Supply chains are constantly changing as new rules, technologies, resources and market trends transform operations. Here's a skim of the week's indexes, technology announcements, expansions and M&As from around the web.
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April's rise in U.S. industrial production marked the fourth continuous month of increases, and while economists are typically skeptical of tepid growth rates, optimism prevails.
In a conversation about the current market with NASDAQ, Goldman Sachs CEO Lloyd Blankfein said low inflation rates and strong corporate balance sheets support this optimism. "Growth has been very subdued, but positive," he said (full video), suggesting the economy is not far from a "top quartile" of growth.
The optimism is spreading to the previously beleaguered freight industry, as various statistics show its recovery remains steadfast.
A Drewry report found global container volumes rose 10% in Q1 2017, compared to the same period last year. Similarly, ACT Research's For-Hire Trucking Index rose for the seventh month in a row, noting a general improvement in the economy. Meanwhile, Fleet Owner reports that while the DAT North American Freight Index fell slightly in April, the dip was lower than expected.
However, optimism should remain measured as over-speculation, combined with current-price forecasts, can lead to larger problems for the economy.
For example: The Wall Street Journal reported cotton futures rose to a 5-year high of 82.46 cents a pound as short traders bet on overproduction that was not matched by physical inventory, leading price to surge and create a speculative shortage. A similar dynamic can be seen as U.S. overproduction of oil is (intentionally) complicating OPEC's ability to balance global inventories for price control, according to the Journal.
The week's news, while positive, are a reminder that while high growth is desired, it is not always directly related to stability due to globally complex market dynamics. Tepid growth, for now, seems palatable.
The world may be experiencing a fourth industrial revolution due to technology, and right now, partnerships and integration appear to be many companies' primary strategy.
SAP and IBM. Intel and Honeywell. industry leaders are increasingly working together to offer more broad and capable solutions to their customers. SAP's recent technology releases feature an IBM collaboration, working to "transform procurement" with blockchain technology. Meanwhile, Intel and Honeywell are tapping into the Internet of Things (IoT) to improve supply chain visibility.
Such partnerships are not limited to the software space, however.
As Uber and Google battle over rights to self-driving technology, the rest of the industry continues their race to autonomy unscathed. Yet, the true winners appear to be the supply chain partners, as automakers are forced to tap previously uninvolved actors in their drive to build a connected car. One example: Blackberry, which after exiting the smartphone space has specialized in IoT and cybersecurity, is now partnering directly with automakers to help secure vehicles, according to Reuters.
Meanwhile, various companies are independently tapping technology to improve their service offerings: GrandCanals and Newegg each announced a fulfillment service this week; Lowe's is using exoskeletons to help its warehouse workers boost productivity; and lululemon received an award for its use of RFID technology to improve inventory accuracy.
When looking for a booming industry, it often pays to turn to the logistics market. High startup costs for warehouse projects, including lost time, mean expanding companies will make the investment as they seek to keep up with the market.
For example: Anheuser-Busch is building a distribution center in Columbus, OH, where it already has a brewery, in order to improve speed-to-market for its products. It's not that the AB InBev subsidiary's sales are growing at high rates, quite the opposite, but the more rise of craft beers in the U.S. is forcing the company to become more competitive and cost-efficient in other areas, including logistics.
In another example: A packaging firm is investing $5.2 million to set up shop in Charleston, SC, to take advantage of the "plastics boom" in that region. As markets grow, so does the need for efficient transport and fulfillment, and this trend is driving growth in many industrial markets nationwide.
The Atlanta Hartsfield-Jackson airport, for example, is reportedly investing in its air cargo capacity, as higher rates and greater partnerships help the air freight sector expand. The market is there, too, as the Greater Atlanta region is known as a logistics hub.
In other news, FedEx is expanding its Ground presence in its home town of Memphis, TN; XPO Logistics doubled the size of its last-mile fulfillment center in Chicago; and Canada's Manitoba region will soon boast a new inland port.
Mergers & Analysis
Walmart.com's CEO last week wrote a LinkedIn post explaining what makes a good acquisition, arguing that in his experience, such deals must seek to empower and challenge the bought company so it doesn't lose steam.
This week, however, McKinsey&Company writes that "there is no magic formula to make acquisitions successful," as each must have a unique strategy and even then, a company may always end up overpaying in a deal. However, the consultancy states there are six main "archetypes" of a good acquisition — those that:
- Improve the target company's performance
- Consolidate, removing excess capacity from industry
- Accelerate market access for products
- Provide skills/technologies faster or cheaper than could be developed
- Exploit an industry-specific scalability, or
- Pick winners early and help them grow
The consultants note "harder" or riskier strategies, like full-on transformations, exist. But, at minimum, these are six almost surefire ways of justifying an acquisition.
A look back at some of the major deals in the logistics space seem to fall into these categories, too:
- Uber's now infamous acquisition of Otto was an attempt to gain access to self-driving vehicle technology
- Knight Transportation's merger with Swift Transportation sought to improve Swift's performance
- Maersk Line's acquisition of Hamburg Sud is pursuing industry consolidation
If mergers and acquisitions are exciting, it is because they often reveal a company's plans for growth in ways other financials cannot. They may not always be successful, but these guidelines provide a template for future analysis.