Friday Five

The Friday Five: Lightning strikes down on the supply chain

May 31, 2019

Supply Chain Fragility: Weaponizing Trade Won't Be Felt Immediately, But There Will Be Surprises - Supply Chain Dive

The impact of recent trade actions, such as the U.S. imposition of licensing requirements on Huawei, the imminent increase in tariffs on a broad category of Chinese goods, or veiled threats of export controls by China on rare earth minerals will take time to be felt. There are some obvious reasons, and some less obvious. First the obvious. There are multiple steps in the production of many products, and it takes time to use up the inventories that are at all of the links in the supply chain. Many companies, anticipating future trade restrictions, have been stockpiling components. A word from Asian component suppliers has been that Huawei was stockpiling as part of their business contingency planning for many months, just as many U.S. importers increased their orders ahead of the imposition of U.S. tariffs late last year. An importer of specialty steels might have several months or more of inventory on hand that it supplies to a service center, which in turn sells it to a metalworking firm, which in turn uses the steel to make parts for an auto or appliance maker. Eventually, the increased cost has to get eaten somewhere or simply passed on. The second and more interesting reason is that many firms don’t know who some of their upstream suppliers are … yet. Because so many modern technologies are extremely complex, a modular division of labor has evolved in which specialist companies focus on a narrow slice of a bigger, more complex system. For example in notebook computers, one company makes the microprocessor, another makes the memory chips, another the Wi-Fi, Bluetooth and other connectivity chip(s), someone else will make the flat panel display screen, someone else the keyboard and housing, and yet another will assemble all the pieces before turning over the finished product to Apple, Dell, HP, or someone else.

BREAKING: US announces tariffs on all imports from Mexico starting June 10 - Supply Chain Dive

The U.S. will impose tariffs of 5% on all goods imported from Mexico beginning June 10, according to a statement from President Donald Trump published Thursday evening. The tariffs are meant to address "the emergency at the Southern Border," Trump wrote. The U.S. will determine if Mexico's actions to alleviate the so-called migrant crisis are sufficient. If they are deemed insufficient then tariffs will rise to 10% July 1, 15% Aug. 1, 20% Sept. 1 and 25% Oct. 1. Trump said the 25% tariff rate will remain in place until "Mexico substantially stops the illegal inflow of aliens coming through its territory." The president did not provide any specific metrics or goals to outline what it would look like for Mexico to successfully stem the flow of immigrants and have the tariffs removed. Mexico was the U.S.'s second largest supplier of goods last year, with imports totaling $346.5 billion. Tariffs on all imports will affect industries and U.S. businesses across the spectrum. It remains to be seen whether Mexico will retaliate and under what conditions the U.S. will lift the tariffs.

FedEx Ground to deliver 7 days a week year-round - Supply Chain Dive

FedEx Corp. is joining U.S. consumers in making e-commerce a seven-day-a-week venture. The company’s FedEx Ground unit will start delivering packages on Sundays next year, the WSJ’s Paul Ziobro reports, as the company turns its operations more directly toward the online shopping boom that is driving rapid growth in the parcel business. FedEx will also take back into its own network the packages it has been pushing into the postal system for last-mile delivery as it tries to build cost-saving density into its FedEx Ground routes. The changes aim to serve an e-commerce shopping market where consumer habits don’t mesh with working schedules because many deliveries arrive at homes while shoppers are at work. It also effectively expands capacity in FedEx’s network by using existing facilities an extra day to handle what the company expects will be a doubling of small package shipments in the U.S. by 2026.

Honeywell Brings Blockchain to Used Aircraft Parts Market - Wall Street Journal

Blockchain is helping speed up sales in a heavily-regulated corner of the aviation supply chain. Honeywell International Inc. is using the technology to power an online marketplace for used aircraft components that let participants trade parts in real time, the WSJ’s Agam Shah reports, digitizing the process while also authenticating transactions. Sales in the $5.4 billion used aircraft-parts market require certification from the U.S. Federal Aviation Administration and others, and sending quotes and exchanging documentation by phone and email can stretch out the process to days or even weeks. Honeywell’s marketplace lets buyers like airlines find and purchase parts immediately by using blockchain to trace the history of each component. Eventually, the company aims to sell whole used aircraft on the platform as blockchain, now being tested in food supply chains and to track drug shipments, gains broader acceptance.

Railroads Want to Move Faster. Shippers Are Paying a Price. - Wall Street Journal

The tight U.S. warehouse market is likely to loosen up in the next three years after a long boom fed by e-commerce. The Deloitte Center for Financial Services says in a forecast that availability of industrial real estate will rise from 7% in 2018 to 10.3% by 2023 as new construction outpaces demand growth in a cooling U.S. economy. While Deloitte expects demand to keep expanding as online sales and business inventories grow, the race to secure warehouse space that defined much of the past decade should ease. The report forecasts that annual demand growth will drop to 129 million square feet in 2023 from a peak in 2018 of 227 million square feet. At the same time, new development, on-demand warehousing startups and adapted use of other commercial spaces will add to pressure on industrial real estate rents.

Thanks for reading! Don’t forget to check out last week’s news and stay tuned for our next Friday Five roundup.

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