Oracle of the economy: interview with Walter Kemmsies
If politicians paid more attention to the transportation infrastructure—and its effect on supply chains and job creation—the U.S. economy would be stronger in the long term, argues economist Walter Kemmsies.
Mitch Mac Donald has more than 30 years of experience in both the newspaper and magazine businesses. He has covered the logistics and supply chain fields since 1988. Twice named one of the Top 10 Business Journalists in the U.S., he has served in a multitude of editorial and publishing roles. The leading force behind the launch of Supply Chain Management Review, he was that brand's founding publisher and editorial director from 1997 to 2000. Additionally, he has served as news editor, chief editor, publisher and editorial director of Logistics Management, as well as publisher of Modern Materials Handling. Mitch is also the president and CEO of Agile Business Media, LLC, the parent company of DC VELOCITY and CSCMP's Supply Chain Quarterly.
In today's wired world, social trends, government investment and regulation, and national and global economies are connected in a web of complex relationships—and they all impact logistics and supply chains, says Walter Kemmsies. As chief economist at the engineering firm Moffatt & Nichol, it's part of his job to understand how those factors affect the way we source, make, move, and consume products worldwide.
Kemmsies directs the firm's market studies, financial analyses, and global trade and economic trend forecasts relative to investment in transportation infrastructure, with a focus on maritime facilities. Since joining Moffatt & Nichol in 2006, he has helped ports and port-related businesses formulate strategic development plans, among other projects. He also serves as an adviser to executives at port authorities, and transportation and manufacturing companies.
The well-traveled economist has earned his global credentials. He's lived in Europe and Latin America and has undertaken work assignments throughout Asia. Prior to joining Moffatt & Nichol, he was the head of European strategy at J.P. Morgan in London, which he joined after leading the global industry strategy team for UBS.
Kemmsies is a frequent speaker at industry conferences and international economic forums, and his research has been published by investment banks, in business periodicals, and in academic journals. He is a member of the National Association for Business Economics, the Council of Supply Chain Management Professionals (CSCMP), and a member of the advisory board of the Center for Advanced Infrastructure and Transportation at Rutgers University.
Kemmsies received his doctorate in economics from Texas A&M University, and his master's and bachelor's degrees in economics from Florida Atlantic University.
In a recent conversation with DC Velocity Group Editorial Director Mitch Mac Donald, he discussed the economic outlook for the United States, its implications for supply chains, and the critical need for a national infrastructure policy.
Q: The U.S. economy is very dependent on retail sales. What is your outlook for U.S. consumer spending, and how will it affect retail supply chains in the years ahead? A: We have a situation where a very large number of people are turning 65 every year. The first baby boomers turned 65 last year, and the number of people turning 65 will increase every year until about 2025. As people age, they spend increasingly more of their budget on services than they do on goods, so I expect to see slower growth than we've had in the last 30 years.
A lot of these retiring baby boomers were affected by the collapse of Wall Street back in 2008. Their financial wealth is less than it was four years ago. Their homes are worth less, and some are underwater. Many people weren't really on track to be able to retire at age 65 four or five years ago, and after the events on Wall Street, fewer are able to retire. The baby boomers who are retired already have to build their savings. So we can't expect very high growth in retail sales.
I believe that the retail sector became overinvested. There are too many outlets in too many places. ... As a result, I believe that in the retail sector, we are going to see consolidation, where we will have a smaller number of players and a smaller number of locations. Market power will increase and will be in the hands of those companies, but because of the low retail sales growth that we expect over the medium to long term, the emphasis on cost savings will be greater than it has been even in the last four or five years. ... Anybody who supports retailers will have a smaller list of companies to go after. Those companies have to keep their costs down, so it will really be tough on the import side for retail.
Q: There seems to be more manufacturing coming back to the Western Hemiäphere. What are the implications for supply chains that people are overseeing in the United States? A: There are two main ones. The first is that Mexico is sitting close to the crossroads of the East-West trade. It is a good place for [Asian manufacturers] to send components to be assembled into finished goods that can be sent by rail or truck into the United States, or put on ships in, say, Veracruz or Lázaro Cárdenas and sent to places like Colombia, Brazil, Argentina, Chile, and Peru. In fact, that is what is happening.
Mexico is close to us, so we can send raw materials very cheaply there; use the Mexican labor, which is roughly the same cost as in China but less than U.S. labor; and then have the goods shipped back to the United States. The total contribution of transportation costs to the price of the product is much lower that way.
The second is that, independent of whether [goods and raw materials] move to Mexico or not, the United States has some comparative advantages in things like energy, agriculture, and high-end capital goods. What those things have in common is that they use very little labor and they use a lot of capital. U.S. labor expense is high, and our interest rates are very low. So automation and [highly automated manufacturing processes like 3-D printing] come back to the United States, which is good for a company but is not necessarily good for creating jobs.
Q: Do you see virtue in establishing a cohesive national transportation policy, and how might such a policy support freight and help strengthen our economy overall? A: The real wealth of the nation is nourished by its infrastructure. It is something that we learned, and then everybody learned from us—but we seem to have forgotten what we knew. Why did we grow so strongly in the '60s up until 10 years ago? We built the interstate system. We put the Internet in place. We built modern ports. We managed the Mississippi waterway.
Since then, we have neglected this kind of thing. Quite frankly, without infrastructure, you can't have an economy. If you have infrastructure that's not very good, then you have an economy but you are poor. That is Brazil. If you have really good infrastructure—first-rate, like Japan does and Korea does—then you become very wealthy. That's what China did 20 years ago. They started building infrastructure. It's the main thing that we should be focusing on, but we are not. Look at the political debates during the November election. Infrastructure was mentioned, but only in passing.
Q: What should we do, then? A: First, we should identify our comparative advantages. Then you understand the bottlenecks; or not necessarily the bottlenecks, but what a transportation infrastructure that would enhance exports would look like. Instead of giving subsidies to companies, put them all into the infrastructure. Then, anybody who wants to make a good living can use the infrastructure we are providing them. The important thing is to make sure we are not doing this in a way that favors one region of the country over others.
Q: That gets to the need for a more cohesive national infrastructure plan, then? A: Exactly. If that is what you are doing, then you are creating jobs. The exports that we produce are not necessarily what creates the jobs. It is the entire supply chain. For example, agriculture is a natural source of exports for the United States. There are jobs in bringing in seeds and fertilizer, in water management. There are jobs in bringing the product from the farm. There are jobs in inspecting the quality of the product. The financial sector gets supported by this. You need price-risk management for the future contracts. Agriculture generates a huge number of jobs, and it could generate even more if we emphasize that. And world food prices have shot up a lot, and you can actually hold back world economic growth if households in many parts of the world can't afford a basic diet. So those are cornerstones for a transportation policy.
Q: How do we go about making the development of a national transportation policy a priority among our elected officials? A: We need a champion, a true champion. In many ways, President Obama has tried to push for something to emerge. There is a mandate for the Department of Commerce, the Department of Transportation, the USDA, and a few other agencies to work together to establish the priorities.
Transportation infrastructure is very tangible. It creates jobs in the near term in construction, and once you put that infrastructure in place, it supports increased exports and therefore, creates jobs in the long run. But I don't see an accurate analysis of that type coming out of places like the Office of Management and Budget. We don't see the Council of Economic Advisers talking about that. Among the academic advisers on the economy, talk of infrastructure doesn't really exist.
We look at our infrastructure, and we take roads for granted and take all our ports for granted. ... The problem is, there is a lack of awareness about how much transportation contributes to employment in this country.
Q: Any closing thoughts? A: We live in a world where policy has such a huge effect. The economists get clobbered when they get the forecast wrong. But the main reason forecasts often don't pan out has to do with non-market criteria. The market models that are used when there are no external effects like policy tend to forecast very accurately. So policy actions really throw us off when we try to do pure market analysis.
The problem I have in trying to do forecasts is that not only do you have to forecast what the supply side and the demand side are going to do, but also what the policy actions are going to be. Predicting that is like predicting a coin toss.
E-commerce activity remains robust, but a growing number of consumers are reintegrating physical stores into their shopping journeys in 2024, emphasizing the need for retailers to focus on omnichannel business strategies. That’s according to an e-commerce study from Ryder System, Inc., released this week.
Ryder surveyed more than 1,300 consumers for its 2024 E-Commerce Consumer Study and found that 61% of consumers shop in-store “because they enjoy the experience,” a 21% increase compared to results from Ryder’s 2023 survey on the same subject. The current survey also found that 35% shop in-store because they don’t want to wait for online orders in the mail (up 4% from last year), and 15% say they shop in-store to avoid package theft (up 8% from last year).
“Retail and e-commerce continue to evolve,” Jeff Wolpov, Ryder’s senior vice president of e-commerce, said in a statement announcing the survey’s findings. “The emergence of e-commerce and growth of omnichannel fulfillment, particularly over the past four years, has altered consumer expectations and behavior dramatically and will continue to do so as time and technology allow.
“This latest study demonstrates that, while consumers maintain a robust
appetite for e-commerce, they are simultaneously embracing in-person shopping, presenting an impetus for merchants to refine their omnichannel strategies.”
Other findings include:
• Apparel and cosmetics shoppers show growing attraction to buying in-store. When purchasing apparel and cosmetics, shoppers are more inclined to make purchases in a physical location than they were last year, according to Ryder. Forty-one percent of shoppers who buy cosmetics said they prefer to do so either in a brand’s physical retail location or a department/convenience store (+9%). As for apparel shoppers, 54% said they prefer to buy clothing in those same brick-and-mortar locations (+9%).
• More customers prefer returning online purchases in physical stores. Fifty-five percent of shoppers (+15%) now say they would rather return online purchases in-store–the first time since early 2020 the preference to Buy Online Return In-Store (BORIS) has outweighed returning via mail, according to the survey. Forty percent of shoppers said they often make additional purchases when picking up or returning online purchases in-store (+2%).
• Consumers are extremely reliant on mobile devices when shopping in-store. This year’s survey reveals that 77% of consumers search for items on their mobile devices while in a store, Ryder said. Sixty-nine percent said they compare prices with items in nearby stores, 58% check availability at other stores, 31% want to learn more about a product, and 17% want to see other items frequently purchased with a product they’re considering.
Ryder said the findings also underscore the importance of investing in technology solutions that allow companies to provide customers with flexible purchasing options.
“Omnichannel strength is not a fad; it is a strategic necessity for e-commerce and retail businesses to stay competitive and achieve sustainable success in 2024 and beyond,” Wolpov also said. “The findings from this year’s study underscore what we know our customers are experiencing, which is the positive impact of integrating supply chain technology solutions across their sales channels, enabling them to provide their customers with flexible, convenient options to personalize their experience and heighten customer satisfaction.”
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
National nonprofit Wreaths Across America (WAA) kicked off its 2024 season this week with a call for volunteers. The group, which honors U.S. military veterans through a range of civic outreach programs, is seeking trucking companies and professional drivers to help deliver wreaths to cemeteries across the country for its annual wreath-laying ceremony, December 14.
“Wreaths Across America relies on the transportation industry to move the mission. The Honor Fleet, composed of dedicated carriers, professional drivers, and other transportation partners, guarantees the delivery of millions of sponsored veterans’ wreaths to their destination each year,” Courtney George, WAA’s director of trucking and industry relations, said in a statement Tuesday. “Transportation partners benefit from driver retention and recruitment, employee engagement, positive brand exposure, and the opportunity to give back to their community’s veterans and military families.”
WAA delivers wreaths to more than 4,500 locations nationwide, and as of this week had added more than 20 loads to be delivered this season. The wreaths are donated by sponsors from across the country, delivered by truckers, and laid at the graves of veterans by WAA volunteers.
Wreaths Across America
Transportation companies interested in joining the Honor Fleet can visit the WAA website to find an open lane or contact the WAA transportation team at trucking@wreathsacrossamerica.org for more information.
Krish Nathan is the Americas CEO for SDI Element Logic, a provider of turnkey automation solutions and sortation systems. Nathan joined SDI Industries in 2000 and honed his project management and engineering expertise in developing and delivering complex material handling solutions. In 2014, he was appointed CEO, and in 2022, he led the search for a strategic partner that could expand SDI’s capabilities. This culminated in the acquisition of SDI by Element Logic, with SDI becoming the Americas branch of the company.
A native of the U.K., Nathan received his bachelor’s degree in manufacturing engineering from Coventry University and has studied executive leadership at Cranfield University.
Q: How would you describe the current state of the supply chain industry?
A: We see the supply chain industry as very dynamic and exciting, both from a growth perspective and from an innovation perspective. The pandemic hangover is still impacting decisions to nearshore, and that has resulted in a spike in business for us in both the USA and Mexico. Adding new technology to our portfolio has been a significant contributor to our continued expansion.
Q: Distributors were making huge tech investments during the pandemic simply to keep up with soaring consumer demand. How have things changed since then?
A: The consumer demand for e-commerce certainly appears to have cooled since the pandemic high, but our clients continue to see steady growth. Growth, combined with low unemployment and high labor costs, continues to make automation a good investment for many companies.
Q: Robotics are still in high demand for material handling applications. What are some of the benefits of these systems?
A: As an organization, we are investing heavily in software that will allow Element Logic to offer solutions for robotic picking that are hardware-agnostic. We have had success deploying unit picking for order fulfillment solutions and unit placing of items onto tray-based sorters.
From a benefit point of view, we’ve seen the consistency of a given operation improve. For example, the placement accuracy of a product onto a tray is far higher from a robotic arm than from a person. In order fulfillment applications, two of the biggest benefits are reliability and hours of operation. The robots don't call in sick, and they are happy to work 22 hours a day!
Q: SDI Element Logic offers a wide range of automated solutions, including automated storage and sortation equipment. What criteria should distributors use to determine what type of system is right for them?
A: There are a significant number of factors to consider when thinking about automation. In my experience, automation pays for itself in three key ways: It saves space, it increases the efficiency of labor, and it improves accuracy. So evaluating which of these will be [most] beneficial and quantifying the associated savings will lead to a “right sized” investment in technology.
Another important factor to consider is product mix. With a small SKU (stock-keeping unit) base, often automation doesn’t make sense. And with a huge SKU base, there will be products that don’t lend themselves to automation.
With any significant investment, you need to partner with an organization that has deep experience with the technologies that are being considered and … in-depth knowledge of the process that is being automated.
Q: How can a goods-to-person system reduce the amount of labor needed to fill orders?
A: In most order picking operations, there is a considerable amount of walking between pick faces to find the SKUs associated with a given order or set of orders. Goods-to-person eliminates the walking and allows the operator to just pick. I have seen studies that [show] that 75% of the time [required] to assemble an order in a manual picking environment is walking or “non-picking” time. So eliminating walking will reduce the amount of labor needed.
The goods-to-person approach also fits perfectly with robotic picking, so even the actual picking aspect of order assembly can be automated in some instances. For these reasons, [automation offers] a significant opportunity to reduce the labor needed to fulfill a customer order.
Q: If you could pick one thing a company should do to improve its distribution center operations, what would it be?
A: Evaluate. Evaluate the opportunities for improving by considering automation. In my experience, the challenge most companies have is recognizing that automation is an alternative. The barrier to entry is far lower than most people think!
Toyota Material Handling and its nationwide network of dealers showcased their commitment to improving their local communities during the company’s annual “Lift the Community Day.” Since 2021, Toyota associates have participated in an annual day-long philanthropic event held near Toyota’s Columbus, Indiana, headquarters. This year, the initiative expanded to include participation from Toyota’s dealers, increasing the impact on communities throughout the U.S. A total of 324 Toyota associates completed 2,300 hours of community service during this year’s event.
The PMMI Foundation, the charitable arm of PMMI, The Association for Packaging and Processing Technologies, awarded nearly $200,000 in scholarships to students pursuing careers in the packaging and processing industry. Each year, the PMMI Foundation provides academic scholarships to students studying packaging, food processing, and engineering to underscore its commitment to the future of the packaging and processing industry.
Truck leasing and fleet management services provider Fleet Advantage hosted its “Kids Around the Corner Foundation” back-to-school backpack drive in July. During the event, company associates assembled 200 backpacks filled with essential school supplies for high school-age students. The backpacks were then delivered to Henderson Behavioral Health’s Youth & Family Services location in Tamarac, Florida.
For the past seven years, third-party logistics service specialist ODW Logistics has provided logistics support for the Pelotonia Ride Weekend, a campaign to raise funds for cancer research at The Ohio State University’s Comprehensive Cancer Center–Arthur G. James Cancer Hospital and Richard J. Solove Research Institute. As in the past, ODW provided inventory management services and transportation for the riders’ bicycles at this year’s event. In all, some 7,000 riders and 3,000 volunteers participated in the ride weekend.