare that customers ask for separate deals for their B2B and B2C traffic,” confirmed Mr Ferguson.
By the same token, pricing is typically across the categories.
“If you approach UPS, they will ask you about the balance of your B2C and B2B traffic, and they will adjust the overall price accordingly,” Mr Manner-Romberg said. “Only if you have very small volumes in one segment, you may get charged two different rates. With higher volume, it’s too much hassle to do that.”