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Supply Chain Now
Introducing The Collective
00:51:00
In this debut episode of The Collective on Supply Chain Now, a powerhouse panel of battle-proven commerce veterans comes together to dive deep into the forces currently reshaping the global trade landscape. The panel features Kim Reuter (Chief Advisor and Leader at CSG Consulting), Derreck Travers, Jack Mowreader (Founder & Principal at Ascendant Business Solutions), and Kerry Gibson-Morris (VP of Global Sourcing & Product Development at BDA, LLC).
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- [00:01]
Scott Lewton
A morning walk, some bird watching. It's another easy Sunday. UnitedHealth Group makes these ordinary days possible. With partners like the University of Tennessee
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Derek Travers
Health Sciences helping communities manage their health closer to home.
- [00:14]
Scott Lewton
54% of participants have lowered their blood pressure, meaning fewer heart attacks and more Sundays at the park. This might feel like an ordinary day to UnitedHealth Group. It's the healthcare system working better for everyone. Learn more@unitedhealthgroup.com commitment. Welcome to Supply Chain now, the number
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Derek Travers
one voice of supply Chain.
- [00:36]
Scott Lewton
Join us as we share critical news,
- [00:38]
Derek Travers
key insights and real supply chain leadership
- [00:41]
Scott Lewton
from across the globe, one conversation at a time. Hey, good morning, good afternoon, good evening all, wherever you may be. Scott Lewton with you here on Supply Chain now. Welcome to today's show folks. We have a special conversation teed up here today. Many of you are familiar with my good friend Kim Reuter, whom I've been co hosting shows with for quite some time. And she's been doing big things in Supply Chain for years at companies such as Amazon, Nordstrom and many others. And I always enjoy learning from her. Been there, done that, no nonsense perspective. Not long ago, Kim approached me with an idea. She said, hey Scott, I've recently reconnected with a few of my former colleagues that all did big things in industry. These are bonafide experts and last mile financing, sourcing and a whole lot more. I like to call this team of savvy pros the Collective. What do you say we get them on a show? Kim said, wait, it sounded good but you know, all ideas aren't acted on, especially in the world of digital content. However, when I met this team of leaders who amongst other things are true veterans of disruption, innovation and scaling big initiatives at the most demanding game changing companies under more pressure than some of us will ever experience. I gotta tell you, I was intrigued with the notion of bringing these voices together on a show or two because I've come to find that they've got the stories, the perspective and the points of view that I think our SCN global fam will enjoy watching, listening and learning from. So I invite you to take a listen to today's unique podcast here on Supply Chain now, powered by Kim and the Collective and let us know what you think.
- [02:35]
Kimberly Reuter
Scott, thank you for that introduction. As Scott mentioned, we have been working together for over a half a decade. That's five years for all y'. All. I and Scott is the first person to introduce me to podcasting and I have been hooked ever since. I am very grateful to the Supply Chain now network for even giving us this opportunity to host my own show. I hope that I do you proud. Now. Welcome to the Collective where we discuss everything, supply chain, leadership and life. And as our name implies, our podcast brings together four battle proven commerce titans. Collectively, this team architected and built the Amazon that you see today. And they didn't stop there. These leaders went on to lead in trucking, air cargo, luxury retail and of course, coffee. You cannot have a career in Seattle without at least touching coffee once. Now let's do a quick introduction of our co host. First up, Kerry Morris, global sourcing expert. She has sourced everything from teak furniture to insulated coffee mugs. Carrie built Amazon private label from scratch, introducing the early brand Strathwood and Pinzon. And led the first celebrity kitchen collab with world famous chef Tom Douglas. Welcome Carrie. Second, we have Jack Malrader, finance guru and army logistics veteran. Jack has built financial models and business plans for just about every industry from truckload carriers to solar panel construction. Jack laid the foundation or the financial foundation for Amazon's early import strategies and the Kiva robotics integration. Welcome Jack. And next up we have Derek Travers. Everything last mile starts with Derek. Derek has built networks and programs for outbound and inbound and everything in between. Derek led the charge developing Amazon's last mile delivery and returns program and dabbled a little bit in product fraud. Welcome Derek. And last but not least, your host, Kimberly Reuter. I'll keep it short and sweet. If it's shipped across the border, I have probably handled it. From servers stuck in Singapore to radioactive monkey brains, to six carat diamond stud earrings, I have cleared it and moved it. And along the way I've had a hand in building some pretty amazing technology. So welcome my co host. We are excited to bring a bevy of knowledge and expertise to the supply chain network. Now let's get started. Carrie, let's start with you. What do you think is the most disruptive development in supply chain happening right now?
- [05:12]
Carrie Morris
Well, thank you Kim for bringing such a great topic forward. I have to tell you, I am a veteran of disruption. It is something I thrive in. And I couldn't help but think on this topic about my early days at Amazon and the disruption of retail and the power of technology. My topic is a disruption in the smart sourcing space with AI and how AI can play a role but also create risk along the way. You know, AI in the supply chain space is really not a novel new concept. We have been looking to technology to streamline task level roles from as long as I can say in this career, in this space, but what I do think is really uniquely different about AI in the sourcing space today is it's on steroids, it's moving at a very fast pace. And for me, it's an area where we need to jump and we need to be a part of it and we need to be building and curious to be able to harness the power of this tool.
- [06:19]
Kimberly Reuter
It's a really interesting perspective. And you're right, we have been replacing labor since we've invented technology, right since the beginning of the wheel, right before that we carried it and then we had the wheel. So we've been going through this. This is not the first time people are acting like this is probably the first time. But it's a really interesting perspective that you bring up because it plays a specific role in sourc. Because sourcing, which is you're going to educate all of us on sourcing, is not just about picking pretty stuff out of a catalog. It goes way deeper than that. And so what are some of the things that are going on with AI and sourcing? Why is this so important?
- [06:54]
Carrie Morris
You know, one of the things and you touched on this is I don't see it as replacing our members of the team in the space. I do think it's about allowing my team to level up and be much more strategic. We're all faced with bandwidth pressure and headcount pressure through our opex. But when I think about the power of AI and why I want to jump into it strategically and with a high level awareness that there's risk, it's because it's going to allow my team to level up. It's going to give them the capacity to deal with complex problems to solve, to really nurture their supplier relationships and build out that supplier network and to be able to think about innovation in the future, lifting their head up and looking forward.
- [07:42]
Kimberly Reuter
Excellent point. Because a lot of times we get stuck in that Excel spreadsheet, right? And that's where we're making all of our decisions. It's where everything is launching from and we're not really don't have the time to the bandwidth for that creative thinking, which are the things that you're talking about, the innovation, the making time to talk to your suppliers and work on those relationships. We recently did a podcast Scott and I did with with Orchestra, who works in the AI procurement space and we talked a lot about relationships are still really important. AI is never going to replace that human relationship piece. So we're not talking about getting rid of people. What you're talking about is giving people an opportunity to be more effective.
- [08:25]
Carrie Morris
Yeah, absolutely. And you know, you think about the payoffs of really delving into this and using the tool in the right way, it's going to allow us to be much more strategic with our supplier network to understand what that last mile could look like and how we really drive cost value into our model. Being able to think about the competitive landscape and the pressure on cost and where we start to play into tariffs and how do we drive down the cost. Again, this tool can really help us achieve that in, in the right ways.
- [09:03]
Kimberly Reuter
And so speed to market is something that came up or comes up pretty frequently when we talk about AI and procurement. Can you expand on that just a little bit and why that is so important?
- [09:13]
Carrie Morris
Well, speed to market is a competitive advantage since the stone Ages, not a new idea, but certainly one that is a buzzword in the industry. And you know, speed to market and cost are probably the two most important levers. And you think about the ability to be able to be first in with innovation or first in with the right inventory at the right place for your customer. It translates into the right financial model that all of us want to build in our e commerce spaces or in retail in general. And so this tool allows us to take the task oriented roles that my team is spending time on and allow them to model out the right life cycle for the product and move it through the pipeline quicker.
- [10:02]
Kimberly Reuter
Beautiful. That's amazing. Are there any risks that people need to worry about when we talk about this?
- [10:08]
Carrie Morris
Oh, absolutely. There are lots of risks. Right. Any new technology brings risks along the way. And I think about, you know, the word jump. Like I'm saying, get in there. I'm an early adopter, I want to build. I love to be curious, but there's going to need to be a discipline around this as there has been in any technology that you bring into the space. And so the risks for me right now are most important is the data integrity and the hygiene of the data. Again, this was a problem we had to solve at Amazon. Early day catalog, you know, junk in, junk out. Not having the right naming conventions and having the right integrity around the categories can really foster inaccurate data that the AI tool might be pulling back up. And so you've got to make sure that your data hygiene is there. And you're going to have to work on architecting the right infrastructure and discipline early on to actually make this data worth anything to the end user. I think the other piece very important is check the checker. That was something I learned very early on in my career. Career. You know, you can have the best QA audit infrastructure globally in your markets, but if you're not checking the checker, you're going to expose yourself to unexpected risks and cost to the business. So you need to be able to have that human gut that is assessing the data and making sure that the information that is coming out is actually accurate. And so it's a patience game. Jump in fast. You've got to be patient and you've got to challenge information that's coming back to you and really delve in and make sure that it's correct.
- [11:56]
Kimberly Reuter
Yes, I think that's super important. And I will tell you AI will give you the wrong information with 100% confidence. Like it, it will and it will back it up, but it will still
- [12:08]
Carrie Morris
be back up and it will sound so convincing. Right.
- [12:12]
Kimberly Reuter
It'll be like the. All the confidence in the world. This is exactly, and this is exactly how I came up with it. You can trust. Yeah. And it's dead wrong. And so you have to keep the human element in there. You're absolutely right.
- [12:24]
Carrie Morris
I would tell you, Kim, here's just a fun exercise for anybody out there. Search the word T shirt. Because I will tell you the algorithm behind that. You do have to bed, you know, keyword searches to make it the right result. But if you search T shirt, there's so many ways that we spell that word that you'll just get completely different result every time. And that's the data integrity I'm talking about.
- [12:50]
Kimberly Reuter
Yeah, exactly.
- [12:51]
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- [12:52]
Kimberly Reuter
Anything else we need to worry about?
- [12:54]
Carrie Morris
Well, I do think that when you're moving at the pace that this is, and the media is certainly making sure we don't forget about AI, I feel that how do we engage our executive leadership in a way that sets us up for long term success? This isn't a novelty moment. This isn't something shiny that we kind of all jump around, but making sure that we've got a foundation of governmental instructions around how we're going to embed this and how we're going to manage it. And then I think on the other side of this, it's a training requirement that the teams need to understand. And, you know, you can't just all of a sudden roll out an AI tool and expect everybody to be able to consume the information appropriately and understand how to leverage it appropriately. So executive oversight, building that foundation and then really thinking about engagement and training for the team so that they're leveraging it and freeing up their time to
- [13:57]
Kimberly Reuter
be more strategic and using it consistently. That would be the other thing I would call out, is that governance is key. That's one of the big things we started out at Amazon, we learned very early on was governance of data. And if you don't have that, not only is the data in data out, but it's also how you use it and how you access it. Yes. And who has access. Also very important because you will come up with competing numbers in no time flat. So important to put that around it.
- [14:27]
Carrie Morris
Such a great call out. Thank you for calling that.
- [14:30]
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- [15:41]
Kimberly Reuter
do you have anything you want to add here to Carrie's brief conversation about AI and procurement?
- [15:49]
Jack Malrader
Yeah, well, I mean, it's such an interesting discussion, right? Not only in supply chain, but just in the world that we live in. And I think that you illustrate a lot of challenges, right? We're in spreadsheets. We have people that maybe don't really know how to use the data. Like if I'm going to be practically jumping in, I mean, what does that look like, Carrie? I mean, where do I start? Do I start with the executive sponsorship? Do I start with data hygiene? What does jumping in look like? You know, from your perspective?
- [16:16]
Carrie Morris
I will say just because of the speed, speed to market and speed of AI introducing itself into all of our workspaces, it's going to have to be dual path. I think that the importance here is if we try to get everything perfect, we're going to miss the opportunity to be in the space competitively. So I see a parallel pathing of setting up clear guardrails with the end user that's going to be implementing or leveraging this capability while simultaneously bringing the executive leadership along and getting their buy in and allowing them a forum to ask questions, Difficult questions, because the tool can remove task level work, but it also can have a large financial impact if not leveraged appropriately. But really great point.
- [17:10]
Jack Malrader
Yeah. So what I'm hearing you say is don't jump in blindly, but have a plan and just get started. I mean, that's the premise, right? You should have started yesterday. So let's start today, right?
- [17:19]
Carrie Morris
Yes. Love it.
- [17:20]
Kimberly Reuter
Yeah. Jack, are there any financial aspects to this that you would want to talk about?
- [17:26]
Jack Malrader
Yeah, I mean, I think an interesting concept is, you know, you hear about the Microsofts and the Googles of the world. They're just laying off and they're saying, we're going to figure this out. Right. But is that really the best path for your company? Is it better to, like Carrie, say let's get an roi, let's get something together, let's get a plan, let's invest in that infrastructure and do it methodically and not put your business at risk. So when I look from a financial perspective, it's what do I need to put in when I'm going to start seeing returns and what's the risk of, you know, doing it wrong?
- [18:02]
Kimberly Reuter
So great. Yeah, there's a big risk to doing it wrong. Derek, what about you? Do you have any thoughts on this?
- [18:09]
Derek Travers
Yeah, a couple thoughts come to mind. I love how, Carrie, you're talking about the concept of trash in or trash out or garbage in. Garbage out. I'm not convinced that AI is as impactful as the media hypes it up to be. To me, this feels like the continuation of the digitalization of the marketplace. I can remember early on in my career when I was a customs broker and Kim will probably relate to this, but we have the sheet that we'd fill out that we had to figure out. What's the tariff number, what's the unit of measure, what's the value? What could you deduct from the value? So you didn't pay duty on it. It was basically as a handwritten sheet that we had. And just as I was leaving that business, they were introducing putting computers at everyone's desk to where everybody individually would key it in. And actually what they were doing behind the scenes is like tying in with this new technology called EDI with the customer to be able to get all this electronically and not need someone to key it in. Well, really, to make this, all these systems work, you have to have the architecture in place. And there's been a lot of public discussion, which if it's public now, you can, you can imagine behind the doors, it's a very large and loud discussion. But people are realizing that their architecture isn't as solid as it needs to be. And AI is actually making it even more profound of what that problem is. And so a lot of people are going back and they're reinvesting into architecture. They're, they put it off for a while and, and now they're, they're reinvesting in that. The second thought that comes to mind, kind of like what Jack was talking about from a cost implication for just recently announced that they are bringing back a couple hundred what they called gray beards, meaning engineers, to come back and focus on quality control. That they had actually let these guys all go because AI was going to solve their problems. And I think, I think the last couple years everyone's been in a real mad rush to appear to be doing something with AI without stopping taking a breath and really putting together a solid strategy and actually evaluating if they really had what, everything in place to actually make it more effective. So I think just one other thought too, here is. I know there's a lot of people, a lot of fear out there about how is AI going to replace everyone's jobs and such. And there's different opinions. I think something that's been promoted lately is that the expectation actually is that this will create more jobs. And the case in point that I would use in the logistics or supply chain industry. I've been at this for a little while and I can promise you there were like maybe two or three people in the company that would be doing something related to supply chain. Well, you look at any company today, there's, there's at least a dozen, and depending on the size and scale of your operations, I mean, there's organizations that have a couple hundred, if not a couple thousand different people in the supply chain space. So I'm not convinced that it's going to actually eliminate jobs. Jobs will change. This is going to be no different than switching from a typewriter to a PC. But it is a change. And change is probably one of the most uncomfortable things we do as humans. We're not wired for change, we're wired for safety. And, and I've, I'm telling all my kids right now just Learn, use the tools, learn how to do it. Don't worry about how stupid it is that you're trying to use the tool for. Just get used to using it because it will help you five, ten years down the road.
- [21:44]
Kimberly Reuter
Okay, thanks, Derek. Excellent points, Carrie. Thanks for sharing that. AI and procurement definitely here to stay. Lots going on in the space. We're going to jump into Jack, who's going to talk about something very similar to what you deal with on the very, on a very regular basis. Jack, what do you got for us? What's going on out there that you think is the most disruptive thing happening in supply chain?
- [22:08]
Jack Malrader
Well, I think in my, in my view, tariffs are having a huge impact. Right. It's just the speed at which government is implementing changes. You know, we were kind of talking about, you know, previous changes. I mean, I was in the trucking business and when the FMCSA decided they want to do hours of service overhauls and they wanted to start doing electronic logs and things like that, there was a, you know, there was a study period and there was two years that went into that initial implementation. They extended it. Right. And so you had this at least four year period where you could react as a business to the changing conditions and you knew what the outcome was going to be or you could, you could at least predict it. In this tariff world we're living in, it's just very disruptive and it impacts all, all sorts of things. I mean, right now, I mean, the first thing is the de minimis tax tariffs. I'm sorry that, that's going on right now. And now all the small parcels under $800 are now coming in and they have, they have new requirements for reporting. There's, you know, the customs needs to really understand, you know, how to treat them, what kind of information they're going to use. They're not getting huge budgets to solve for this. Right. So they're trying to be efficient. And what's that going to do to the rest of the import world? Is there going to be some spillover or is everything just going to get clogged up? So I think that that in itself that starts to play out, that's going to be a really big disruptor.
- [23:49]
Kimberly Reuter
Yeah. So talk to us about the financial aspects of this, Jack, because, you know, obviously for a long time tariffs pretty much were the same. There may be a change. But we, as you said, we knew about them way in advance. They had to be published. It wasn't something that was happening on an overnight basis. So for a long Time when buying was planning their purchasing, selling was planning, selling supply chain was planning. Everything was pretty steady. But now we have this sort of curveball that we have to deal with almost on a daily basis. What kind of financial impact is this happening? Is this having.
- [24:28]
Jack Malrader
Well, it, it has tremendous impacts and it really just depends on where you're at in that supply chain, right? Are you going to be the one holding the bag? Because maybe on your, on a fixed price contract or you've negotiated something previously and there's no provision for pass through. So it really depends. You have to take a look at your own individual perspective. I just came from solar construction and we'd add a half a million dollar battery system that gets, gets produced in China because that's where that happens and it's literally getting built. And I'm in negotiation with my end customer to try to pass through some of these tariffs and they have a fixed price contract. A lot of times you're the one that's bearing the brunt of that. And so really just understanding where you are, what your contracts allow for is, you know, is this something that you can use as a force majeure, right? Is this an event that, that you feel like you can, you can go back and pass this through or do you need to get smarter about how you're pricing, having variability in there? So it, there's so many different variables, Kim. It's just, it's, it's really understanding where you, where you sit in the supply chain.
- [25:41]
Kimberly Reuter
You bring up a really interesting point because, you know, working in E commerce and retail and cpg, right. I was really kind of what I've been doing a lot of when all this stuff happened is helping people figure out how to better source or how to better classify or kind of deal with the problem on a kind of a PO made by PO basis, which is what most retail and E commerce is, right? We place a po, we get it. And when all of this happened, most of the retailers and merchants and sellers that I deal with were able to go back to their sellers and say, hey, they're manufacturers. Oh, this thing happened, we need to renegotiate. But you bring up a really interesting point about big builds that take longer than a month or two to build. And in the middle of this build you have a whole other thing. You got a 30% increase in the cost of your product. Like how do you deal with that? Do you have any recommendations for companies that are dealing with this?
- [26:42]
Jack Malrader
Well, it's, it's pretty unprecedented and I think there's a bunch of legacy agreements that we've all had about part. So, I mean, part of this is getting with your contracts team, your legal department, and saying, hey, let's take a look at what our arrangements are, what our risks are, and taking a look at it and just being proactive with your customer. Because even if you can pass it through, you want to still be having those conversations with your customers, right? Because at the end of the day, they need to be successful and you don't want to just blindly just pass those things through. So it's about understanding where you're at, looking at your risk, coming up with some creative ways to problem solve and then, and then engaging your customer and saying, hey, this is what's happening to me. And that's one of the things that we did on that battery build is I basically said, hey, I can't absorb this. Can the general contractor absorb a little bit out of their contingency? Can my supplier take a little bit of the cut? And we negotiated a way that I didn't have to, I didn't have to hold all of it, but there was limitations to what my customer could provide. So it, it is, it is a risky proposition. Especially, you know, I mean, we've got a lot of changes still coming through in July around, you know, the section 201, you know, the 122 tariff, sorry, and then the 301 provisions that are, that are being implemented here in the next couple of weeks. And so there's going to be tremendous change even with countries like Japan, Brazil, I mean, big, big tariff impacts where we think, all right, it's not a China impact. It's. It's happening all across the industry. And, and I mean, really to kind of tie it in and where carries at can we use AI to help understand which products are being exempted, which countries are going to be most effective? How do I communicate that, you know, throughout my organization and to my customers? So there's a lot of information processing that we're going to have to deal with here pretty soon.
- [28:37]
Carrie Morris
Well, I would love to just piggyback on what Jack said, because, trust me, I'm feeling the pain on this topic thinking about the power of AI and how it can leverage our supplier network. I think one of the questions I have for you, Jack, is there is somewhat of a domino effect because the supplier community, particularly in China, moved very, very quickly to find alternative markets that they could set up and be able to ship out of. But the domino effect is when you start to move production out of China into Cambodia or into Vietnam, you're faced with two new costs. One of them is training capability of that market in the short term and inventory, because a lot of the raw materials are not available in these alternative markets. And I'm finding as the supplier shifts markets, they have a new burden of cost. And then simultaneously, that market could eventually get a tariff added onto it when it wasn't there before. So I know it's complex, but I'd love to just hear your thoughts on that.
- [29:49]
Jack Malrader
Yeah, well, I mean, when you look at the supply chain, I mean, we worked for years to do this optimization, right? Just in time, stay lean, do all these things. But in a disruptive environment, we're really setting ourselves up for failure, right? So now do you start having days of supply contacts and challenges with, you know, it's like, do I need to warehouse locally? Do I need to secure stuff, you know, within the country of, of manufacture? What. What does this mean? And so I think that where we may even see like this trend where I'm, I'm adding buffers in there so that I can absorb the risk. And really having those conversations, it's like, well, what's my true risk, right? Is my true risk running out of supply or is it being as optimal as possible and being cost competitive? So I think that you're introducing more opportunities for us to just have that dialogue and say, maybe we, we leaned out the. The supply chain a little bit too much.
- [30:59]
Kimberly Reuter
Yeah, that's an excellent point, Jack, because you're right. Every single one of us on this call has lived through lean, right. And JIT just in time. Inventory, like, and that for a long time, that's all we live by, right? Was how lean could we get inventory? 30 days or less was the goal at all times. And now in the last 18 months, we're hoarding. We're buying as much as we can as soon as we can at the price we think we can get it. We're trying to get it and to keep it somewhere safe so that we can access it later, which is like what we used to do back in the 40s, right. And the 50s, before all of our containerization and inventory management modernized. Right. So it's an interesting point that all of this has kind of almost made supply chain go a little bit backwards. Would you guys agree with that? Yeah, that's a good point for sure.
- [31:56]
Jack Malrader
And I mean, you talk about consolidation going back to the de minimis, you know, tariffs, right? I mean, that, that's a power play for aggregators here. In the States to warehouse and, and go back to instead of these individual shipments. All right, where do I do I do a fulfillment by Amazon? Do I do something like that where I can just bring it in, store it and, and displace it out of a centralized warehouse?
- [32:21]
Kimberly Reuter
So yeah, yeah, bringing at a wholesale cost, like there's. The advantages for bringing stuff in at retail under de minimis are, are gone. There's no more advantage for that at all.
- [32:31]
Derek Travers
Kind of echoing like what Jack was saying, this whole idea of like having stock on hand, maybe if I was a little bit smarter when this thing was all going down, maybe and if I had the money I'd go buy a bunch of land and build a bunch of warehouses because there's a lot of invent sitting in warehouses waiting for it to move to wherever it needs to be moved to. As far as putting on the store shelf or go to a production line or something. The other thing I'd call out here too is that in a strange way this has sort of leveled the playing field to where offshore e commerce products aren't just controlled by one particular region of the world. If I think if people spend a little bit of time, people would be really surprised to start seeing the interest in actually shippers from other parts of the world that traditionally have higher expenses are actually now getting to become competitive in being able to ship stuff from say Europe or from the Middle east or from Africa or South America into the US Whereas before it was pretty much controlled by Eastern Asia there. So I think that's kind of an interesting change or disruption that's happened. It's going to be interesting to see how this continues to play out.
- [33:47]
Jack Malrader
Well, yeah, and I mean just to riff off that a little bit, Derek too, I mean you're talking about warehousing, right? I mean there's two things that you can do around tariffs and one is, you know, it's working with foreign trade zones. Right. What that does is brings it in and, and, and holds it and then also using bonded warehouses, there's going to be a window here that if you're ready in the next couple weeks to really there's going to be one tariff ending and another one hasn't quite implemented. Right. Can you bring it in and ship out of a bonded warehouse and, and see tax, I mean tariff free, right. Are there, there are options for you to work with foreign trade zones in this interim time to load up your inventory in the states and, and, and take advantage of these, these gaps. So I think those that are most flexible and are thinking ahead can really take advantage and, and get some really good competitive advantages.
- [34:44]
Kimberly Reuter
They're out there. You just gotta find them.
- [34:46]
Derek Travers
To echo Gary's topic earlier too, it will. We won't hear about this probably for another year or so, but it'll be interesting to start to see the stories of companies that leveraged AI to play out what are scenarios and to hear about the successes or maybe some of the failures. Yeah. Of how people leverage AI to play out these situations, such as you said about with Japan and Brazil and the tariff rates change.
- [35:10]
Kimberly Reuter
It's good stuff. All right, excellent. Derek, you're up. What do you got for us? What's going on out there?
- [35:17]
Derek Travers
Well, it's an interesting time, I think, kind of going along with increased fuel costs. We talked about tariffs, we talked a little bit about AI here and stuff. In the logistics industry, there seems to be a strong appetite for consolidation. So I think one that a lot of us are probably have heard about most recently is cma, which is a large ocean shipping consortium. They went and they announced that they bought FedEx, a supply chain unit. So FedEx has actually been in the process over the last couple years of kind of splitting up their company and doing some smart consolidating and such. So this was a good opportunity for FedEx to. To be able to help with their strategy. But the way the deal's announced is that CMA is spending $1.4 billion. They're going to inherit with that purchase. 10,000 people in North America and roughly about 150 warehouses, if I remember correctly. I think that increases their North American warehousing capacity to a little bit north of 250,000 warehouses. So to put that into scale, that's actually kind of similar to where Amazon is at right now. A bit more than what Walmart is doing. It's more than what some of the other larger box retailers that we're all very well known of. But just to give people a sense of the scale, the deal's expected to close later this year. And the FedEx supply chain group itself brings in roughly about one and a half to $1.8 billion in revenue every year. What's interesting is that this actually isn't new for cma. Over the last five years, they've actually closed other deals similar to this all around the world. This is the first time that's pretty much mostly focused in North America. When they first started doing this, it was with Siva. Siva is a Swiss owned or was a Swiss owned company and they had presence all around the world. And many of us in the business have heard of Siva here in North America. But with. This is kind of interesting with cma, they're focusing on top line growth. They've made no bones about it. In fact, they're betting that by leveraging scale they'll be able to make it difficult for customers to be able to switch to alternative or competitors. Having said that, history shows with CMA that they've shared that roughly they've lost 15 to 20% of customers after each time they make an acquisition like this. And typically rates for customers will go up between 15 to 30%. So for a 3PL service, if your total costs are roughly about four bucks a unit, which is pretty typical, you can now expect to pay something maybe north of $4 and 60 cents a unit. The challenge though is that with each of these acquisitions that they've made
- [38:14]
Kimberly Reuter
over
- [38:14]
Derek Travers
the last five years, none of them have been completed. They're still working on these integrations even though they commit to having this closed out in, you know, year and a half or two years. And especially if I think of this deal with FedEx, FedEx has a really, really strong culture that started out with Fred Smith years and years ago. And it's really difficult to change the culture of an organization. It's really difficult. In fact, Harvard Business Review put an article not too long ago specifically about the logistics industry. But roughly between 70 and 90% of all M and A deals actually don't live up to the expectations. And it's really. And the other disturbing part of it too is that it actually typically destroys shareholder value by 10 to 50% within two years. So this is kind of interesting times. It's going to be. We'll probably see more consolidation as my guess.
- [39:15]
Kimberly Reuter
Well, so what I wanted to ask you, Derek, is how do you think this will impact the E commerce market?
- [39:20]
Derek Travers
Well, two things. Number one, consolidation never favors a shipper. It will always put inflationary pressure on costs. May not be immediate. It'll. It will come over time. I think. Number two, the. There will be organizations that can benefit from this if they can go to a single supplier or service provider that's fully vertically integrated. There are benefits you can have. If it's the same company that's doing your customs clearance, it's doing your ocean transportation, that's doing your trucking and your warehousing and all those different pieces, there can be benefits for that, but you have to have pretty significant scale to leverage price concessions. But if the reality is that most commerce or E Commerce that's out there is done by moms and pops operations. It's actually quite surprising how large it is. And I think for a lot of these companies that don't want to spend the time on the supply chain or the logistics side of the business and want to focus more on the marketing, let's say side of the business or the design and research of the product that they're making or improving on, it's easy for them to fall victim to just letting someone else take care of it. And if the industry consolidates and your prices come up, it will, it will catch you blindsided quickly.
- [40:38]
Kimberly Reuter
Yeah. So, you know, this announcement came on to me. The way that I saw it came kind of on the heels of the Amazon Supply chain services announcement and Amazon opening up all of their logistics to anyone who wants to use it. Do you think the two. That's a coincidence? Do you think that CMA and FedEx are trying to compete with this Amazon supply chain services?
- [41:04]
Derek Travers
I think it's just dumb luck. These deals, especially with this size or scale. Yeah, that's a disruptive comment. Right. Deals this size usually take a long time to work out. So I think I wouldn't be surprised if these discussions have been going on for some time. So that's number one. Number two, CMA has been doing this for the last five years. Like it's not, this isn't like the first deal that they had. So I think there's more, more of a bigger play with those logistics companies that have strong capital resources to integrate more of the, the physical movement of goods and services. And these things all go in cycles. We've all been at this for a while. They seem to run in like 20, 25 year cycles. I think a lot of us can remember back in the day when UPS was promoting about how they were going to be able to make it easy for customers because they'll take care of everything. And those things are kind of being spun off. Same thing with FedEx. So I think it's just playing the same cycle, I think. But to look at this objectively, I think customers are going to. I'm never convinced that consolidation is a benefit to the customers, with one exception, and that's with the airlines.
- [42:19]
Kimberly Reuter
The.
- [42:19]
Derek Travers
If you look at a price of a ticket, at least to me it feels like the prices really haven't changed a whole lot over the last 10, 15 years. But service has improved, you know, and it's not just one or two or one airlines. Actually if I think of like Delta and what American have done it's actually pretty impressive. I would even say United as well. But consolidation usually never benefits the customer. We've all seen this happen over and over again. That it usually something's going to cost us more gas, costs us a lot more money when there's fewer gas companies and such, I think. And then the biggest concern that I would have though is that as they go through this integration and they're also still trying to manage five or six other companies that they're trying to put into and get aligned, there's a lot of chaos and a lot of problems and it's always at the end of the day the customer pays the price. Now having said that, I think with Amazon's deal, I think it was just kind of like dumb luck. Amazon tends to go in and out of trying to offer the service. You know, they'll have success. But at the same time I think there's, it's a big ocean. There's lots of different types of shippers out there. There's lots of room for service providers to be successful.
- [43:35]
Kimberly Reuter
Carrie, you seem like you had something on the tip of your tongue there. What do you have to say?
- [43:40]
Carrie Morris
You know, I'm hearing the two talk tracks. One of them's the customer impact. And there's no question we always get the short straw on, on these deals. But I'm curious if we were to look through the lens of cma, like was this a reckless move or was this a disruptive big bet for them and worth the worth the impact that we're seeing?
- [44:01]
Derek Travers
I don't know that this is a strategy. I mean it's, it's. And when I say it's not a strategy, meaning the implementation of it, you know, there's probably been other organizations that have had more success in the, in the integration than what CMAA has demonstrated strategy as far as top line growth control, the whole supply chain movement of goods and services. Like that's definitely a strategy. I don't know the CMA group very well to have a strong opinion. I look more of like what is the experience of the customer? I think there's definitely a strategy out there where as the opportunities present themselves, those that have the cash on hand or the capital resources are definitely going to be consolidating more and it'll, it'll be around for 10, 15 years and then we'll see them spin them off. It's what always happens.
- [44:49]
Kimberly Reuter
Well, we saw this with Maersk too a couple years ago. So Maersk kind of shifted and did some consolidation where they were Moving more towards the small mom and pops. Right. Maersk was trying to offer more boutique services that were easier to plug into. I see CMA trying to follow in that path. And I do think that there is a direct correlation between CMA's FedEx Buy and Amazon opening up Amazon supply chain services. I think that they are directly trying
- [45:19]
Carrie Morris
to compete with them.
- [45:20]
Derek Travers
Yeah. And what's interesting about Maersk, though, is if you look, there's, if we talk about strategy, your strategy is very, very focused on margin. So if you, for every dollar you invest in Marisk, you get a much higher. I think it's like a 25 or 28% return on your dollar, whereas with TMA, it's like, I think it's like 7 or 9%. So I think if I'm a shipper and I'm seeing all this, what appears to be like some kind of a strategy of everyone trying to consolidate and such, I'd be, number one, I would try to leverage myself by having diversification in service providers that will always benefit. You don't fall into the trap of like giving all your business to one person to think you're going to save some money, because you'll never save money. But number two, really, instead of just looking at the price or the cost, which is the trap that we all fall into, really look and understand what is the culture, what is the true strategy of the company that you're about to do business with. Maersk is focusing on margin. That's. And they make no, they make no bones about it. And that's why they're very selective of what they, what they purchase and who they acquire and the companies they have acquired. They've all been integrated seamlessly on time and they have, they've had less attrition rates from customers and such. It's one better than the other. There's probably as many opinions on that as there are people on this, on this podcast.
- [46:49]
Kimberly Reuter
Jack, what are your thoughts on the CMA FedEx situation?
- [46:55]
Jack Malrader
Well, I think, I think it's kind of interesting really, to the points that Derek brought up about the integration, because having integrated companies before, it's a heavy lift. And I look at the list of all of these recent acquisitions that they had and I mean, you've got systems integrations, you got financials, you've got tracking, all of these things, and you can only do so many at one time. And so I think it's going to be really difficult for them to really make any progress. Now if they're just getting FedEx to just, hey, I'm shoring up a partner and I'm going to integrate it slowly over time and I just want to get my foot in the door here. That could be a strategy. But really to Derek's point is I'd be really concerned about the service levels of all of their, their companies because it just, the impact is bound to, bound to pop up.
- [47:50]
Kimberly Reuter
Yeah, and you make a good point. I kind of jumped to the conclusion that they're going to take this and now offer end to end logistics. And I think, I still think that's what they're going to do. I think they're going to sell this as we can take it. They'll probably get into some sourcing at some point, but we can help you with everything. We can help you get the product from the manufacturer and we will take it all the way to your customer store and we will do the returns. I mean they're starting to offer this end to end services that we're seeing that traditionally we've been seeing the marketplace is really trying to play into. Right. So Walmart, Amazon, trying to offer these logistics services to entice more merchants to sell on their marketplaces. So now we see carriers actually trying to jump into this space and I think they're really trying to reclaim their business. Right. I mean Amazon has been eating away at all of their businesses for the last 20 years and it's finally caught up to them. Carrie, you have a great perspective on that. What's your perspective?
- [48:51]
Carrie Morris
I think you are absolutely spot on and the opportunity for them to command the space like this puts them at a very strong advantage. But you know, the question is, is can they integrate, to Derek's point, Can they streamline it? How many customers are they going to lose along the way as they try to play out this strategy? But you know, if I were sitting there, I would jump on that opportunity as well. I also was thinking about the fact that when this type of, of disruption happens in the market, it allows room for new companies to innovate and squeeze into a very tightly populated landscape. So I'm going be curious to see what spins out from the Seattle market from an innovation perspective with this gapping.
- [49:41]
Derek Travers
So that's an interesting point. I think the challenge though is that barrier to entry is really expensive. So to put up some warehouses isn't as expensive as buying a ship and managing a ship. So if your focus is to be vertically integrated and offer a complete door to door solution, think it's going to be. I'm not even sure that Anyone can actually enter the market unless they're sponsored by some government or whatever. Now, as far as you know, if I think back when the days when we were at Amazon, Bezos has had said more than once, your margin is my opportunity. So if there is this effort to consolidate vertically, it will be interesting to me. The bigger interest here is whether or not they'll actually be able to do that or will this. To your point, Carrie, will more independent entrepreneurs enter the marketplace.
- [50:36]
Carrie Morris
Yeah.
- [50:37]
Kimberly Reuter
And snatch it up between.
- [50:39]
Derek Travers
Between the four of us and, you know, however many people are listening and our million listeners, I'm opting for the second option. More competition always, always improves the experience for the customer.
- [50:50]
Kimberly Reuter
Yep, agreed. Very good. So I don't know about y', all, but that was a lot of Supply Chain firepower in an hour. And I want to thank all of our co hosts for being here and sharing their great perspectives on what's going on in Supply Chain today and what is the most disruptive. There's a lot going on there. We hear about AI all the time. And I'm glad we were kind of able to shed some truth on that. Excellent topics and insights. I want to thank our co host, our audience. I want to thank Supply Chain now for hosting us and allowing us to produce this on their network. Please tune back into our next episode where we are going to talk about agentic commerce and what does that mean for Supply Chain? So what's going to happen when all Father's Day gifts are decided by a computer? And what does that mean for sourcing? What does that mean for Supply Chain? What does that mean for selection? What does that mean? Do we lose our personality? What happens? We're already starting to see this a little bit in the fashion industry, right. Because algorithms are driving what people see in their search results. So we're seeing what people are calling
- [51:59]
Carrie Morris
a flattening of fashion.
- [52:02]
Kimberly Reuter
So are we going to see that? Additionally, is this going to continue? So be sure to tune back in. We will have Carrie, Jack, and Derek back with us to talk about this subject. Thank you for being here. Go out in the world, do something good. And at the very least, if you can't do anything else, leave it better than you found it. Thank you.
- [52:21]
Jack Malrader
That's the collective join the Supply Chain now community.
- [52:25]
Scott Lewton
For more supply chain perspectives, news and innovation, check out supplychainnow.com, subscribe to Supply
- [52:31]
Derek Travers
Chain now on YouTube and follow and
- [52:33]
Scott Lewton
listen to Supply Chain now. Wherever you get your podcasts.