While industry supply chain teams continue to work on achieving 2016 year-end strategic, tactical, operational line-of-business business and supply chain focused performance objectives, this is the opportunity for Supply Chain Matters to reflect on our prior 2016 Predictions for Industry and Global Supply Chains that we published just before the start of the 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.
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 predictions concerning this year.
In our prior Part One posting, we looked backed on our prediction for overall economic climate and business planning and the outlook for sourcing and procurement.
But now it is time to look back and reflect on predictions three and four.
2016 Prediction Three: Turbulence and Continued Change Surrounds Global Transportation and Logistics
Self-Rating: 3.7 (Max Score 4.0)
Both in 2014 and 2015, we predicted industry turbulence among global and certain domestic transportation networks. Our predictions turned out to be fairly accurate but then again, the signs were obvious. At the start of this year, we were again compelled to predict another year of turbulence and change and perhaps a few surprises. Once again, this turned out to be a no-brainer prediction. We trust the readers and clients planned appropriately.
Industry turbulence has continued to accelerate and the surprise and ultimate wake-up was with the declared bankruptcy of South Korea’s shipping line Hanjin Shipping. Our Supply Chain Matters blog commentary declared this development as the financial shot heard around the world. We opined that the declaration of receivership by the Korean based shipping line should be viewed as the first of many other cascading developments and consequent implications of multi-industry supply chains. It could not have come at the most critical period for shippers, the ongoing peak period of inbound holiday related products and components. Multi-industry supply chains are still attempting to unwind from disruptions caused from inbound container shipments that were held hostage on Hanjin vessels, and have subsequently caused added costs and other impacts. One report indicates a furniture retailer and distributer has had to spend an additional $1 million to move or reposition inbound inventory.
In mid-October, shipping industry research firm Drewry Maritime Research declared that the ocean container shipping market has bottomed out, predicting that ocean container shipping lines will record a record $5 billion in operating losses in 2016, with industry profitability to recover to a modest $2.5 billion by next year. Some business media reports predict even higher industry-wide losses, perhaps as much as $10 billion. We cautioned shippers to consider that previous indicators have consistently noted that the ongoing ocean container industry overcapacity condition will prolong itself for at least the next two years, and that further industry consolidation by either merger and acquisition or financial receivership is yet to play out. By Q3 that shipping leader Maersk Lines indicated that it was on the lookout for added M&A opportunities especially those related to capturing more global market-share. Another area to watch is how much further various global maritime regulators will tolerate further industry M&A consolation and or pooling arrangements before the economic interests of local shippers are considered. The bottom-line is that from our lens, ocean container industry turbulence will extend well into the next few years.
We concurred with other industry watchers that M&A would become a new norm in logistics industry sectors during 2016. Indeed, such an environment continued in the third-party logistics (3PL) sector but the deal volume moderated below the higher profile deals of 2015. During 2015, one high-profile acquisition was that of XPO Logistics acquisition of Conway Transportation. Last week, Conway announced that it was selling the trucking business and associated assets of Conway to a major Canadian based trucking firm. That may have been a signal that with declining surface trucking volumes and building excess capacity, other deals in this sector may well moderate.
We anticipated that dominate online retailers, either Alibaba or Amazon would playout industry disruptor roles, either in expanding their own parcel logistics fulfillment and delivery capabilities, or participating in some forms of acquisitions themselves. Throughout 2016, Amazon continued with aggressive investments in owned or leased transportation, logistics and last-mile customer fulfillment capabilities. The online retailer is once again anticipating another record volume increase in Q4 holiday related direct fulfillment, taking more direct parcel control away from carriers FedEx and UPS. Alibaba of China is likewise aggressively investing in online fulfillment capabilities beyond China, and the new battleground for online consumer dominance appears to be shaping us as market control in India.
The expanded Panama Canal was planned to open in April of 2016, but we predicted that date would slip because of meaningful construction and repair delays. That prediction turned out to not occur since the expanded canal opened for business in June, three months later than planned. Long-term, the expanded canal is expected to generate a three percent increase in cargo volumes transiting the canal. Many major ports on the eastern side of the canal continue to make significant multi-year investments in upgraded infrastructure and deeper shipping channels to prepare for direct Asia to North American and South American east coast ports. In August, the first export shipment of LNG gas from a U.S. Gulf Port arrived in China, cutting the transit time by a third. Thus, the now expanded Panama Canal will not reflect substantial global shipping pattern changes in 2016, and perhaps 2017 as well, and our prediction was generally on-point as to impact.
The North American railroad sector had its own industry-wide challenges in 2016 with U.S. and Canadian based railroads negatively impacted on the demand side by significant cutbacks in North America crude oil and general commodity transport needs. Railroads that experienced a boom period in crude transport were suddenly forced to shed headcount and idle rolling stock inventory.
It was indeed a year of turbulence and change surrounding global transportation and logistics sectors.
2016 Prediction Four: The Widening of Supply Chain Talent and Skill Gaps Will Require Organizations to be More Innovative and Purposeful in Recruitment, Training and Career Planning
Self-Rating: 2.5 (Max Score 4.0)
Our look-back regarding this prediction was regrettably mixed, somewhat missing on overall industry movements but more in-line with individual candidate self-training and skill development efforts.
We predicted that the existing widening skill gaps will compel industry supply chains to be more creative and purposeful in recruitment and training. That includes facing the realities of competitive compensation and purposeful career planning for individuals, especially those being sought for middle-management needs. We expected organizations and recruiters to more broadly define and recruit employees from skill based dimensions and in expected performance parameters for both current and future organizational needs. We felt that individuals who possess required cross-functional hard and soft skills, including in-depth technology prowess will continue to experience a seller’s advantage.
Consensus feedback from our network of noted supply chain management specialist recruiting firms who are closest to such trends, indicates that while there are some employers that understand today’s needs to be creative in emphasis on the skills they are seeking, there are still many that refuse to change prior rigid job description based requirements. Regarding the latter, the view is that lack of flexibility to change perspectives is costing these companies the opportunity to recruit the best people. Most of our sampling re-affirmed that needs in supply chain management today reflect a candidate’s market for people who demonstrate a combination of hard and soft skills and can communicate in executive management language.
We expected manufacturers, retailers and supply chain services firms would encourage broader training, benchmarking, multi-business and multi-geography opportunities. We trusted that supply chain leaders will confront or at least influence the other elephant in the room, namely that of compensation plans related to required supply chain management skills and roles tied to performance, teamwork and skill achievement objectives. We were hopeful that there will be more of such innovative compensation programs unveiled in the coming year. Regrettably, feedback indicates that many employers currently seeking highly skilled and in-high demand candidates, often offer the low-end of compensation levels. In-demand candidates are savvy enough to figure-out that their skills are drawing higher compensation in other firms or industries, thus recruiters are counseling employers seeking in-demand skills to lead with far more attractive compensation offers from the start or risk candidates quickly moving to other offers.
Regrettably, our predictions related to compensating for needed talent have not come to pass from a discernable multi-industry trending perspective. Obviously, some leading-edge firms made significant strides in the areas of talent management and retention, and they should receive due credit and applause for such efforts. However, we still sense more lip service among supply chain executives as opposed to discernable actions. In fairness, an increased looking glass on overall cost reduction in 2016 did not help in this area.
We anticipated that in the coming year, more and more individuals will take on their own personal responsibility to self-train in the various skills desired by the most attractive employers, which will place more demands on universities, supply chain professionals and community colleges for up-to-date and timely adult training geared to industry skill needs. We viewed the Internet as continuing to play an important role in the preferred delivery platform for updated supply chain skills training for individuals and we anticipated that supply chain professional organizations will continue to leverage this medium. We sense that more personal responsibility for self-training and skills development continues to occur and we discern noticeable momentum.
Noted universities with recognized program concentration in supply chain management have announced more online platforms for training. As an example, in October 2015, MIT launched the MITx MicroMasters credential, which enables online learners to take a semester’s worth of master’s-level courses on the edX platform, then complete a master’s degree in a single full semester on campus at MIT. One year later, edX is now partnering with several other universities to bring the MicroMasters model to even more learners across the globe. Penn State also offers online programs related to Graduate Certificate in Supply Chain Management, taught from the same faculty in Penn State’s Smeal College of Business.
Similarly, programs that nationally recognize top up and coming stars in supply chain management such as the 30 Under 30 Rising Supply Chain Stars jointly sponsored by ThomasNet .com and ISM have been noteworthy for generating added interest for millennials planning a career in supply chain management. Other professional organizations such as CSCMP announced similar programs in 2016.
This concludes Part Two of our scoring of this year’s predictions. In Part Three, we revisit our industry-specific predictions related to this year.
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