David Maloney has been a journalist for more than 35 years and is currently the group editorial director for DC Velocity and Supply Chain Quarterly magazines. In this role, he is responsible for the editorial content of both brands of Agile Business Media. Dave joined DC Velocity in April of 2004. Prior to that, he was a senior editor for Modern Materials Handling magazine. Dave also has extensive experience as a broadcast journalist. Before writing for supply chain publications, he was a journalist, television producer and director in Pittsburgh. Dave combines a background of reporting on logistics with his video production experience to bring new opportunities to DC Velocity readers, including web videos highlighting top distribution and logistics facilities, webcasts and other cross-media projects. He continues to live and work in the Pittsburgh area.
American farmers and growers of other agricultural products have had to endure a worldwide pandemic, an economic downturn, and extreme weather this past year. And now on top of all that, they face another growing crisis.
A surging tide of Asian imports is straining capacity at U.S. ports, especially on the West Coast. Import volumes are so high right now that ships remain at anchor in harbors for days waiting to dock and unload their goods. And sitting on those ships are ocean containers that are needed for exports. It’s a situation that has been exacerbated by a worldwide container shortfall. For products with limited shelf lives like agricultural goods, the current state is nothing short of a looming disaster.
Peter Friedmann is the executive director of the Agriculture Transportation Coalition (ATC). This group was formed 30 years ago with the goal of assuring that U.S. agriculture exports remain competitive with products from around the world. ATC members include producers of agriculture and forest products, such as cotton, poultry, beef, milk, dry dairy goods, berries, and lumber and paper products. Friedmann spoke recently to DC Velocity Editorial Director David Maloney about the difficulties that many of these exporters now face.
Q: Can you tell us about the current shortage of containers for agriculture products and why that is a problem for your exporting members?
A: It is not an overstatement to say that the current situation is devastating to all U.S. agriculture exports. This includes products such as soybeans and hay, which are our largest volume exports off of our coast, as well as cotton and manufactured and processed foods, both refrigerated and dry.
The reason it is devastating is twofold. One is ocean carriers are looking at the revenue they can get on that inbound cargo coming from Asia, or what we call the eastbound. Those importers are paying $6,000, $8,000, $10,000, and in some cases up to $14,000 in freight rates for a container coming to the United States.
U.S. agriculture exporters have to compete with producers from all over the world. We cannot afford to pay those kinds of freight rates. The value of the cargo in those export containers is not that high. Therefore, the export revenue that the ocean carriers get for carrying the cargo westbound to Asia is more like $400, $800, or maybe $1,400 to $2,000 on the high end. So, ocean carriers are making an economic decision to forgo carrying cargo outbound across the Pacific and instead are sending the containers back empty.
Q: Why are the carriers returning the containers empty? They obviously won’t make money on containers with no cargo in them.
A: The reason they do this is to get them back to Asia as fast as they can so they can be filled with lucrative consumer goods and immediately sent back to the United States at those higher inbound rates. It has to do with processing time. They make money with containers on the water.
Our agriculture exports originate where crops and livestock are grown and processed. The stockyards are no longer in downtown Chicago. They are in places where there are fewer consumers and thus, fewer import distribution centers. So, for those containers to be loaded with our agriculture exports, they have to travel away from the gateway ports to inland areas. Some are just a couple hours inland, such as almonds from California’s Central Valley or the hay and dairy going out of Washington and Oregon. But many containers have to be hauled 1,500 miles to places like Kansas City, where our dry dairy goods come from; Arkansas, where pork comes from; and Minnesota, where soybeans are grown. So those export containers have to travel quite a distance and are not on the ship, where the revenue is made.
Q: So, that extra time required to send containers to the heartland to be filled with agriculture products and then back to the port is time that they’re not making money for the carriers. As a result, your members are not given an opportunity to fill any of those containers. Is that the basic problem we’re seeing?
A: That is correct. The other aspect is that ocean carriers are imposing penalties on failure of containers to arrive at the terminals in time or for arriving too early, the so-called demurrage and detention charges. The Federal Maritime Commission (FMC) has viewed those penalty fees as unreasonable and spent two years developing guidelines for the ocean carriers on what are reasonable practices. Most of the practices in use today don’t meet those guidelines, yet they continue, and the charges that the carriers are imposing are collectively in the hundreds of millions of dollars for our larger agriculture exporters. In fact, demurrage and detention charges are now more than the basic freight charges for carrying our exports. So, the freight budgets are more than double due to those penalty fees. Those are putting quite a few exporters—and I would also say importers—at financial risk.
Q: What are the long-term ramifications if the current situation does not improve?
A: When it comes to agriculture and forest products, there is nothing we produce in this country that cannot be sourced somewhere else in the world. If we can’t deliver it affordably and dependably to our overseas customers, they will find some other source in some other country, and we could lose that business and those customers forever.
Q: We know there is not a lot of available capacity right now in transportation networks. Even the trucking industry has limited capacity. It is very easy to rack up a lot of those penalty charges simply because there are inherent delays within our freight systems, including getting containers to and from the ports by truck and rail.
A: Yes, and there are delays and difficulties that the ocean carriers themselves face in maintaining their own vessel schedules. They keep changing. It is difficult for exporters to get the cargo to the terminal within a carrier’s time window when the carrier is changing that window constantly to meet sailing schedules that are themselves changing rapidly. That is why the FMC says those are unreasonable charges. Yet those charges continue to be imposed, and if exporters don’t pay them, the carrier won’t carry their cargo, even those export containers that are still being loaded.
Q: What products are the most affected by the lack of containers? Are they the ones that have a limited shelf life and could rot before they get to their destination if delayed too long?
A: We find that, frankly, all agriculture exports should be considered perishable. First of all, you have the obvious products. Those would be the chilled products where you have to monitor temperature. If there is a delay, they can be frozen. However, frozen products have a delivered value of probably 25% of what chilled temperature-controlled beef and pork would.
Then there are crops like soybeans and hay, which are largely exported as animal feed. Those animals can’t wait overseas. If the product doesn’t arrive on time, those animals are in real jeopardy. The last time we had a slowdown at the West Coast ports, the minister of agriculture in Japan wrote to the secretary of the U.S. Department of Agriculture, saying your ports are not working but our cows continue to eat.
So, if we can’t get our hay and soybeans and animal feed over to Asia in a timely way, the animal feed might still be good but those animals that depend on it may not survive. That is why some of those countries have invested considerable effort, time, and money into developing alternative sources for forage and soybeans. When we prove to be undependable, that is what we lose.
Q: So, there are a lot of ripple effects. I understand it is also worse than in the past because of the consolidation of ocean carriers in recent years. There are very few U.S.-owned carriers now. Can the federal government exert leverage over foreign carriers as it might with a U.S.-flagged carrier?
A: Foreign carriers should be subject to the same pressures and regulatory oversight by our Shipping Act as U.S. carriers. They are all subject to Federal Maritime Commission regulation, and they all would comply with regulations and the guidelines if the FMC were aggressive in the enforcement.
Q: But they are not complying right now, so what can be done to alleviate the problem?
A: First, folks are sending complaints to the Federal Maritime Commission in the hope and expectation that the FMC will self-initiate enforcement actions. At the same time, we are going to Capitol Hill. Many members of Congress have written letters to the FMC and to the Department of Agriculture seeking intervention. Over 70 of the largest agriculture trade associations in the U.S. have also written to President Biden and Department of Agriculture Secretary Tom Vilsack seeking intervention. And finally, we are developing legislative remedies, such as amendments to the Shipping Act, to mandate reasonable behavior by the ocean carriers.
Q: Is this a temporary problem or something that will be with us for some time to come?
A: World commerce is in turmoil right now due to the volume of imports coming into the United States and e-commerce globally. The ocean carriers and the ports cannot be blamed for that. That is a situation they are trying to adjust to. Neither the ocean carriers nor anybody else has enough capacity to handle this avalanche of imports into the United States.
What the agriculture exporters, together with all the big importers, retailers, and manufacturers, seek is fair treatment by the ocean carriers. When the ocean carriers change their sailing schedule and thus change the window for cargo to arrive at the terminal and for the ship to be loaded, the exporter should not be held responsible for failing to meet that window because the carrier has changed it at the last minute. The carrier should refrain from imposing these demurrage and detention charges, which depending on the cargo and the container, can run between $175 and $375 a day.
Q: That is quite a lot, and obviously, that drives up the cost of those exports. Are there any alternative markets for these products within North America that can be reached by truck, or is there just too much in the pipeline to be consumed domestically and in neighboring countries?
A: Everything that can be exported to Mexico and Canada goes by truck. In terms of domestic markets, yes, everyone is seeking to find domestic outlets. But there is only so much consumption that we have in this country of animal feed, soybeans, pork and beef, and so on. There is only so much we can eat. Those markets overseas are very valuable. The question is, can we find other markets overseas that are not subject to the trans-Pacific Ocean transportation turmoil? I would say that we are looking for every one of those and, frankly, the lack of capacity by the ocean carriers—not enough containers, not enough chassis, not enough ship space—is now a global challenge. The challenge exists across the Atlantic and across the Indian Ocean. The challenge is global.
Q: What do you foresee for the immediate future?
A: Well, first, this situation will be with us as long as the surge in imports continues—and I guess everyone who orders anything by e-commerce is part of the problem, including myself. We understand that this flood of imports is going to continue into the fall of this year and perhaps well into 2022. That flood will continue.
We do believe that ocean carriers are going to gain additional capacity. We do believe that there will be exports and imports that are going to shift from the most troubled and congested ports primarily on the U.S. West Coast to the Gulf ports, such as Houston, and to the Southeast ports, like Savannah, Charleston, and Norfolk. Those ports have larger terminals, and some of the port authorities themselves are operating more of the functions, rather than the private marine terminals at other ports. Operators at some of the East Coast ports have already endeavored to address some of the problems of demurrage and detention charges in a very constructive way. We will see if they will continue to do so and thus attract more cargo from the most congested West Coast ports.
“The latest data continues to show some positive developments for the freight market. However, there remain sequential declines nationwide, and in most regions,” Bobby Holland, U.S. Bank director of freight business analytics, said in a release. “Over the last two quarters, volume and spend contractions have lessened, but we’re waiting for clear evidence that the market has reached the bottom.”
By the numbers, shipments were down 1.9% compared to the previous quarter while spending dropped 1.4%. This was the ninth consecutive quarterly decrease in volume, but the smallest drop in more than a year.
Truck freight conditions varied greatly by region in the third quarter. In the West, spending was up 4.4% over the previous quarter and volume increased 1.1%. Meanwhile, in the Southeast spending declined 3.3% and shipments were down 3.0%.
“It’s a positive sign that spending contracted less than shipments. With diesel fuel prices lower, the fact that pricing didn’t erode more tells me the market is getting healthier,” Bob Costello, senior vice president and chief economist at the American Trucking Associations (ATA), said in the release.
The U.S. Bank Freight Payment Index measures quantitative changes in freight shipments and spend activity based on data from transactions processed through U.S. Bank Freight Payment, which processes more than $42 billion in freight payments annually for shippers and carriers across the U.S. The Index insights are provided to U.S. Bank customers to help them make business decisions and discover new opportunities.
Parcel giant FedEx Corp. is automating its fulfillment flows by investing in the AI robotics and autonomous e-commerce fulfillment technology firm Nimble, and announcing plans to use the San Francisco-based startup’s tech in its own returns network.
The move is significant because FedEx Supply Chain operates at a large scale, running more than 130 warehouse and fulfillment operations in North America and processing 475 million returns annually. According to FedEx, the “strategic alliance” will help to scale up FedEx Fulfillment with Nimble’s “fully autonomous 3PL model.”
“Our strategic alliance and financial investment with Nimble expands our footprint in the e-commerce space, helping to further scale our FedEx Fulfillment offering across North America,” Scott Temple, president, FedEx Supply Chain, said in a release. “Nimble’s cutting-edge AI robotics and autonomous fulfillment systems will help FedEx streamline operations and unlock new opportunities for our customers.”
According to Nimble founder and CEO Simon Kalouche, the collaboration will help enable FedEx to leverage Nimble’s “fast and cost-effective” fulfillment centers, powered by its intelligent general purpose warehouse robots and AI technology.
Nimble says that more than 90% of warehouses today still operate manually with minimal or no robotics, and even those automated warehouses use robots with limited intelligence that are restricted to just a few warehouse functions—primarily storage and retrieval. In contrast, Nimble says its “intelligent general-purpose warehouse robot” is capable of performing all core fulfillment functions including storage and retrieval, picking, packing, and sorting.
For the past seven years, third-party service provider 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.
Photo courtesy of Dematic
For the past four years, automated solutions provider Dematic has helped support students pursuing careers in the STEM (science, technology, engineering, and mathematics) fields with its FIRST Scholarship program, conducted in partnership with the corporate nonprofit FIRST (For Inspiration and Recognition of Science and Technology). This year’s scholarship recipients include Aman Amjad of Brookfield, Wisconsin, and Lily Hoopes of Bonney Lake, Washington, who were each awarded $5,000 to support their post-secondary education. Dematic also awarded $1,000 scholarships to another 10 students.
Motive, an artificial intelligence (AI)-powered integrated operations platform, has launched an initiative with PGA Tour pro Jason Day to support the Navy SEAL Foundation (NSF). For every birdie Day makes on tour, Motive will make a contribution to the NSF, which provides support for warriors, veterans, and their families. Fans can contribute to the mission by purchasing a Jason Day Tour Edition hat at https://malbongolf.com/products/m-9189-blk-wht-black-motive-rope-hat.
MTS Logistics Inc., a New York-based freight forwarding and logistics company, raised more than $120,000 for autism awareness and acceptance at its 14th annual Bike Tour with MTS for Autism. All proceeds from the June event were donated to New Jersey-based nonprofit Spectrum Works, which provides job training and opportunities for young adults with autism.
I recently came across a report showing that 86% of CEOs around the world see resiliency problems in their supply chains, and that business leaders are spending more time than ever tackling supply chain-related challenges. Initially I was surprised, thinking that the lessons learned from the Covid-19 pandemic surely prepared industry leaders for just about anything, helping to bake risk and resiliency planning into corporate strategies for companies of all sizes.
But then I thought about the growing number of issues that can affect supply chains today—more frequent severe weather events, accelerating cybersecurity threats, and the tangle of emerging demands and regulations around decarbonization, to name just a few. The level of potential problems seems to be increasing at lightning speed, making it difficult, if not impossible, to plan for every imaginable scenario.
What is it Mike Tyson said? Everyone has a plan until they get punched in the mouth.
It has never been more important to be able to pivot and adjust to challenges that can throw you off your game. The report I referenced—the “2024 Supply Chain Barometer” from procurement, supply chain, and sustainability consulting firm Proxima—makes the case for just that. The company surveyed 3,000 CEOs from the United Kingdom, Europe, and the United States and found that the growing complexities in global supply chains necessitate a laser-sharp focus on this area of the business. One example: Rightshoring, which is the process of moving business operations to the best location, means companies are redesigning and reconfiguring their supply chains like never before. The study found that large numbers of CEOs are grappling with the various subsets of rightshoring: 44% said they are planning to or have already undertaken onshoring, for instance; 41% said they are planning to or have undertaken nearshoring; 41% said they are planning to or have undertaken friendshoring; and 35% said they are planning to or have undertaken offshoring.
But that’s not all. CEOs are also struggling to deal with the rise of artificial intelligence (AI) and its application to business processes, the potential for abuse and labor rights issues in their supply chains, and a growing number of barriers to their companies’ decarbonization efforts. For instance:
Nearly all of those surveyed (99%) said they are either using or considering the use of AI in their supply chains, with 82% saying they are planning new initiatives this year;
More than 60% said they are concerned about the potential for human or labor rights issues in their supply chains;
And virtually all (99%) said they face barriers to decarbonization, with 30% pointing to the complexity of the work required as the biggest barrier.
Those are big issues to contend with, so it’s no surprise that 96% of the CEOs Proxima surveyed said they are dedicating equal (41%) or more time (55%) to supply chain issues this year than last year. And changing economic conditions are adding to the complexity, according to the report.
“As inflation fell throughout last year, there were glimmers of markets stabilizing,” the authors wrote. “The reality, though, has been that global market dynamics are shifting. With no clear-set position for them to land in, CEOs must continue to navigate their organizations through an ever-changing landscape. Just 4% of CEOs foresee the amount of time spent on supply chain-related topics decreasing in the year ahead.”
Simon Geale, executive vice president and chief procurement officer at Proxima, added some perspective.
“It’s fair to say that the complexities of global supply chains continue to have CEOs around the world scratching their heads,” he wrote. “The results of this year’s Barometer show that business leaders are spending more and more time tackling supply chain challenges, reflecting the multiple challenges to address.”
Perhaps the extra focus on supply chain issues will help organizations improve their ability to roll with the punches and overcome resiliency challenges in the year ahead. Only time will tell.
Investing in artificial intelligence (AI) is a top priority for supply chain leaders as they develop their organization’s technology roadmap, according to data from research and consulting firm Gartner.
AI—including machine learning—and Generative AI (GenAI) ranked as the top two priorities for digital supply chain investments globally among more than 400 supply chain leaders surveyed earlier this year. But key differences apply regionally and by job responsibility, according to the research.
Twenty percent of the survey’s respondents said they are prioritizing investments in traditional AI—which analyzes data, identifies patterns, and makes predictions. Virtual assistants like Siri and Alexa are common examples. Slightly less (17%) said they are prioritizing investments in GenAI, which takes the process a step further by learning patterns and using them to generate text, images, and so forth. OpenAI’s ChatGPT is the most common example.
Despite that overall focus, AI lagged as a priority in Western Europe, where connected industry objectives remain paramount, according to Gartner. The survey also found that business-led roles are much less enthusiastic than their IT counterparts when it comes to prioritizing the technology.
“While enthusiasm for both traditional AI and GenAI remain high on an absolute level within supply chain, the prioritization varies greatly between different roles, geographies, and industries,” Michael Dominy, VP analyst in Gartner’s Supply Chain practice, said in a statement announcing the survey results. “European respondents were more likely to prioritize technologies that align with Industry 4.0 objectives, such as smart manufacturing. In addition to region differences, certain industries prioritize specific use cases, such as robotics or machine learning, which are currently viewed as more pragmatic investments than GenAI.”
The survey also found that:
Twenty-six percent of North American respondents identified AI, including machine learning, as their top priority, compared to 14% of Western Europeans.
Fourteen percent of Western European respondents identified robots in manufacturing as their top choice compared to just 1% of North American respondents.
Geographical variances generally correlated with industry-specific priorities; regions with a higher proportion of manufacturing respondents were less likely to select AI or GenAI as a top digital priority.
Digging deeper into job responsibilities, just 12% of respondents with business-focused roles indicated GenAI as a top priority, compared to 28% of IT roles. The data may indicate that GenAI use cases are perceived as less tangible and directly tied to core supply chain processes, according to Gartner.
“Business-led roles are traditionally more comfortable with prioritizing established technologies, and the survey data suggests that these business-led roles still question whether GenAI can deliver an adequate return on investment,” said Dominy. “However, multiple industries including retail, industrial manufacturers and high-tech manufacturers have already made GenAI their top investment priority.”