Worley Blog

WHAT’S AHEAD IN 2020?

Posted on: January 3rd, 2020 by Clifford F. Lynch

 

From time to time, at the end of the year, I dig out my crystal ball and try to predict what supply chain developments we might see in the coming year. Sometimes I have been right, and other predictions have fallen flat. For example, I really thought the Cowboys would be in the 2020 Super Bowl, but that doesn’t look too promising. Many predictions are surfacing on the internet, i.e. rates are going up, they are going down, capacity will be an issue, then again, maybe not. It is a given however, that we will have more uncertainty in 2020 as the presidential election campaign heats up. This is true of every election year, but the current political environment makes the coming year even more unpredictable than usual, particularly for international trade. I do believe though, there will be several developments that will result in some fundamental changes in the way we manage our supply chains.

As has been the case for the past several years, we will continue to see advances in technology. Already, new, inexpensive tools are enabling us to use the Internet of Things (IoT) and Artificial Intelligence (AI) more effectively in the connection of supply chain assets. Statistica expects the number of connected devices to expand from 23.14 billion in 2018 to 75.44 billion in 2025.

Drones may take off faster than we have expected. On September 27, 2019, the FAA awarded UPS a certificate to operate a drone airline. This certificate granted broad authority to fly an unlimited number of drones and to fly at night. The included authority to fly “beyond visible line of sight” (BVLOS) is a first in the U.S. Watch the skies for UPS Flight Forward, Inc.

While Blockchain has been touted as “the next big thing”, I believe adoption will continue to be slow. Gartner predicts that by 2022, 80% of the blockchain initiatives will still be in the pilot stage. I do not think enough people understand it and/or see a practical use for it.

As our sources of information expand, so will our need for data analysts. The real power of the information will be the ability to analyze and put it to use. We should see more planning tools come on the market, but there will be a continuing strong need for qualified data analysts. Simon Ellis, Program Vice President of Global Supply Chain for consulting firm IDC, said “the supply chains that do a better job of leveraging the data available to them, I believe, will outperform the ones that do not.”

As more firms try to match the ever-improving Amazon service, we will see an increasing number of distribution inventory points around the country. I believe this will create a significant market for logistics service providers since few retailers can afford, or choose to match the large, privately operated Amazon network.

And speaking of Amazon, their relationship with FedEx has been well publicized in recent weeks. In 2017, FedEx CEO Fred Smith emphatically told CNBC that Amazon was not a competitive threat since it was a retailer and FedEx was a logistics company. After several steps taken by both firms to minimize their business relationship, as well as Amazon’s expanding logistics capability, FedEx seems to have come to the realization that Amazon will be a significant logistics competitor. Morgan Stanley expects Amazon Logistics will overtake FedEx and UPS by 2022; and that by 2022-2025, the UPS/FedEx/USPS share of E-Commerce packages from 82% in 2019 to 50-55%.

The final compliance date for the installation of Electronic Logging Devices (ELD) was December 10, 2019, Prior to that, carriers were allowed to continue to use Automatic Onboard Recording Devices (AOBRD) as a substitute. As the carriers that had done so were forced to convert to ELDs, we probably will see a further erosion of driver productivity.

Unless the Senate delays it further, the U.S.-Mexico-Canada Trade Agreement (USMCA) should become law early in the year. The Senate Majority Leader has said they will not consider it until after the impeachment trial; but hopefully, it will be passed in a timely manner.

Finally, most experts expect modest 2-5% increases in truck rates in 2020, but ocean rates may be a different story. The IMO 2020 low Sulphur mandate becomes effective January 1. The cost of expensive scrubbers and low Sulphur fuel will almost certainly be passed on to shippers, who also will be faced with “slow steaming” implemented by the ocean carriers to conserve fuel.

Whatever happens in 2020 however, hopefully it will be a happy, healthy, and prosperous year for our readers.