The outbound tender volume index (OTVI) is shown as a seven-day moving average to smooth out day-to-day volatility. As such, when national holidays occur and many drivers get off the road and shippers shut down, OTVI declines quickly and stays depressed for seven days. We are currently one day away from OTVI returning to non-holiday levels. Due to its nature, weekly volume comparisons are rendered useless this week.
We can, however, compare the depth of the decline to gain insights on where the index will be after the weekend. This year’s fall is in line with that of 2018, roughly 15% off of the July 1 peak. 2019 experienced the sharpest decline in OTVI’s three-year history at nearly 19%. As we wrote last week, we understood the pre-Independence Day volume level was unsustainable. OTVI peaked at just under a series-high at 13,000 on July 1.
There is little evidence that suggests freight volumes will not continue to be elevated as the index bounces back from holiday disruption. Consumer spending is still relatively strong given the unemployment backdrop, and consumer confidence partially rebounded in June. Time will tell how much the resurgence of the coronavirus outbreak affects freight volumes. During the height of the first outbreak, freight volumes went on a wild ride due to the panic-buying then subsequent shutdowns. It is the latter event, should it occur, that will dent freight volumes. Fortunately, this time around the lockdowns potentially may not be as severe (at least on a nationwide basis).
As we mentioned, week-over-week comparisons are useless this week as all 15 of the major freight markets FreightWaves tracks were negative on a week-over-week basis. This ratio has been consistently high in recent weeks and we expect it to bounce back next week. The markets with the largest declines this week in OTVI.USA were Savannah, Georgia (-24.98%), Laredo, Texas (-21.69%) and Los Angeles (-20.66%).
Tender rejections remain elevated despite post holiday lull, now at 15%
The outbound tender reject index (OTRI) is exhibiting some stickiness at a high level. OTRI has declined only a matter of basis points since its latest peak just before July 4 and remains quite high at 15.90%. The supply-demand dynamic of May, June and July has been much different than March and April. During March we saw volumes and rejections rise in stepwise fashion to all-time highs in a matter of weeks. This time around it has taken much longer for freight volumes to fill markets, and it has taken even longer for carriers to gain the confidence to reject contracted loads in favor of spot market options.
Another difference in this tightening environment is that volumes will likely remain elevated for some time unlike in April when volumes plummeted to holiday levels due to nationwide lockdowns. We should expect to see tender rejections in the double-digit range as long as volumes remain elevated – should the status quo prevail.
The reefer segment continues to be particularly strong for the carriers. Volumes have been accelerating from the West Coast and reefer tender rejections lead all modes at 20%, although rejections for all trailer types remain elevated (outside of flatbed where they have fallen in recent weeks). Carriers have begun looking for other opportunities outside their contracted freight in this environment of freight abundance and this level of tender rejections typically is a leading indicator of upward pressure on rates. A melt-up in spot pricing is a possibility if volumes stay strong in coming weeks.
Check out the newest episode of the Freight Intel Group’s podcast here.
Manufacturers Picking Direct to Consumer
Manufacturers with Direct-to-Consumer operations need to consider storage and picking for efficient fulfilment of growing order volumes, says Edward Hutchison, Managing Director of BITO Storage Systems. Online retail helped many manufacturers who saw normal outlets for their goods close during the COVID-19 lockdown. Some were able to pivot to their existing online channel while others were forced to establish Direct to Consumer (D2C) operations for the first time.
D2C opens up opportunities for manufacturers to obviate the traditional wholesale and retail end of a supply chain by selling and distributing their own goods – leveraging the marketing power of the Internet and social media. Of course, moving to a D2C model requires storage and order picking not only for parts to serve the manufacturing process but also for finished goods so they can be picked efficiently to fulfil orders.
Online retail sales volume escalated during lockdown and is predicted to remain high as the pandemic continues to influence the way we work and live. The easing of lockdown since mid-June has seen shoppers tentatively venturing out to the high street, having to negotiate a set of health rules that now includes mandatory mask wearing. ONS statistics show retail sales volumes increased by 13.9% in June when compared with May 2020. This represents a ’V-shaped recovery’ back to similar levels in February before lockdown. However, the proportion of online spending, despite slipping slightly to 31.8% in June from the record 33.3% reported in May, remains considerably higher than the 20% reported in February.
This is good news for the many small manufacturers who, lacking the support of a retailer to sell their products, have built D2C channels out of necessity. However, a more general movement by manufacturers in the direction of D2C had already begun before the pandemic struck, according to a Barclays Corporate Banking Manufacturing report called ’Going Direct’. Released in November 2019, it found that three quarters of UK manufacturers are now selling some or all of the products they manufacture direct to end-user consumers – compared to 56% five years ago and sales through this approach could help the manufacturing industry grow by 12% by 2025.
Those carrying out their entire manufacturing and D2C fulfilment operation under a single roof are likely to require space efficient storage solutions. BITO is fully aware of the needs of manufacturers selling D2C as we do it ourselves – fulfilling orders for our order picking and intralogistics products from our interactive catalogue and online shop from our warehouse in Nuneaton.
These products include a broad range of plastic bins and containers to keep items safe and secure for order picking. They can be held in galvanised boltless shelving that can be configured to needs. There are Inclined shelving units that help access to goods and Euro stacking containers that provide an order picking solution without the need for shelving. Smaller manufacturers that need to step their D2C business up a gear, can move on to wide span shelving, live storage or even pallet racking. Where they have no free areas in their factories or warehouses, they can replace traditional static shelving in the lower bays of their pallet racking with flow shelves. Solutions might entail a mix of adjustable shelving for slower moving items and carton flow racks, which offer a greater density of pick locations within a short distance. Boltless versions of these systems are popular because they can be quickly and easily configured or reconfigured to handle the large peaks experienced in online retail.
Carton live storage gives much greater density to save space when it comes to storing smaller products. Pick speeds can be dramatically increased because there are a greater number of pick faces within a smaller area so staff walk shorter distances. Cartons of goods fed into the system at the rear flow unassisted down rollers in a lane designed around the carton, or container, to be presented at the front on the pick face. This means pickers have constant availability of goods. It all works within the FIFO principle, which enables easy control of time critical products, such as items with use-by dates. Live storage is not just for cartons, it works with pallets also and companies will often combine a mix of the two to suit different types of SKUs and speeds of throughput.
Manufacturers establishing D2C operations will also need packaging stations. These might typically require galvanised shelving on which items can be placed for building customer orders. Packing tables will need to be as ergonomic as possible for staff, allowing everything they need to pack efficiently to be directly in front of them. Equipping the tables with further aids such as waste bins, pull-out drawers, a computer shelf and a monitor stand will also help.
The current situation around the pandemic has reinforced the need for flexibility and to rapidly scale up operations during periods of peak demand. Manufacturers will see an evolutionary path for their D2C channel, starting out with manual operations. As volumes grow and business becomes more established, some form of mechanisation can be added into the process. Once firmly established and volumes and service levels scale beyond the productive reach of manual processes, it’s then time to consider automating processes.
Construction Logistics Operation Expands into Port
Wilson James, a leading provider of specialist construction logistics services, has announced that it has expanded its warehousing and consolidation capacity into the Port of Tilbury, a London port. The new facility augments the company’s existing London Construction Consolidation Centre (LCCC) and helps it to meet the evolving needs of its growing customer base, which requires construction material and equipment to be delivered to site in ever-shorter timeframes.
In 2005, Wilson James created the LCCC in East London, which was the first facility of its kind and redefined best practice in construction logistics. It continues to be ideally located for projects across London and also provides space for contractors to build mock-ups, create quality samples and carry out off-site fabrication. As part of a strategic objective to enhance its distribution and consolidation capacity, and facilitate just in time delivery across the UK, the company assessed all available options and decided that the Port of Tilbury offered the most suitable opportunities for expansion.
Located on the north bank of the River Thames at Tilbury, Essex, the Port of Tilbury is the number one port for construction materials, handling a range of materials from aggregates, specialised dry bulk materials to timber; plywood and forest products as well as bricks, paving and stone. The port is in a prime location for London and the South East, offering easy access to the M25 and the rest of the UK’s national motorway network. The busy port has an annual throughput of 16million tonnes per annum, which is estimated to value around £8.7bn, and cargoes are spread across an estate in excess of 1,000 acres, with five million square feet of undercover warehousing.
“Put simply, the Port of Tilbury ticked all the boxes,” explained Keith Winterflood, operations director at Wilson James. “As well as being strategically located and boasting state-of-the-art facilities, it makes importation of overseas goods easier for us. Just as importantly, in addition to the excellent transportation links by road and rail, we can improve sustainability across our operation through the use of barges on the River Thames and other waterways.”
This can significantly lower operational carbon emissions and Winterflood continued, “50 lorry loads of equipment can fit on one barge and it also gives us the ability to transport large and heavy deliveries, which are normally challenging to accommodate on London roads. When it’s not possible to use the waterways, the Port of Tilbury’s proximity to the M25 allows goods to be dropped off without coming into London, which we can then transport using our fleet of electric and fuel efficient vehicles.”
This announcement closely follows the UK government’s promise to ‘build, build, build’ the UK back to economic health. Achieving this requires a flexible, reliable and robust supply chain and Wilson James expects to have a major role to play. Its expansion into the Port of Tilbury, alongside its LCCC, provides significant operational advantages as it continues to add value and refine existing supply chains during what is predicted to be a busy period for the construction sector.
The Port of Tilbury’s commercial manager, Alison Hall, commented, “We are very pleased that Wilson James has chosen the Port of Tilbury as the location for its latest consolidation centre. Our unique combination of transportation links will help Wilson James remove complexity in the supply chain and reduce journey miles, thereby creating a sustainable way to ensure that material and equipment gets to where it needs to be, on time. This is an exciting time for the port as we continue to invest in our infrastructure and open our new port extension Tilbury2 which will home one of the largest construction material terminals in the UK.
“We look forward to working with Wilson James to provide joint solutions for construction projects and support to its existing supply chains that are keen to gain from the sustainable benefit the port can offer with our unrivalled train, road and sea connections. On average we see a CO2 saving of 95% compared with road when barging materials on water. Using water for freight transport also significantly removes congestion from London’s roads.”
Tokyo Logistics Facility Acquired in joint-venture
AXA Investment Managers – Real Assets, a leading real estate portfolio and asset manager in Europe, has announced that it has completed, on behalf of clients, the acquisition of a ¥39 billion (€330 million) logistics facility in Tokyo, Japan. The acquisition was completed as part of AXA IM – Real Assets’ long term joint venture with ESR, a leading Asia-Pacific logistics real estate platform, with whom it established a local partnership in 2018.
The 142,000 sqm standalone asset, ESR Kuki, is spread across four storeys with double ramp access to the first three floors. Completed in 2018, the state-of-the-art facility was built to the highest specifications and meets the latest ESG standards (CASBEE A certification), as well as being energy saving compliant. The asset benefits from a human-centric design with plentiful amenity space for workers, such as children’s day care centre, and access to 241 parking spaces. ESR Kuki is occupied by six institutional quality logistics tenants.
Located in the North-Eastern area of Saitama prefecture, north of Tokyo’s CBD, the facility benefits from strong transport infrastructure with easy access to the Tohoku Expressway and Ken-O Express. The Tohoku Expressway provides direct access into Tohoku district and the Metropolitan Inter-City Expressways, which were built and extended to connect with the various outbound expressways and providing easy access and coverage of the entire Tokyo CBD, making it a strategic logistics location.
The acquisition adds to AXA IM – Real Assets’ Japanese logistics platform which comprises a six asset portfolio acquired on behalf of clients last year for a total consideration in excess of ¥100 billion, as part of its Japanese joint venture with ESR. The joint venture will seek further investment and development opportunities diversified across Japan’s gateways cities, targeting large high quality modern logistics facilities which have the ability to deliver secure income returns over the long term.
Laurent Jacquemin, Head of Asia-Pacific at AXA IM – Real Assets, commented: “This acquisition is a significant addition to our existing Japanese logistics portfolio, which is well positioned to benefit from the solid fundamentals underpinning the continued growth of the third party logistics market. The demand for modern logistics space in this market is likely to remain strong due to tight supply and we are confident that this, coupled with the continued growth of e-commerce, will enable us to deliver secure income returns over the long term for our clients, alongside our joint venture partner. AXA IM – Real Assets has a strong conviction in the logistics asset class globally due to the fact that it is supported by a number of structural demand drivers which, added to widespread levels of undersupply, we believe will underpin growth in income and capital returns on behalf of clients.”
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