As industry supply chain teams continue efforts in achieving 2017 year-end strategic, tactical, and operational line-of-business business and supply chain focused performance objectives, this is the opportunity for Supply Chain Matters to look back and review our prior 2017 Predictions for Industry and Global Supply Chains that we published at the beginning of this year.
Our research arm, The Ferrari Consulting and Research Group has published annual predictions since our founding in 2008. Our approach is to view predictions as an important resource for our clients and readers, thus we do not view them as a light, one-time exercise. Not only do we research and publish our annualized predictions, but every year in November, we look-back and score our predictions for the year. After completion of looking back and scoring the current year projections, we will then transition into the unveiling of our 2018 Predictions.
As has been our custom, our scoring process is based on a four-point scale. Four will be the highest score, an indicator that we totally nailed the prediction. One is the lowest score, an indicator of, what-on-earth were we thinking? Ratings in the 2-3 range reflect that we probably had the right intent, but events turned out different. Admittedly, our self-rating is subjective, and readers are welcomed to add their own assessment of our individual predictions in feedback comments.
Prior postings in this series included Part-One- a look back at our 2017 overall global economic outlook and our specific predictions related to sourcing and procurement.
2017 Prediction: Continued Global Transportation Industry-wide Turbulence
Self-Rating: 3.5 (Max Score of 4.0)
For the prior three years, we had predicted industry turbulence among global and certain domestic transportation networks. Our predictions turned out to be fairly accurate but then again, the industry signs were obvious. For 2017, we declared that firms should plan for further industry turbulence and change occurring on many transportation modal fronts. We further predicted an increase in merger and acquisition activity among specific transportation and logistics sectors that were ripe for additional consolidation and/or disruption.
In the ocean container segment, the three-major global shipping alliance networks, the 2M Alliance, Ocean Alliance, and THE Alliance, took control of major global shipping routes at the beginning of April. Just after the celebration of the Chinese New Year at the end of January, various networks began repositioning vessels to prepare for the new schedules of sailings with pooled vessels from various alliance carriers. That resulted in a shortage of containers for certain routes and the initial spiking of rates.
The result was double-digit increases in container rates during the pre-holiday peak shipping period from June through October. Container rates for many global routings have since moderated back to, and in some cases lower than 2016 rates. Procurement and transportation teams have thus been frustrated in trying to keep budgets managed given this artificial variability of container shipping rates during the critical peak periods.
This year 2017 also represented the first full year of the expanded Panama Canal, with major ports of the eastern side of the canal experiencing the initial visits of the larger mega-ship container vessels. By all accounts, many east coast buyers began to route containers through the expanded Panama Canal to east coast and Latin American destinations. Likewise, U.S. oil and gas exporters took advantage of the option in export shipments to Asian nations. Those U.S. East and Gulf Coast ports that invested in new port infrastructure such as Houston, Savannah and Miami appeared to be prepared to process the larger mega-ships while other ports are still in the process of making such changes in infrastructure.
Merger and Acquisition Activity
In the trucking sector, the consolidation of the U.S. trucking industry picked-up speed with a series of M&A announcements throughout the year. Much of the activity was attributed to the planned U.S, regulatory mandate for driver electronic logging of hours that was scheduled to go into effect at the end of December. According to Thomson Reuters, there were 44 publicly announced freight movement and logistics deals within the U.S. up until September. As a contrast, there were a total of 38 deals reported in 2016. The largest deal so far was the merger of Swift Transportation with Knight Transportation with a combined value of $5 billion. This trend is expected to continue into 2018.
Consulting firm PwC indicated that M&A deal value within the global transportation and logistics sector had reached $110.3 billion through Q3-2017. That figure was noted as 91.7 percent of the deal value reported in all of 2016. Average quarterly deal volume of 17 deals per quarter, year-to-date was almost 20 percent higher than the averages recorded in 2015 and 2016. In Q3-2017 alone, 71 transactions worth $43.3 billion were reported. Asia and Oceania were noted as the strongest regions of M&A activity.
2017 Prediction: A Renewed Renaissance in Business Services and Technology Investment
Self-Rating: 3.5 (Max Score of 4.0)
We believed their there were distinct signs for a renewed renaissance in business Cloud-based services and technology investments that would include needs to invest in B2B focused supply chain related business process and decision-making needs. We based this prediction on the overall optimism being exhibited among businesses with attractive corporate tax reform coming from the new Trump Administration and Republican Party dominated U.S. Congress. A key attractive tenet of such corporate tax reform was a more attractive option for repatriating large amounts of cash held in foreign entities. Within the Eurozone, a more optimistic business climate and rising economic activity was further viewed as leading to increased investments in B2B services. As readers are likely aware, corporate tax reform legislation was a lower priority for the Trump Administration with this umbrella legislation not expected to be voted upon until the end of this year.
We anticipated that growth investment areas in B2B services and enhanced decision making would be centered in areas related to Omni-channel customer fulfillment and subsequent supply chain digital transformation, more predictive analytics related to customers, and achieving broader end-to-end supply chain network visibility.
At mid-year, IT analyst firm Gartner predicted that the supply chain management software market would exceed $13 billion in total revenues by the end of this year, and increase of 11 percent year-on-year, which is a healthy growth rate. Much of this growth has been accelerated with broader adoption of Cloud based applications.
Our analysis of select B2B services providers such as E2open, OpenText, Infor and others indicates continued robust pipelines and deal volumes to-date with double-digit sales increases generally being reported in these investment areas. However, a continuing concern that we continue to hear from industry supply chain teams is not having readiness in people skills and processes to be able to take full advantage of such investments.
Deals involving B2B tech providers looking to beef-up their technology and depth of services areas were evident during the year. In February, E2open announced a merger with sales and operations planning technology support provider Steelwedge. Earlier this month, E2open then announced its acquisition of Cloud Channel Data Management provider Zyme for an undisclosed sum. In July, OpenText announced its acquisition of automotive B2B services provider Covisint for an estimated sum of $103 million.
Internet of Things Focused Technology
Despite ongoing information security and consistency of global standards hurdles, we had predicted that early phase or pilot line-of-business driven efforts to prototype new Internet-of-Things (IoT) enabled business models would continue. Our observations from various systems integrators reflects that indeed, early pilots have been occurring but at measured phases of activity to determine top-line revenue opportunities along with organizational and technology readiness. On Supply Chain Matters, we provided market education during the year in investing in some of the foundational capabilities of an IoT Enabled business processes, such as more robust supply chain and services planning systems, more advanced analytics driven decision-making and other foundational capabilities.
We predicted that this form of technology was likely to gain broader recognition in 2017 due to its applicability in recording and keeping track of assets and materials. While we did not anticipate any wide-scale mainstream investment, we had urged teams to pay close attention to vendor developments and planned process support areas.
Throughout the year, this technology has occupied the agenda of many technology-focused conferences, and indeed large enterprise tech providers such as IBM, Oracle and SAP have been fostering early pilots in areas related to food safety and item level tracking, autonomous manufacturing control, transportation tracking and other areas. More so than in any new technology that we have observed over the years, the viability and applicability of Blockchain Technology within various supply chain management related process is very high, to the extent that we expect more mainstream initiatives to present themselves in 2018.
Increased Vendor Merger and Acquisition Activity
We predicted further merger and acquisition activity involving either the enterprise software, supply chain, equipment and component manufacturing, IoT, and management decision support supplier communities in 2017. We declared that autonomous driving, shared riding services and artificial intelligence driven technology and IoT would remain of hot interest as would predictive analytics, and indeed, tech business headlines throughout the year have focused in various deal activities related to any of these areas.
We predicted one or two blockbuster M&A deals in the above segment, possibly involving Amazon, IBM, General Electric, Google, Oracle, PTC, Siemens, among others. Instead, the blockbuster deals came mostly from the silicon and product value-chain areas. During 2017, Intel acquired autonomous driving tech provider Mobileye for an estimated $15.3 billion. Samsung announced a reported $8 billion acquisition of automotive industry components provider Harmon International. Last year, mobility-based tech provider Qualcomm announced the acquisition of IoT chip producer NXP Semiconductor for an estimated $39 billion. Several weeks ago, business headlines featured the blockbuster announcement from Broadcom on its intent to acquire Qualcomm for an astonishing sum of $130 billion.
We thus made the correct prediction of blockbuster deals but missed on the key participants.
In our next blog posting in this series we will look-back and self-rate two more of our 2017 predictions.
If clients or readers wish to contribute additional thoughts related to what occurred in 2017 and what to anticipate in 2018, you can contact us via email:
feedback <at> supply-chain-matters <dot> com
© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.