Tariff whiplash is already taking a toll on retail

Retailers and brands have been scrambling to source elsewhere besides China, but it’s not easy, quick or even possible for everyone.

Welcome to the era of trade chaos for retail.

Beginning in May, retailers lived with the official reality that a huge swatch of Chinese goods — known as “tranche four” and covering pretty much everything that hasn’t already gone through tariff increases already — would get a 25% tariff. Retailers and analysts from nearly every sector warned of price hikes for consumers, disruptions to their supply chain and margin hits. Some companies began rushing in imports to beat the tariffs.

And then the industry got a respite, as the Trump Administration hit the pause button on the tariffs and opened up trade talks with Chinese leadership. You could almost hear the collective exhale of relief from brands and retailers around the country. Maybe the tariff apocalypse wasn’t coming, after all.

And then last week, in but a moment — a tweet — the wails and teeth gnashing resumed. President Donald Trump announced the administration would move forward on a reduced — but still substantial at 10% — round of new import taxes on $300 billion in Chinese goods, set to begin Sept. 1. Higher tariffs were not ruled out, and Trump indicated they could go even higher than the previous 25% mark.

Industry response was swift and severe.

“As we’ve said repeatedly, we support the administration’s goal of restructuring the U.S.-China trade relationship,” David French, the National Retail Federation’s senior vice president for government relations, said in a statement Friday. “But we are disappointed the administration is doubling-down on a flawed tariff strategy that is already slowing U.S. economic growth, creating uncertainty and discouraging investment.”

“Tariffs are taxes on American consumers,” Rick Helfenbein, president and CEO of the American Apparel & Footwear Association, said in a statement emailed to Retail Dive. “The President’s decision to proceed with adding these additional costs for hard-working American families is truly shocking.”

Matt Priest, CEO of the Footwear Distributors and Retailers of America trade group, said in a statement that his group was “dismayed” at the decision. “We will not take this news lying down,” he added. “This is one of the largest tax increases in American history and it is vitally important that we fight this action on behalf of our consumers and our industry.”

The dominant supplier

Retailers and brands have been shifting their sourcing away from China since Trump took office. A 2018 survey by the United States Fashion Industry Association (USFIA) found that a majority of companies said they are planning to cut back on the share of their product that is manufactured in China.

Even so, China remains the “dominant supplier,” accounting for 49% of total textile and apparel imports to the U.S. by quantity in 2018, USFIA said in a March report emailed to Retail Dive. The next largest supplier country is India, with a fraction of that amount at 8.1%. For just apparel, China is also the top supplier, but Vietnam grabs the second spot.

Where companies source their products would obviously determine to a large degree how they would fare when the tariffs launch.

“There are varying degrees of companies with exposure,” Mike Zuccaro, Moody’s senior analyst and vice president, told Retail Dive in June. He pointed to G-III Apparel Group, which does 86% of sales in the U.S. (where the tariffs would hit) and sources more than 61% of its products from China. “So that’s pretty hefty.”

Analysts with Cowen and Co. have also pointed out several retailers and brands that source heavily in China, among them American Eagle Outfitters (45% sourced in China), Boot Barn (44%), Target (30%), J.C. Penney (30%), J. Jill (30%), Macy’s (25%) and Kohl’s (20%).

In an ideal world, retailers and brands would shift sourcing to another country with relatively cheap and skilled labor so as to dodge the new duties.

B. Riley FBR analysts led by Susan Anderson said in a June note that many of the apparel and footwear companies they follow are working to shift their vendor base to other countries, mainly Vietnam, Cambodia, Bangladesh, Indonesia and India. In all, Anderson’s team estimates that the share of Chinese sourcing among the companies they cover went from 36% in 2017 to 29% in 2018.

The costs of moving out of China

Shifting supply chains is not easy, and doesn’t come without cost. For instance, Katie Tangman, Columbia Sportswear’s director of global customs and trade, testified in June that it would cost at least $3 million to move its remaining production operations out of China. Those costs include new machinery and training a new workforce.

Zuccaro said that it could take a year or two to find the equipment and move it into other countries. “Some companies have been able to move some things pretty quickly. But was that kind of low hanging fruit?”

“You have to look for places that can make your product in a quality manner,” he added. “You might be able to move something quicker, but if it’s a higher-end brand that really focuses on quality and craftsmanship and things like that … it might take a little while to just have to train people and build that up.”

Moreover, as the industry tries to shift to those other countries, they’re running into capacity limitations, Zuccaro also noted.

S&P Global analysts in a June report also pointed to near-term capacity constraints, especially for skilled manufacturing. “It is very difficult to replicate China’s well-developed and integrated technology supply chain elsewhere,” S&P analysts led by Jennelyn Tanchua wrote.

In some cases, replacing Chinese production might be nearly impossible, at least in the short-term. Take wedding apparel. Steve Lang, CEO at Mon Cheri Bridals and current president the industry group American Bridal and Prom Industry Association, told Retail Dive earlier this summer that his own company sources about 90% from China. The reasons for that have to do with more than cost alone.

“The Chinese have been good at embroidery and beading for 5,000 years,” he said. Moreover, factories for wedding apparel are more involved than those that make, say, T-shirts. Facilities must be air conditioned (because sweaty hands can stain white satin and other fabrics) and laborers need to be skilled. “We have a very, very technical product.”

Making things more difficult, new factories in places like Myanmar, where U.S. companies are shifting production, might prefer to take on easier-to-make products rather than wedding dresses, which could be a loss-maker for factories in the initial years, Lang added.

Eating tariffs

Costs started stacking up before tranche four had gone into effect and subsequently put on ice (only to be revived again). The National Retail Federation reported imports in May, the month after Trump announced the tranche four tariffs plans, would rise an estimated 4.2% from the previous year.

“The threat of tariffs is just about as impactful as actual tariffs, meaning people are scrambling, people are looking, people who are diversifying out of China are stepping up that process or expediting that process,” FDRA’s Priest told Retail Dive in June while the industry was preparing for the announced 25% tranche four tariffs.

As one example, Priest spoke with one of his members that had moved in 100,000 pairs of shoes earlier than planned and was trying to figure out the logistics of pushing those to its distribution centers, he said.

Rushed imports might beat the new tariffs, but they carry risks of their own given the ramped-up modern sales cycle. “Consumers are changing, their attention spans are shorter, the desire for fresh product is strengthened,” Priest said. “And when you have to kind of adjust to these artificial political timetables, to get product in to avoid duties, then I think it can disrupt the normal kind of cadence that you’ve established in the 21st century for American consumers.”

In some cases, retailers and brands might be able to renegotiate with their vendors, and effectively share the tariff burden with them. As Moody’s senior analyst and vice president Raya Sokolyanska pointed out in a June interview with Retail Dive, the yuan had depreciated shortly after a previous tariff increase on furniture, changing the relative cost of the goods. “So it was easy to go back to the vendors” and ask for price decreases, Sokolyanska said.

Moody’s department store analyst Christina Boni noted in an interview that scale and size matter. Those that are larger and of more importance to customers have more leverage to negotiate with vendors.

“The vendor needs you just as badly as they need as you need them,” Keith Daniels, a partner with investment and consulting firm Carl Marks Advisors, told Retail Dive earlier this summer. “Retail is the vendors’ customer. So I think the retailers will have the have the majority of the leverage.”

But there are limits.

“In essence, I think the headline is that you’re not going to be able to re-engineer it at all, you’re not going to get the vendors to eat it all,” Moody’s Boni said. “The consumer is going to have eat some of it … on some level.”

05 August 2019 | Ben Unglesbee | Supply Chain Dive

5 steps to successful supplier negotiations

In some situations, negotiation is a contest with a clear winner and loser. Think about your last automobile, mattress or real estate purchase, where price was everything and the relationship fleeting and insincere.

That model shouldn’t apply to the procurement world. Negotiation is not just about price, but about managing and improving overall supplier performance. Negotiation is an underutilized, yet critical business skill that lies dormant within most organizations.

There needs to be a broader approach around supplier performance, including measurable criteria such as accurate and timely deliveries, high quality, strong customer support, reduced supply chain risk, great communication and cost management.

The actual bottom line of a supplier relationship is far deeper than the price on a purchase order.

Successful supply chain management is anchored on excellent commercial relationships with critical suppliers. The benefits of close relationships include a focus on cost rather than price, early supplier involvement on key commercial and technical aspects, improved supplier performance in the areas of quality and on-time delivery and an abundance of communication.

While strong supplier relationships have proven beneficial to the buyer and seller, these relationships are not a replacement for active and ongoing negotiation. If one looks at negotiation with the big picture in mind — ongoing give and take with trustworthy and high performing suppliers — it can be an agreeable experience where both sides meet their objectives.

It is important to keep the relationship in perspective; a relationship with a supplier is not an excuse for lack of due diligence. Buyers need to focus on negotiating and establishing the performance framework early in a supplier relationship to allow for continuous improvement. Approach negotiation with a holistic approach.

This five-step process will help to build the foundation critical negotiations with critical suppliers of all types.

1. Understand your mission and business drivers

It is essential to understand the fundamentals of your own business so you can develop a negotiation strategy that complements the overall strategy. What are the essential business objectives of your company? What markets do you serve, who are your customers, what are their requirements and what are the operational goals of your business? Without a strong understanding of the business issues that makes your organization tick, you will never be able to successfully negotiate at any level.

A company that is quickly trying to build market share may be less focused on cost and more concerned with rapid deliveries. A negotiation based purely on low cost would not offer the proper business alignment. Suppliers will do their best to understand your business and craft a negotiation strategy to exploit your areas of weakness. It is your obligation to know more about your own business than they do to offset their potential advantage.

Report: Volkswagen pursues joint ventures with suppliers to secure EV production

Dive Brief:

  • Volkswagen will pursue joint ventures with suppliers to sure up lithium battery production for electric vehicles, according to a Reuters report. Volkswagen board member Stefan Sommer told Reuters the company intends to partner with Sweden’s Northvolt, South Korea’s SKI, LG Chem, Samsung SDI and China’s CATL to boost its battery production capacity.
  • Convincing suppliers to take a leap of faith on electric vehicle batteries can be difficult, however. “Not every supplier is convinced that electric mobility will come on such a large scale,” Sommer told Reuters. “These producers need to prioritize between making a new smartphone or building a new battery factory. So even the battery cell producers are asking: will production volumes scale up quickly?”
  • The majority of Volkswagen’s electric vehicle batteries are currently produced in three of its component plants in Germany. According to Reuters, the company is refitting 16 factories to build electric vehicles and has plans to begin production of 33 new electric vehicle lines under its Skoda, Audi and Seat brands by mid-2023.

Dive Insight:

Currently, the pool of raw materials and suppliers for EV-specific lithium batteries is slim. The vast majority of the metals required are produced in China, and the production capacity for the batteries remains limited. This places automakers in a catch-22 of sorts where waiting lists for electric vehicles are growing into the tens of thousands but overall market demand, compared to gas-powered vehicles, hasn’t been strong enough to kickstart the industrial shift needed to produce them at scale. As consumers face more delays before getting their cars, a problem Tesla has struggled with in particular, automakers worry they could jump ship.

According to Reuters, Volkswagen is anticipating the need for an additional 150 gigawatt hours of battery production capacity in Europe and 150 gigawatt hours worth in Asia by 2025 to meet projected consumer needs. It expects these figures to then double by 2030.

To sweeten the deal for suppliers, the company is pursuing a joint-venture model for new factories according to Reuters, giving suppliers finances for re-tooling and sharing the risk of shifting production capacity for electric vehicles. This could alleviate supplier concern about risk while giving Volkswagen added insight into how the manufacturing process is progressing and if there are any problems.

Sommer told Reuters 60% of the equipment in its existing factories can be refitted to produce the new batteries.

BMW is taking a similar approach to manufacturing its electric vehicles. The automaker has adapted its existing gas-powered vehicle assembly lines to produce new electric cars. BMW’s goal is to scale its in-house electric vehicle battery production by 2020 and release 25 new EV models by 2025.

Like Volkswagen however, BMW and other automakers looking to transition to electric vehicles are facing challenges sourcing the lithium and cobalt they need to produce a sufficient quantity of batteries. As substitutes have yet to be found, automakers are focusing on streamlining manufacturing processes to reduce costs and minimize delays from sourcing.

09 July 2019 | Morgan Forde | Supply Chain Dive

Supplier cyber risk concerns auto industry

Dive Brief:

  • In a new study by Synopsys and SAE International, 73% of respondents expressed concern about the cybersecurity of third-party providers, yet only 44% said their organization imposes cybersecurity requirements for products from upstream providers.
  • Securing the Modern Vehicle: A Study of Automotive Industry Cybersecurity Practices also found 30% of organizations don’t have an established cybersecurity program or team, and 63% test less than half of the automotive technology they develop for security vulnerabilities.
  • “This study underscores the need for a fundamental shift — one that addresses cybersecurity holistically across the systems development lifecycle and throughout the automotive supply chain,” Andreas Kuehlmann, co-general manager of the Synopsys Software Integrity Group, said in the release.

Dive Insight:

The automotive supply chain is long and complex. A break in the chain at a small, tier 3, single-part producer can be disastrous.

There are plenty of portals and opportunities for “bad guys” to breach security. According to the EY Global Information Security Survey 2018-19, 1.95 billion records containing personal information and other sensitive data were compromised between January 2017 and March 2018, and 550 million phishing emails were sent out by a single campaign during the first quarter of 2018. The average cost of a data breach last year, EY reported, was $3.62 million.

Opportunities do exist for automotive supply chains to protect themselves. One organization, the 3,000-member Automotive Industry Action Group (AIAG), last year released the Cyber Security 3rd Party Information Securitypublication to support industry efforts to protect sensitive data by outlining a unified set of cybersecurity guidelines for automotive trading partners.

Its strategies are based on industry best practices and standards. The National Institute of Standards and Technology (NIST) helped create the document. Also participating were security leaders from General Motors, Ford, Honda and Fiat-Chrysler, with additional input from Toyota, Nissan, Caterpillar, Bosch, Continental and Magna International.

The guide covers such areas as access controls, data encryption, vulnerability management, security audits of suppliers/third parties, data retention and disposal and security investigations. Along with this framework, each original equipment manufacturer (OEM) can take additional measures to increase security of its suppliers and their supply chains.

“Over the course of the past 25 years, we have seen a remarkable shift in enterprise value from tangible to intangible assets. Data is the new currency,” J. Scot Sharland, executive director of AIAG, said when the publication was announced. “As such, more effective command and control of data has become an enterprise risk management priority.”

07 February 2019 | Barry Hochfelder | Supply Chain Dive

In latest bid to counter China, US blocks sales

Dive Brief:

  • The U.S. on Monday placed Fujian Jinhua Integrated Circuit Company on its “Entity List,” which prohibits the company from purchasing American parts due to national security concerns.
  • In this case, the national security concerns relate to intellectual property theft. The New York Times reports the listing is the latest U.S. move to more strictly regulate business with China.
  • Earlier this month, the U.S. Treasury Department outlined new ways to limit foreign investment in China. China reportedly asks U.S. companies to hand over technology rights in exchange for market access, a practice the U.S. objects to and is trying to counter.

Dive Insight:

The conflagration around China tariffs is overshadowing the issue of the theft or misuse of intellectual property (IP). Technology companies selling into China might tacitly ignore the ramifications of IP issues in exchange for sales revenue, but this long-term problem is becoming a battlefront on the U.S. trade war with China.

While most feel that the tariff issues with China will ultimately be successfully negotiated, the theft of IP by China or other countries will remain a critical issue. As it should.

We read about high profile intellectual property theft issues and are aghast, but at the same time ignore the day to day devaluation of our company’s IP through its casual handling and lack of understanding of its importance.

Sure, our prints and other documentation might have a clause in the title block claiming confidentiality but I’ll bet that most buyers, or suppliers, have never read it. The boilerplate on our purchase orders and contracts also have an IP clause that one needs a magnifying glass to read. I’ve heard too many buyers and sellers refer to those clauses as ‘food for the lawyers’.

We tacitly trust our tier-one suppliers to protect our IP, and by extension, their critical suppliers as well. But what about the other players in the extended supply chain? In our search for lower costs and faster deliveries, there might be members of the extended global supply chain with less regard for IP protection.

In the speed of light, our prints and specifications rocket around the world for essentially everyone to see, bad actors included.

Supply chain managers can at least offer a first level of protection by making sure that all suppliers sign a confidentiality agreement. Extend that protocol to critical tier-two suppliers as well. I am not naïve enough to think that a signed CDA will stop the spread of IP theft, but it will offer some legal protection for your company and set the tone with your suppliers that you treat IP carefully. And that you expect the same from them.

31 October 2018 | Rich Weissman | Supply Chain Dive

Trade wars create ‘another breeding ground’ for poor supply chain ethics

Dive Brief:

  • AsiaInspection, which performs supplier audits, production inspections and lab testing, found ethical progress in factories has stagnated since the second quarter of 2018, indicating “brands and manufacturers are gradually growing complacent.”
  • The timing of the drop-off in ethical progress aligns with “tariff and protectionism concerns [taking] center stage,” according to the report.
  • Working hours and wages continue to be the most pressing ethical concerns. Scores in waste management have also deteriorated, but as a result of tightened standards rather than deteriorating progress, AsiaInspection said.

Dive Insight:

Are supply chain ethics becoming a casualty of the trade wars? No. There have been ethical issues in the global supply chain before the trade wars, and there will be ethical issues after trade peace is declared.

While there are islands of ethics throughout the supply chain, the rising tide of ethical shenanigans are beginning to swamp those shores. Trade wars are just the latest excuse for poor behavior.

Ethics in the global supply chain are looked upon through a different lens. What may pass for strong ethics in one country or region may be considered criminal in another, making standardized audits all the more difficult. Cultural norms certainly impact ethics, as do politics and economics. Will trade wars, or other economic pressures, create yet another breeding ground for poor ethical behavior? Human behavior says most likely.

I am confident ethics for traditional buyer and seller relationships are baked into many organizations, especially ones that are larger and more sophisticated. As a lifetime member of the Institute for Supply Management, I have generally followed their Principles and Standards of Supply Management Conduct throughout my career. Yet, I have seen blatant ethical breaches with supply chain colleagues over the years that made my skin crawl. In one job, my boss was the biggest culprit, bragging about supplier-paid family vacations.

I have seen reasonable ethics on the sell side, with suppliers typically reflecting my own ethical standards. Sure, there were soft areas with suppliers out of my control throwing around gifts to engineers and facilities managers who specify product or services. Internal ethics training in many organizations educate those in positions of influence to recognize ethical challenges, but it does not eliminate them.

Sadly, ethical issues in the extended supply chain are outside of the influence of most supply chain managers. Perhaps the best way to fight an ethical decline is to keep their own house in order and lead by example. At least they will be able to sleep at night.

15 October 2018 | Rich Weissman | Supply Chain Dive

Does Tesla’s ‘big ask’ for cash from suppliers risk disrupting the supply chain?

Dive Brief:

  • Tesla sent a memo to some of its suppliers, asking to return cash to the automaker, The Wall Street Journal reported. Tesla did not respond to Supply Chain Dive’s request to confirm the memo.
  • The automaker told the Journal it is looking for price reductions from some of its suppliers to improve competitive advantage.
  • Since the beginning of the year, “we’ve seen a huge run up” in the amount of money due to suppliers, Bill Danner, president of CreditRiskMonitor, a financial risk analysis and news service, told Supply Chain Dive. The figure, however, isn’t unexpected as Tesla ramps up production of the Model 3.

Dive Insight:

At the end of the first quarter of 2018, Elon Musk assured Tesla shareholders he’s feeling “quite confident” the auto company will have positive cash flow in the third and fourth quarters of the year. If Musk is able to deliver, the result will be a sharp turnaround from the past several quarters of millions in negative cash flow.


Credit: Shefali Kapadia / Supply Chain Dive, data from CreditRiskMonitor

On its path to turn the numbers around, Tesla has boosted production, restructured its workforce and now it is going to its suppliers to negotiate prices and payment terms. “If they can get better payment terms, that won’t make it more profitable, but it will at least cause them to have better cash flow, because they don’t have to pay the suppliers quite as quickly,” Danner said.

But Danner doesn’t think most suppliers have the financial capacity to move the needle far enough to bring Tesla’s cash flow into the black.

“The suppliers are probably feeling a little stressed out at the moment,” he said. As the automaker boosted production of its vehicles, it likely requested more parts produced quickly by its suppliers, along with engineering and design changes. “And now he wants money back? Those are big, big asks.”

As Tesla demands more of its suppliers, it needs to consider the long-term impact, Marcell Vollmer, chief digital officer at SAP Ariba, told Supply Chain Dive in an email. “It’s easy to ruin trust but takes ages to rebuild.”

While Tesla has reportedly asked for cash back, Volkswagen went to its supplier Prevent years ago with the same goal to boost profits. It asked Prevent to lower prices, but the move backfired. “Prevent was a single supplier and stopped delivering seat covers. Volkswagen had to stop production. The supply chain got disrupted and … Volkswagen had to delay delivering thousands of cars to consumers,” Vollmer said.

Delayed car deliveries would mean delays in funds coming in — and could translate to late supplier payments.

Since the beginning of the year, Danner said Tesla’s delinquency rate of supplier payments has stayed about the same. “They’re not paying everybody on time, but they’re paying a lot of their vendors on time,” he said.

If the delinquency rate increases, it could sound alarm bells for vendors. Tesla is “some distance from bankruptcy,” Danner said, but given its high debt and financial structure “if the economy stumbles, this company is pretty vulnerable to economic shock.”

23 July 2018 | Shefai Kapadia | Supply Chain Dive

Inbound supply chains subject to growing disruption

Interruptions to the smooth flow of parts to assembly plants are becoming more commonplace, according to research from global insurance broker JLT Specialty.

Recorded incidents last year – typically factory fires, hurricanes and labour strikes – increased by more than 30% compared with 2016 to reach 1,699 , affecting 5,585 suppliers across 10,809 sites, according to the analysis.

Factory fires and explosions were the greatest cause of interruptions at 318 cases, up from 180. Merger and acquisition activity was next at 247 incidents, followed by hurricanes or typhoons at 116.

Regionally, North America suffered the most, with 777 disruptions – more than Asia and Europe combined.

One of the most dramatic examples last year was Hurricane Harvey, which hit the southern US in August.

More recently, a fire at the Meridian Lightweight Technologies’ plant in Michigan caused a parts shortage last month. The incident led to Ford stopping production of the F-150 at its Kansas City plant, Missouri, for a week, while BMW and FCA adjusted their production schedules.

Elsewhere, a truckers’ strike in Brazil interrupted vehicle production there in late May and early June.

London-based JLT says the research findings provide a clear picture of the risks suppliers are exposed to and should help vehicle manufacturers pinpoint weak links in their supply chains.

Though tier two and tier three suppliers are just as likely to suffer interruptions as those in the tier one category, there is usually least visibility in the lower tiers, according to the report.

Matthew Grimwade, JLT Specialty’s head of automotive, said: “Our research shows that automotive manufacturers face some serious challenges – not just in terms of the growing number of disruptive incidents to the supply chain industry, but in the diversity of these events, too.

“Being able to gain an insight into the key areas of exposure and supplier vulnerabilities is essential if automotive manufacturers are to effectively prioritise risk, prepare a plan and protect their business.”

The research was conducted in partnership with US supply chain resilience solution provider, Resilinc.

12 June 2018 | Steve Garnsey | Automotive Logistics

ELD suppliers prepare for a second wave of adoption

Federal authorities will start enforcement on April 1 of a mandate that requires all commercial cargo trucks to be equipped with an electronic logging device (ELD). Transportation companies ramped up adoption last year, but estimates indicate up to a few hundred thousand trucks have yet to install the device.

With more than a hundred suppliers in the market, there’s bound to be enough ELDs to meet the demand. But many in the transportation industry say quality issues and a shortage of replacement parts could hamper adoption.

ELD demand remains high in early 2018

Since the mandate was first announced in 2014, manufacturers have flooded the market with more than 100 ELD products. These vendors run the gamut from truck manufacturers and telematics companies that have been in business for years, to startups whose only business is ELDs.

Last year saw a surge in demand as many carriers waited until the third and fourth quarters of 2017 to deploy ELDs, according to a report by Driscoll and Associates.

Velociti, a company that specializes in the deployment and maintenance of aftermarket technology products for transportation companies, spent much of last year installing ELDs Velociti president and COO Deryk Powell expects a continuation of strong demand in 2018. “Although the official mandate date has passed, many factors have contributed to the demand remaining strong into early 2018, which is a trend we expect to continue,” Powell says.

The cost of an ELD isn’t especially expensive (about $500 per year), but many owner-operators say such rigid tracking will reduce their autonomy, and most importantly, profit, says Clem Driscoll, founder and president of marketing consulting and research firm C.J. Driscoll & Associates. He estimates there are “a few hundred thousand” trucks that have yet to install an ELD.

“They’re afraid of losing money … They are concerned that time is going to be taken away from their drive time, or some portion of it, under the rules and that it’s going to kill them,” Driscoll says.

Quality a concern for lower-cost units

The wait-and-see approach and last-minute deployment of ELDs has thrown a kink in the ELD supplier market, making it a challenge to predict demand. The Owner-Operator Independent Drivers Association has fought the mandate and sent a letter to the House Transportation and Infrastructure Committee in March, noting “mounting issues” including malfunctioning devices, system failures, faulty GPS tracking and inaccurate recoding of duty statuses.

Many suppliers haven’t been able to meet customer expectations, Powell says. Core ELD functionality and reliability are top needs, along with a reasonable expectation for ELD providers to offer a proven process for the adoption, integration, training and support for the platforms. “Support — in particular the ability to troubleshoot problems and replace hardware efficiently when necessary — has been an area where many have struggled,” Powell says.

Current buyers in the market are now largely owner-operators seeking a low-cost solution. ELDs range from stand-alone tethered devices to tablet-based solutions and even BYOD (bring your own device) models that enable the driver to use their own phone or tablet. The FMCSA provides a checklist for choosing an ELD and maintains a list of registered self-certified devices

While the market includes products by big names such as Garmin, Verizon and Omnitracks, there are dozens of new suppliers in the space. EROAD went to market last year with an end-to-end ELD solution that offers full compliance and third-party certification to ensure owners are meeting compliance requirements.

The company has focused on meeting the needs of customers who are increasingly dissatisfied with other ELDs, says EROAD President Norm Ellis. “The regulation is over 640 pages long, to tell you how in-depth it is. There are many facets to it, and if you miss one, you won’t be in compliance,” Ellis says.

Meeting demand with added value

EROAD brought its product to market in March of last year, and like any new product, the device had a few “blips on the road,” says Ellis. Issues were resolved, and demand was so strong there were a couple of months where EROAD was up to a few hundred units short.

While that surge started to taper after the deadline, Ellis forecasts another wave of purchases as enforcement begins to ramp up. “Many small fleets and owner operators were still waiting on the sidelines to see if the mandate was really going to go through,” Ellis says.

Beyond simply meeting compliance, some ELD suppliers are bringing additional value to the market with devices that offer other features like IFTA state tax reporting, electronic pre-trip inspections and complete fleet management systems. EROAD promotes itself as one platform with a “continuous ROI” to meet business needs.

What could be challenging in 2018 is meeting the supply of replacement hardware and repair technicians to resolve issues, Powell says. While a driver could have simply switched to paper logs in the past, the mandate now requires that systems be repaired within eight days of a known failure.

“I don’t see supply being ‘big enough’ as a concern in of itself. I think the more relevant question is the ability of providers and fleets to have a plan in place for the supply of replacement and repair hardware,” Powell says.

29 March 2018 | Craig Guillot | Supply Chain Dive

VW pushes its suppliers to raise supply chain sustainability

Volkswagen Group has said it is engaging in “intensive” discussions with its suppliers to determine how the sustainability of its supply chain can be improved, especially for the raw materials used in electric vehicles.

“We are engaging in intensive dialogue with companies from the mine through to our direct suppliers. It is important to ensure that we share the same corporate goals and especially the same corporate values,” said Michael Bäcker, executive director corporate purchasing electric/electronic at the Volkswagen Group.

The company said it had made its corporate guidelines more stringent, requiring greater transparency in raw materials procurement from its suppliers.

In addition to the previous requirements such as compliance with clearly defined working conditions, environmental and safety standards as well as human rights, the guidelines now explicitly forbid any form of child labour or forced labour in the extraction of raw materials such as cobalt and mica.

“Specifically, the objective is to bring environmentally compatible vehicles onto the road that have been produced with respect for human rights and in accordance with environmental and social standards throughout the supply chain,” said the carmaker in a statement. “This starts with raw material extraction and ends with the finished product.”

VW Group company Audi announced earlier this year that it would only place orders in future with suppliers who achieved a positive score under a newly introduced sustainability ratings system – and that it intended to carry out spot-checks to audit them.

Other activities within the initiative include joint efforts with partners from a number of industries within the Responsible Minerals Initiative (RMI) to develop approaches for the certification of cobalt smelting plants in order to make transparent the extraction conditions and origin of this raw material for batteries.

Francisco Javier Garcia Sanz (pictured), member of the board of management of the Volkswagen Group responsible for procurement, said: “We expect our suppliers to ensure maximum transparency and provide information on compliance with the agreed sustainability standards. We will consistently pursue any infringements or irregularities.

“To put it quite clearly, if any supplier or any subcontractor of any supplier does not adhere to these rules and initiate the necessary action, we will be forced to stop dealing with the supplier in case of doubt,” he added.

In September, Volkswagen was named amongst a group of corporations and NGOs aiming to end child labour, hazardous working conditions, pollution and environmental damage in the global battery supply chain.

The Global Battery Alliance was launched at the World Economic Forum (WEF) Sustainable Development Impact Summit in an effort to create a responsible value chain for the battery market.

Meanwhile, in November, BMW Group said it had taken further steps to improve transparency in its battery cell supply chain by promising to release information on smelters and countries of origin for raw materials by the end of this year.

13 December 2017 | Gareth Tredway | Automotive Logistics