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Sunderesh S. Heragu is the associate dean for academic affairs in the College of Engineering, Architecture, and Technology at Oklahoma State University (OSU), where he is a regents professor and holds the John Hendrix Chair. He has served as head of the School of Industrial Engineering and Management at OSU and Humphreys Chair.
Prior to that, he was the Mary Lee and George F. Duthie Chair in Engineering Logistics in the industrial engineering department at the University of Louisville, where he was also director of the Logistics and Distribution Institute (LoDI). He was also professor of decision sciences and engineering systems (now industrial and systems engineering) at Rensselaer Polytechnic Institute. He has taught at State University of New York, Plattsburgh, and held visiting appointments at State University of New York, Buffalo; Technical University of Eindhoven and University of Twente, in the Netherlands; and IBM's Thomas J. Watson Research Center in Yorktown Heights, N.Y.
David Maloney, Editorial Director, DC Velocity 00:01
How will the conflict with Israel and Hamas affect supply chains? New funding for hydrogen fuel production. And finding solutions for supply chain challenges. Pull up a chair and join us as the editors of DC Velocity discuss these stories, as well as news and supply chain trends, on this week's Logistics Matters podcast.
Hi, I'm Dave Maloney. I'm the group editorial director at DC Velocity. Welcome.
Logistics Matters is sponsored by nVision Global. NVision Global is a leader in global freight management solutions and services, specializing in freight audit and payment, order management, supplier management, visibility, TMS, and freight-spend analytics. Their end-to-end solutions and services enable you to manage your entire global shipment processes within the confines of a single easy-to-use platform. Interested in saving 7 to 12% or more on your freight spend? Check out nVisionGlobal.com.
As usual, our DC Velocity senior editors Ben Ames and Victoria Kickham will be along to provide their insights into the top stories of this week. But to begin today: The world is still in shock over the ongoing devastation happening in Israel and Gaza. In addition to the human tragedies, there are also economic and supply chain impacts to the ongoing conflict. To find out more about those impacts, here's Victoria with today's guest.
Victoria Kickham, Senior Editor, DC Velocity 01:34
Thanks, Dave. Today's guest is Sunderesh Heragu. He is the associate dean for academic affairs in the College of Engineering, Architecture, and Technology at Oklahoma State University. He has a long history in logistics and material handling, having taught at many colleges and universities here in the United States and abroad. Welcome Sunderesh.
Sunderesh Heragu, Associate Dean, Oklahoma State University College of Engineering, Architecture, and Technology 01:55
Thank you, Victoria.
Victoria Kickham, Senior Editor, DC Velocity 01:57
Yeah, thanks for being here. So, Dave laid this out for us: It's been almost two weeks since the Hamas attack in Israel and the subsequent war that's raging there now. How is the violence and instability in the region affecting global supply chains in general?
Sunderesh Heragu, Associate Dean, Oklahoma State University College of Engineering, Architecture, and Technology 02:11
Well, let me begin by expressing my deepest sympathies to the families and friends of innocent people who lost their lives in Israel and Gaza and those that are still being held hostage. There are more than 4,000 people in Gaza and 1,400 people in Israel that have been killed during this conflict. Many more have been injured. The surprise attack on October 7 has shaken countries not just in the region, but around the world, like Dave mentioned. For the moment, the conflict appears to be contained to the region, but with so many moving parts near and far, you never fully know how else this could escalate. With respect to supply chain, let's look at Israel's imports and exports, as well as its major trading partners. For Israel, its U.S. and China that are the major trading partners. China, for example, imports fertilizer and other goods and exports vehicles to Israel. In 2022, Israel's main imports were mineral fuels, oil, distillation products, electrical and electronic equipment, machinery, vehicles, and precious metals. All combined, these made up for 50% of its imports. The major exports are cut diamonds, refined petroleum, pharmaceuticals, chemicals, medical instruments, computer hardware, computer software, and so on. Clearly, the global supply chains for these products are impacted. The supply chain of pharmaceuticals and medical supplies from the region, chip design production, transportation logistics are all sectors that will continue to see severe strains. Israel has one of the largest generic drug manufacturers. They also have a lot of chip production that has already taken a hit, with one of the Intel plants near the Gaza border that is shut down. Employees are being called for reserve duty. Production in many sectors are affected. Companies are asking people to work from home, and then H&M has closed all its doors in Israel. So, there are a lot of impacts on supply chain, Victoria.
Victoria Kickham, Senior Editor, DC Velocity 04:22
Yeah, absolutely. One thing that comes to mind is, in that region, is energy, so how is this affecting global energy supplies?
Sunderesh Heragu, Associate Dean, Oklahoma State University College of Engineering, Architecture, and Technology 04:31
Yeah, since October 7, when the attack was launched in Israel, crude oil prices have gone up between somewhere between two and five percent, depending upon when you look at it, but if you look at the crude oil futures, they've gone up by nearly 10% since before the attack. Some oil and gas producers have been asked to shut down operations — so, for example, Chevron has a natural gas field in the Tamar region. They've been asked to shut down operations. Israel has two — at least two — oil refineries, and their capacity to produce fuel is restricted. But then, you know, if U.S. were to impose sanctions, additional sanctions, on Iran, that could further reduce the supply of oil. But also, equally important, if Russia and OPEC countries cut production — they could — that would have the impact of increased prices at the pump, and a jump in oil prices could create a recession in many economies, not just in that region, but around the world.
Victoria Kickham, Senior Editor, DC Velocity 05:39
What's the current situation at ports in the region, and what about air routes? Can you talk a little bit about those things?
Sunderesh Heragu, Associate Dean, Oklahoma State University College of Engineering, Architecture, and Technology 05:46
Sure. There are actually three ports that are either operational or not operational or semi-operational. So, Haifa and Ashdod ports, they are operational, but they are witnessing disruptions and facing a backlog. The Ashkelon port is closed, and I read yesterday that the Taiwanese shipping line, they declared force majeure on a consignment, and so they basically dropped all of their cargo at Haifa and asked their customers to come and pick it up there. The Ashdod port is a deepwater port. It's barely operational. There's an oil refinery nearby, and the Ashkelon is pretty much closed. Its oil terminal is shut. You know, like I said earlier, the Haifa operations are seeing a significant backlog. There's the Adani Group, which runs the Haifa port, they invested about $1.2 billion last year, and for now, they're saying that their operations will not be severely impacted, but then that remains to be seen. In terms of airports, they seem to be operational, but then you know, like Ben Gurion, Queen Alia in Jordan, Hariri in Lebanon; of course, the Damascus in Syria is operating at reduced capacity, but airlines and cruise ships are constantly revising their itineraries. So, a lot of impact on, not just the ports, but also air routes.
Victoria Kickham, Senior Editor, DC Velocity 07:17
Given all this, what would you say are the biggest concerns for shippers and carriers right now, and how might this affect their business costs beyond, you know, energy and things that we've talked about?
Sunderesh Heragu, Associate Dean, Oklahoma State University College of Engineering, Architecture, and Technology 07:26
Yeah, shipping capacity is clearly reduced. The costs have gone up. You know, marine insurance and general cost of shipping have gone up. War risk premiums are being attached to carriers. Yesterday, there were some cruise missiles and drones that were launched from Yemen. I think they were Israel-bound, but they were shot down by a U.S. Navy ship. Now. what happens if the conflict escalates and other regions and other countries surrounding Israel get involved, for example, a prolonged and major attack from Hezbollah in Lebanon. Worse, Iran gets directly involved. If that happens, shipping of oil via the Strait of Hormuz and potentially container shipment through Suez Canal might also be impacted.
Victoria Kickham, Senior Editor, DC Velocity 08:16
What are some strategies for shippers and carriers in dealing with all of these issues? What would you recommend?
Sunderesh Heragu, Associate Dean, Oklahoma State University College of Engineering, Architecture, and Technology 08:23
Yeah, there's not a lot of really great choices. I guess, in the short run, countries, you know, shipping carriers from Asia that are shipping goods to the, say, the West Coast over, or let's say East Coast of the United States, they could consider using the Panama Canal, but right now we've got a major drought in the Panama Canal. it's a 50-year drought, and shipping capacity there has been greatly reduced. But, both in the short term, and perhaps, I wouldn't say short term, but maybe in intermediate and long run, some things could be done by businesses, and I've been advocating this for quite some time now, and that is local sourcing of agricultural and some manufactured products. That will have the impact of relieving the pressure on shipment, and even help the environment. I mean, one could make a case, Victoria, that total costs, when you include an environmental costs, of growing fruits and vegetables in one region and shipping it in refrigerated containers thousands of miles away is going to be a lot more expensive. 3D printing could be used to produce small parts as and when needed. But overall, I think businesses need to diversify their sources of supply to multiple locations that are closer to the source of consumption.
Victoria Kickham, Senior Editor, DC Velocity 09:48
In that vein, do you have a sense of how logistics operations are going on the ground in the region? You know, what the local supply chains look like? Especially in terms of providing humanitarian aid and that kind of thing?
Sunderesh Heragu, Associate Dean, Oklahoma State University College of Engineering, Architecture, and Technology 09:59
It's kind of hard to say, but there are reports that Gaza is running out of even basic human necessities. You know, President Biden visited the region and had a call with Egypt's President El-Sisi, and they were supposed to open the Rafah crossing, in the south, with Egypt. They said it was going to open yesterday, today, but it may be the weekend before it opens. Now, the shippers are wanting some sort of assurance that they'll have safe passage, but then the roads have to be repaired, too. So, we don't know, really, in terms of when they can really get humanitarian supplies like food, medicine, water, to areas that are needed, when they are literally running out of necessities. Basic necessities are in a pretty dire situation. Just to quickly summarize, you know, the impact of conflict on global supply chain, we should look at it from three scenarios, right: what if the war is contained just to the region; what if it goes a little bit beyond; and worse yet, what if it escalates in other parts of the region? That's a really scary scenario, and I hope we don't get there.
Victoria Kickham, Senior Editor, DC Velocity 11:16
Yeah, as Dave said at the outset, there are just so many elements to this, Sunderesh. Thank you for joining us. We appreciate your expertise.
Sunderesh Heragu, Associate Dean, Oklahoma State University College of Engineering, Architecture, and Technology 11:27
Thank you, Victoria. And thank you, Dave.
Victoria Kickham, Senior Editor, DC Velocity 11:30
We've been talking with Sunderesh Heragu of Oklahoma State University. Back to you, Dave.
David Maloney, Editorial Director, DC Velocity 11:36
Thank you, Sunderesh and Victoria. Now let's take a look at some of the other supply chain news from the week. And Ben, you wrote this week about some new federal funding for alternative fuels. Can you fill us in on the details?
Ben Ames, Senior News Editor, DC Velocity 11:49
Yeah, I'm glad to. That's exactly right. We, this story was about a new way to reduce carbon emissions from transportation and logistics, which represents a significant chunk of the total emissions, but it was a new area, which is hydrogen. This is a technology that hasn't gotten as much attention so far as some other solutions like replacing internal combustion engines with battery electric vehicles — which of course, we've seen in both the commercial and the consumer markets, so a lot of people are familiar with it, at least if they don't own an electric car, they certainly see them on the roads. But with with hydrogen, it actually works in a similar way, since the gas is used in a hydrogen fuel cell, which produces electricity like a battery, but it can be refueled by just adding more hydrogen, which is quite a quick process, kind of like refueling a car, instead of taking more time to recharge a battery with a plug. And as the capper, it' only exhaust is water. So it's a great profile, but so far, we've just seen limited pilot projects. For example, there's some container-handling cranes at certain seaports. And that's partly because there's kind of a chicken-and-egg problem, since it's such a small scale market, that there's not much infrastructure to transport or to store the gas, and without the infrastructure as a reliable source, then vehicle makers and customers are reluctant to start investing in it.
David Maloney, Editorial Director, DC Velocity 13:21
Right, Ben. That chicken-and-egg problem is often a hurdle for any new technology. Is that what the federal funding is supposed to address?
Ben Ames, Senior News Editor, DC Velocity 13:29
Yes, exactly. So, this is $7 billion from the Department of Energy, and it's funded from the bipartisan infrastructure bill. The money is intended to launch seven, what the government is calling regional clean hydrogen hubs or H2Hubs. One example of those H2Hubs is at the ports of Los Angeles and Long Beach, which will use the funds to advance their use of hydrogen fuel for moving goods. They're gonna use, specifically, hydrogen-fuel-cell cargo-handling equipment, and also have mobile hydrogen fueling trucks or fueling stations within the port's terminals. Another example of the investment at an H2Hub will be at Cleveland-Cliffs. That's a company that's an Ohio producer of steel, and they supply iron ore, also, for the auto industry. They plan to use the hydrogen to power various manufacturing tasks at their two largest steel plants, which are called Indiana Harbor and Burns Harbor. So, overall, there are seven sites for the $7 billion; they get roughly a billion dollars a piece. Aside from the California hub and the Midwestern one that we just mentioned, the other five are in the mid-Atlantic region, Appalachian, Gulf Coast, Heartland, and Pacific Northwest. They cover, in all, some 17 states, which are clustered largely around logistics and manufacturing sites. So, we'll keep an eye on these new initiatives, and we'll see if the new backing can jumpstart a new fuel industry.
David Maloney, Editorial Director, DC Velocity 15:01
Right, and I believe it will take a combination of a number of different types of fuels to get us to the greener future that we all hope to see. Thanks, Ben.
Ben Ames, Senior News Editor, DC Velocity 15:11
Glad to do it.
David Maloney, Editorial Director, DC Velocity 15:13
And, Victoria, you attended a conference this week that highlighted some supply chain innovations. What more can you tell us?
Victoria Kickham, Senior Editor, DC Velocity 15:20
Yeah, Dave, that's right. I attended a conference called Innovation in Motion: Shaping the Future of Supply Chain. It was at MIT, here in the Boston area, and it was hosted by the university's Center for Transportation and Logistics, and sponsored by industry standards company GS1 US, which is probably best known for developing barcode standards. The event featured a blend of information from academia and practitioners, really to show how technology is changing supply chains for the better, to put it pretty simply. Practitioners included carriers, retailers, manufacturers, and tech companies, and they shared how different projects and applications are helping to improve various aspects of their supply chains. Overall, it was an interesting look at how real-world companies are finding solutions to some pretty big supply chain challenges.
David Maloney, Editorial Director, DC Velocity 16:11
Victoria, what are some of those challenges that you discussed, and what stood out to you?
Victoria Kickham, Senior Editor, DC Velocity 16:16
Well, as someone who covers the material handling side of the supply chain pretty closely, I was most interested in their discussion of automation, because it focused on just that: warehouse and distribution center automation technologies. A representative from Walmart — his name was Mohan Akella, he's senior vice president for fulfillment platform, strategy, and automation at Walmart — talked about the company's transformation journey, and that's a term we hear a lot when companies are shifting to a digital or automated strategy across their businesses. And he really talked about how Walmart is building a new and different supply chain today. Essentially, the company is transforming its fulfillment and distribution center network by adding some very high tech material handling solutions, things like automated storage and retrieval systems, robotics, autonomous forklifts, and it's all designed to create capacity within its existing footprint. Walmart announced this high-tech initiative a few years ago, and unveiled one of its highly automated warehouses earlier this year. It's in Brooksville, Florida. Akella actually showed some video from that facility during the conference to illustrate the systems that are at work, and interestingly, the conference coincided with the opening of another such facility, a fulfillment center near Dallas, this week. The company made the announcement, I think, on Tuesday. So, they're making a lot of progress toward this, this transformation. And then other interesting thing, Akella also talked about the positive effects of this automation on employees, or Walmart's associates, specifically in terms of reducing the physical strain that often comes with warehouse and distribution center work, as well as the ability to create higher-skilled jobs. He said, as others have said, in this capacity, that you always need a human in the equation, so now workers are programming robots, troubleshooting, things like that, just more highly skilled jobs. The conference covered a host of other issues, of course. they touched on issues like sustainability, changing customer demographics, and they incorporated information from researchers at MIT Center for Transportation and Logistics. So, it's just a good look at what's happening in supply chain in general.
David Maloney, Editorial Director, DC Velocity 18:27
Yeah, it sounds like it. That Walmart application sounds very interesting, and as we've seen from the past, Walmart being a leader, what Walmart does, a lot of other people follow, so very interesting to hear some of that.
Victoria Kickham, Senior Editor, DC Velocity 18:39
David Maloney, Editorial Director, DC Velocity 18:40
Thank you, Victoria.
Victoria Kickham, Senior Editor, DC Velocity 18:42
David Maloney, Editorial Director, DC Velocity 18:43
We encourage listeners to go to DCVelocity.com for more on these and other supply chain stories. Also, check out the podcast Notes section for some direct links to read more about the topics we discussed today.
We'd also like to thank Sunderesh Heragu from Oklahoma State University for being our guest. We welcome your comments on this topic and our other stories. You can email us at email@example.com.
We also encourage you to subscribe to Logistics Matters at your favorite podcast platform. Our new episodes are uploaded on Fridays.
Speaking of subscribing, check out Supply Chain in the Fast Lane. It's our sister podcast, coproduced by the Council of Supply Chain Management Professionals and Supply Chain Quarterly. Search for "Supply Chain in the Fast Lane" wherever you get your podcasts.
And a reminder that Logistics Matters is sponsored by nVision Global. NVision Global is a leader in global freight management solutions and services, specializing in freight [audit and] payment, order management, supplier management, visibility, TMS, and freight-spend analytics. Their end-to-end solutions and services enable you to manage your entire global shipment processes within the confines of a single easy-to-use platform. Interested in saving 7 to 12% or more on your freight spend? Check out nVisionGlobal.com.
We'll be back again next week with another edition of Logistics Matters. Be sure to join us. Until then, have a great week.