You may think you have supply chain security worries now … and with some cause. As the government seeks to foil terrorists intent on smuggling radioactive, explosive or biologically hazardous materials in the bellies of aircraft, on ships' decks or secreted in trailers and railcars, it's trained its spotlights on the shippers that own the cargo and the carriers that move it. Importing and exporting takes longer today than it did two years ago, and costs have soared. But the worst may be yet to come.
In a post-Sept. 11 world, the U.S. government needs to ensure that its transportation systems aren't being used as a vehicle for terrorism. That's no small task. In 2002, according to the World Shipping Council, around 202,800 U.S. importers received goods from more than 178,200 foreign exporters via ocean liner shipping. On average, something like $1.4 billion worth of goods are moved through U.S. ports every day, most of it in shipping containers—6 million a year. At the same time, U.S. airlines are moving around 22 billion ton-miles of freight annually.At any given hour, 61,000 people are airborne over the United States. There's no way of making all of that 100 percent safe any time soon—45 pounds of Semtex fits in the trunk of a car and can blow the front off a three-story building. Securing the international supply chain, or even just the bit of it that snakes through the United States, is a tall order. But then, some argue, so was eradicating smallpox.
Over the last two years, the U.S. and other governments have started to implement what they hope are solutions—an intimidating array of international initiatives known mostly by their acronyms. To name but a few, there's the Container Security Initiative (CSI), the Advance Manifest Rule (AMR), Smart & Secure Trade Lanes (SST), the Customs-Trade Partnership Against Terrorism (C-TPAT), the U.S. Customs' Automated Targeting System (ATS) and the International Maritime Organization's International Ship and Port Security Code (the IMO ISPS Code)—some of them voluntary, most mandatory. And if you think that all this is the transportation companies' problem, think again. Although the U.S. authorities are currently concentrating on ship and port security, cargo security is next on the docket and legislation about to go into force could affect you soon.
Take the ISPS Code, for example. The U.S. version of it, the Maritime Transportation Security Act, was introduced in 2002, and its requirements will be enforced beginning on July 1 of this year. Under the act, all U.S. ports and all ships visiting U.S. ports must have trained their staff in awareness, drawn up a security assessment document that includes plans for responding to a terrorist emergency, and have had those plans assessed and approved by the U.S.Coast Guard. Failure to do so will result in their being turned away, in the case of a ship, or locked down completely, in the case of a port.
That may sound like the carriers' problem, but it will most assuredly become your problem as well. For one thing, ocean shipping will cost more. Adrian Gonzalez, supply chain analyst at ARC Advisory Group in Dedham, Mass., reckons compliance will cost carriers some $1 billion in the first year and $4 billion over the next five years. It's a given that carriers will pass these costs on to their customers.
But the more immediate problem is the threat of delays. Even if the carriers and the ports you use are fully ISPS compliant, your cargo could still be held up. Christopher Koch, president and CEO of the World Shipping Council, brought this up during his testimony before the Senate Committee on Commerce, Science and Transportation on March 24. What will the U.S. Coast Guard do if an ISPScompliant vessel has called at a non-compliant port on its way to an ISPS-compliant U.S. port? That issue remains unresolved, he pointed out. "Vessels calling between such ports and the cargo on those vessels are caught in the middle," said Koch. "It is not yet clear what a vessel can expect in those situations."
Earl Agron, director of port and container security for APL Ltd., based in Oakland, Calif., shares Koch's concerns. "Authorities are reluctant to share any details because they don't want to let anyone off the hook," says Agron. "That's vessel related, but another question is: What happens to cargo that comes from a non-compliant port?"
Koch's feeling is that, at the very least, such cargo would be held up for inspection. Partly, it's about politics, and the tricky business of the United States' imposing security standards on the rest of the world. "While the government may be highly reluctant to stop trade with such countries [that have non-ISPS compliant facilities], we expect it is likely to undertake measures designed to impose pressure on such ports and governments to comply, and those consequences may become more substantial as time passes and the government becomes less tolerant of foreign ports that are not compliant with the Code," Koch said.
Naming names
If the image of a tightening noose comes to mind here— one that's putting a stranglehold on your supply chain— brace yourself. There's more to come. Another international program, the Container Security Initiative—designed to foster cooperation between trading countries in allowing U.S. officers to screen cargo in foreign ports—is still in its infancy, with details yet to be spelled out. But you can be sure there will be shipper involvement somewhere.
Meanwhile, U.S. Customs is wrestling with the problem of what actually constitutes a "shipper" for the purposes of ATS security screening, and whether the 14 cargo manifest data elements currently required are sufficient for the security task at hand. Koch describes this as a "significant pending question," and one that affects importers directly. One way or another, whether or not such information appears on a bill of lading, the U.S. authorities want the names of the original vendors, suppliers and manufacturers for all cargo. Koch urged the Senate Committee to recognize that this information is not the responsibility of the carriers but of the importers. Although importers provide much of this info to the Customs data system in the merchandise entry process, it's not currently filed before vessel loading and is therefore of no use to ATS, Koch said. He warned that importers should expect the equivalent of the Advance Manifest Rule under which carriers have to file cargo information 24 hours before the ship sails from a foreign port, bound for the United States.
"There is in fact an overarching and broader question that underlies this issue and the effort to make ATS as effective a cargo security screening system as possible, namely: What information does the government need, from whom, when, and filed into what information system?" Koch said. That raises yet another question: If importers will be required to provide extensive and detailed lists about their foreign vendors, do they want that information broadly distributed via carrier manifests, where competitors might see it? It's virtually certain that all these questions will be addressed in the next year or so, and they will directly affect U.S. importers.
Getting ready
What to do? Gonzalez and others have some suggestions for shippers that want to secure their supply chains as well as prepare for the future. Gonzalez says the first thing to do is appoint a chief security officer, today, and establish a team with members from the full range of company departments.
He also suggests joining voluntary security programs, notably C-TPAT, which will help get you thinking about security issues. To obtain C-TPAT accreditation, you have to convince Customs that you have rigorous security measures in force along your entire supply chain. That takes time, but it cuts the risk that your containers will be singled out for costly and time-consuming inspections. (Bob Perez, director of the C-TPAT program, says Customs now inspects around 6 percent of all containers entering the United States, and 100 percent of those considered "high risk.") Alan Hicks, director of business development and governmental policy at P&O Nedlloyd North America, based in East Rutherford, N.J., also endorses C-TPAT. "[C-TPAT] gets flak for being a voluntary program and having no teeth but it's made people aware of the risk and it's been hugely successful in that regard,"Hicks says. "Making people aware of the risk is the single most important weapon we have, having people looking in terms of the normal course of business saying: this doesn't look right."
Third, Gonzalez suggests you incorporate trade security requirements into your vendor and carrier qualification processes, and ask your existing vendors and carriers to comply with them as well. Furthermore, you should investigate the technology being developed to guard cargo once it leaves your loading dock—smart seals for containers, RFID and satellite tracking systems. Keep in mind you'll also need software to help you trawl through tracking data. "You have to worry about the database management and software applications," says Agron. "Very few companies are investing a lot of time on the application side."
Software capable of automatically separating the security wheat from the chaff is going to be increasingly crucial as shippers and carriers install more smart tags on cargo—whether they're passive or active RFID chips, or GPS tags that can send out messages about position and status to earthcircling satellites. It might appear that an ideal solution to the cargo security problem would be to tag every one of the world's 12 million to 15 million containers in active use with a whiz-bang transmitting device. But, Agron points out, that would result in a flood of information of biblical proportions. Ten million containers sending out signals once an hour would produce a quarter of a billion messages a day to be evaluated, swamping the receivers' systems.
Others urge shippers to get involved in the ongoing legislative process. Hicks at P&O echoes the sentiments of many when he says he's found working with the U.S. Coast Guard and Customs on a voluntary basis has led to a lot of useful debate. For example, he says, the authorities have already backed down on a requirement that advance manifest information be sent for empty containers on ships. Koch and the World Shipping Council, among other trade groups, also made Customs back off from a proposal to make the carrier responsible for naming parties other than the one that had contracted for the transportation service as the cargo's responsible "shipper." Importers should be getting involved too, lobbying national and international representatives, and participating in shipper groups. The Toy Association of America is one that's particularly active in this regard. Barry O'Brien, its chairman, announced at a security panel at a conference in Cleveland in March that he intended to pool the accreditation and inspection of all toy manufacturers in China used by Toy Shippers Association Inc. members in order to cut down on duplicate effort (and expenditure), and is working with the Toy Association of China to make that happen. Other vertical industries should take note. Importers are increasingly going to have to provide information about their business partners abroad. Starting now, and pooling resources to do so, is simply good supply chain policy.
Lastly, don't confuse supply chain efficiency with supply chain security. For example, with RFID tags, there's been no clear industry distinction so far between that technology's uses for container security and for supply chain management objectives. "These are not trivial issues," said Koch. "The issues, the challenges and the requirements involved in addressing the two are not the same. The purposes and the use are not the same. A failure to clearly distinguish between security requirements and commercial supply chain management objectives will create confusion; will impede progress on these issues; and may in fact create significant security vulnerabilities."
Robotic technology has been sweeping through warehouses nationwide as companies seek to automate repetitive tasks in a bid to speed operations and free up human labor for other activities. Many of those implementations have been focused on picking tasks, a trend driven largely by the need to fill accelerating e-commerce orders. But as the robotic-picking market matures and e-commerce growth levels off, the robotic revolution is shifting behind the picking lines, with many companies investing in pallet-handling robots as a way to keep efficiency gains coming.
“Earlier in this decade and the previous decade, we [saw] a lot of [material handling] transformation around e-commerce and the handling of goods to order,” explains Josh Kivenko, chief marketing officer and senior vice president at Vecna Robotics, which provides autonomous mobile robots (AMRs) for pallet handling and logistics operations. “Now we’re talking about pallets—moving material in bulk behind that line.”
Kivenko explains that whether items are being packaged and shipped directly to a customer’s home address or moved as finished goods to a shipping bay for store delivery, those items are first moved in bulk in some way, often by human hands and with human-operated equipment. He describes warehouses as chaotic environments in which humans move pallets and cartons in multiple ways—up and down, side to side, from receiving to storage, from storage to shipping, or via cross-docking. Automation can help bring order to that chaos.
“What we’re trying to do is relieve some of the pressure [on the] humans [doing] this work,” Kivenko says of companies that develop pallet-handling robotic technologies. “At the end of the day, we’re trying to automate some of those flows, relieve labor pressure, save costs, and keep the goods flowing.”
But automated pallet handling isn’t right for every situation, so it’s important to understand the warehouse conditions required and the protocols and best practices needed to make it a win. Here are some guidelines for applying pallet-handling robots and gaining the most from your investment.
FIRST, UNDERSTAND THE TECHNOLOGY
Pallet-handling robots fall into four general categories, explains Rich O’Connor, vice president of storage and automation for Raymond West Group, a business unit of lift truck manufacturer The Raymond Corp. They include:
Palletizing/depalletizing robots, which are used to load or unload items onto and off of pallets, usually with the use of a robotic arm for picking and placing. Today, these systems are being increasingly integrated with automated storage and retrieval systems (AS/RS) to further streamline pallet handling in the warehouse, O’Connor explains.
Autonomous guided vehicles (AGVs) and autonomous mobile robots (AMRs), which are used to transport pallets within the warehouse. Often outfitted with lift decks or conveyors, or designed to tug or tow items, these robots move pallets from point A to B within a facility. AGVs, which often follow a marked guide-path or wire in the floor, have been around for many years, but the advent of high-performance guidance and vision systems is allowing them more flexibility today, O’Connor says. AMRs are self-guided vehicles that use software and sensors to navigate their way through the warehouse.
Forklift AGVs and AMRs, which can move products both horizontally, from place to place, and vertically, into and out of storage racks. They come in various styles—including stackers, counterbalanced trucks, reach trucks, and even very narrow aisle (VNA) vehicles for use in densely packed warehouses. These vehicles are more complex than those used only for horizontal transport, O’Connor explains. They must be “highly integrated” into the facility’s warehouse management system (WMS) or warehouse execution system (WES) so that they know precisely where to retrieve and deliver pallets within the facility.
Robotic pallet shuttles, which move pallets into, out of, and within dense storage racking. The Raymond Corp. describes such a system as “a standalone, automated deep-lane pallet storage system that utilizes self-powered shuttle carriages to move pallets toward the back or front in a racking channel. Shuttles are motor driven and travel along rails within a storage lane.”
O’Connor and others say that no matter which of these technologies you’re investing in, it’s important to remember that they are all part of a larger system designed to optimize operations throughout the warehouse.
“The expanding role of all these different styles working together is what’s amazing today,” O’Connor says.
SECOND, ENSURE THE TECHNOLOGY IS A FIT
Kivenko, of Vecna, also emphasizes the importance of pallet-handling robots working in concert, particularly AMRs and AGVs.
“The magic isn’t just that the robots are autonomous and driving by themselves. The magic is multiple robots—when you have a [whole integrated] system [in place],” he says. “[It’s] how the fleet operates autonomously and optimizes itself for continuous improvement. That’s where the exponential gains are. [It’s] not just about automating what a worker does; it’s about automating a system.”
But you can’t install these systems in just any warehouse and expect magic. Kivenko and others point to certain conditions that enable the best robotic pallet-handling outcomes, especially when it comes to transportation-based and forklift-type AMRs and AGVs.
“The robots that I sell are large-load machines with very expensive technology,” Kivenko explains. “They move material, generally, in larger facilities. And in order for them to produce a return [on investment]—because that’s the name of the game here—they have to be higher-velocity facilities.”
He says pallet-handling robots work best in large facilities running multiple shifts, usually more than five days a week. Wider aisles allow the equipment to move more freely through the facility and at higher speeds, to optimize efficiency and productivity. Strong Wi-Fi networks and clean, dry environments also help keep equipment running at top performance.
O’Connor agrees that pallet-handling robots are best suited to facilities with multishift operations, where they can ease labor constraints and boost productivity. And he says many customers are willing to extend the typical two- to three-year ROI period to five years in order to achieve those gains. But there is even more to it than that. O’Connor’s colleague John Rosenberger says customers must first step back and analyze their processes to ensure that, even if they have the right facility for pallet-handling AMRs or AGVs, they are moving material in the most efficient way to begin with.
“Many times, we find that the processes in place [are inefficient],” says Rosenberger, who is director of iWarehouse Gateway and global telematics for The Raymond Corp. He emphasizes the importance of analyzing existing data—from an equipment telematics system or similar—to determine the best path toward automation.
“Do you have congestion zones now?” he asks. “They’ll still exist if you automate [those processes exactly].”
THIRD, MAKE SIMPLICITY A PRIORITY
Another basic rule of thumb when implementing pallet-handling robotics: Keep it simple.
Andy Lockhart, director of strategic engagement for global warehouse and logistics process automation company Vanderlande, says that when designing a pallet-handling robotics system, “you want to minimize the processes you [automate]. When you can create [an automated system] that focuses on one task—for example, AMRs delivering pallets from a high-bay [storage rack] directly to the palletizing cell—you can do that efficiently and effectively. When you ask the AMR to do this and this and this … you are adding risk of failure.”
Lockhart’s colleague Jake Heldenberg advises customers to first test their target processes via pilot programs within the warehouse or DC. Heldenberg is Vanderlande’s head of solution design, warehousing, North America.
“If AGVs or AMRs for pallet handling are interesting [to a customer], the best thing to do is pilot one or two in an existing DC,” he says, explaining that the process can help companies troubleshoot, understand integration timelines, and gauge ROI. But pilot programs can add expense to a project, making it unaffordable for some.
“If that’s the case, then the best advice is work with a vendor who has experience integrating [the technology],” Heldenberg says. “Use their experience to benefit your business. You won’t have the same hiccups and challenges you would with a less-experienced vendor.”
Jeremy Van Puffelen grew up in a family-owned contract warehousing business and is now president of that firm, Prism Logistics. As a third-party logistics service provider (3PL), Prism operates a network of more than 2 million square feet of warehouse space in Northern California, serving clients in the consumer packaged goods (CPG), food and beverage, retail, and manufacturing sectors.
During his 21 years working at the family firm, Van Puffelen has taken on many of the jobs that are part of running a warehousing business, including custodial functions, operations, facilities management, business development, customer service, executive leadership, and team building. Since 2021, he has also served on the board of directors of the International Warehouse Logistics Association (IWLA), a trade organization for contract warehousing and logistics service providers.
Q: How would you describe the current state of the contract warehouse industry?
A: I think the current state of the industry is strong. For those that have been focused on building good client relationships over the years, I think it’s a really exciting time. Coming out of all the challenges of the past few years, I think there’s a lot of opportunity for growth and deeper partnerships. It’s fun to see the automation and AI (artificial intelligence) integration starting to evolve [in a way that’s] similar to what we saw with WMS (warehouse management systems) in the early 2000s.
Q: You are now president of your family firm. Is it an advantage having grown up in the business as opposed to working elsewhere?
A: I definitely believe it was an advantage growing up in the business. Whether it’s working with family or someone else in the industry, there’s always an advantage when you have mentors[to guide] you. I’ve been blessed to have several mentors, some in the industry, others just in life, and I’m thankful that they were willing to mentor me and that I was willing to listen to them.
Q: What are the biggest challenges currently facing 3PLs, and how are you addressing them?
A: Labor and legislation are both tough right now. The two seem to have a lot to do with each other, and it can make it tough to find and retain people. So I think we’ll see more and more automation of processes industrywide.
Q: Third-party service providers often must handle a wide variety of products for a lot of different clients. Does this variety make it difficult to invest in automation and other new technologies?
A: It can make things more difficult when looking at certain automation, but it’s in the “difficult” that a lot of opportunities lie. It would be tough to find a single solution that fits every client’s needs, but there are always opportunities to improve in certain areas. It just takes a bit of vision and commitment, and a willingness to invest in your own long-term success.
Q: As a 3PL, what do you look for when selecting the clients you work with?
A: Quality relationships that will last a long time. When both parties are happy and working together in the same direction, everyone wins.
Q: You’ve been a board member of the International Warehouse Logistics Association since 2021. Why is your involvement with this organization important to you?
A: I think it’s important to understand what’s happening in the industry. IWLA is a great resource for staying up to date and getting a solid education when it comes to the latest logistics trends. I also think it’s important to give back and pass along what we’ve learned to those just getting started in the business. As important as it is to have a mentor, it’s just as important to mentor and help others.
“While there have been some signs of tightening in consumer spending, September’s numbers show consumers are willing to spend where they see value,” NRF Chief Economist Jack Kleinhenz said in a release. “September sales come amid the recent trend of payroll gains and other positive economic signs. Clearly, consumers continue to carry the economy, and conditions for the retail sector remain favorable as we move into the holiday season.”
The Census Bureau said overall retail sales in September were up 0.4% seasonally adjusted month over month and up 1.7% unadjusted year over year. That compared with increases of 0.1% month over month and 2.2% year over year in August.
Likewise, September’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.7% seasonally adjusted month over month and up 2.4% unadjusted year over year. NRF is now forecasting that 2024 holiday sales will increase between 2.5% and 3.5% over the same time last year.
Despite those upward trends, consumer resilience isn’t a free pass for retailers to underinvest in their stores by overlooking labor, customer experience tech, or digital transformation, several analysts warned.
"The 2024 holiday season offers more ‘normalcy’ for retailers with inflation cooling. Still, there is no doubt that consumers continue to seek value. Promotions in general will play a larger role in the 2024 holiday season. Retailers are dealing with shrinking shopper loyalties, a larger number of competitors across more channels – and, of course, a more dynamic landscape where prices are shifting more frequently to win over consumers who are looking for great deals,” Matt Pavich, senior director of strategy & innovation at pricing optimization solutions provider Revionics, said in an email.
Nikki Baird, VP of strategy & product at retail technology company Aptos, likewise said that retailers need to keep their focus on improving their value proposition and customer experience. “Retailers aren’t just competing with other retailers when it comes to consumers’ discretionary spending. If consumers feel like the shopping experience isn’t worth their time and effort, they are going to spend their money elsewhere. A trip to Italy, a dinner out, catching the latest Blake Lively and Ryan Reynolds films — there is no shortage of ways that consumers can spend their discretionary dollars,” she said.
Editor's note:This article was revised on October 18 to correct the attribution for a quote to Matt Pavich instead of Nikki Baird.
A real-time business is one that uses trusted, real-time data to enable people and systems to make real-time decisions, Peter Weill, the chairman of MIT’s Center for Information Systems Research (CISR), said at the “IFS Unleashed” show in Orlando.
By adopting that strategy, they gain three major capabilities, he said in a session titled “Becoming a Real-Time Business: Unlocking the Transformative Power of Digital, Data, and AI.” They are:
business model agility without needing a change management program to implement it
seamless digital customer journeys via self-service, automated, or assisted multi-product, multichannel experiences
thoughtful employee experiences enabled by technology empowered teams
And according to Weill, MIT’s studies show that adopting that real-time data stance is not restricted just to digital or tech-native businesses. Rather, it can produce successful results for companies in any sector that are able to apply the approach better than their immediate competitors.
“ExxonMobil is uniquely placed to understand the biggest opportunities in improving energy supply chains, from more accurate sales and operations planning, increased agility in field operations, effective management of enormous transportation networks and adapting quickly to complex regulatory environments,” John Sicard, Kinaxis CEO, said in a release.
Specifically, Kinaxis and ExxonMobil said they will focus on a supply and demand planning solution for the complicated fuel commodities market which has no industry-wide standard and which relies heavily on spreadsheets and other manual methods. The solution will enable integrated refinery-to-customer planning with timely data for the most accurate supply/demand planning, balancing and signaling.
The benefits of that approach could include automated data visibility, improved inventory management and terminal replenishment, and enhanced supply scenario planning that are expected to enable arbitrage opportunities and decrease supply costs.
And in the chemicals and lubricants space, the companies are developing an advanced planning solution that provides manufacturing and logistics constraints management coupled with scenario modelling and evaluation.
“Last year, we brought together all ExxonMobil supply chain activities and expertise into one centralized organization, creating one of the largest supply chain operations in the world, and through this identified critical solution gaps to enable our businesses to capture additional value,” said Staale Gjervik, supply chain president, ExxonMobil Global Services Company. “Collaborating with Kinaxis, a leading supply chain technology provider, is instrumental in providing solutions for a large and complex business like ours.”