The B2B Recovery
The COVID-19 pandemic resulted in dramatic shifts in volume characteristics for many transportation providers - first in supplying retailers in inventory restocking and direct to consumer and then, along with retail restocking and direct to consumer, supporting manufacturers as facilities reopened during the second half of the year.
US manufacturing activity is in strong growth mode. The recovery began in June 2020, according to data from the Institute for Supply Management, with the purchasing manufacturing index (PMI) crossing back into expansion with a 52.2 reading. However, the big jump occurred in October when the index hit 58.8, up from 55.7 the previous month, and it has continued to climb since then to 60.8 in March of this year.
The New Orders Index, a component of the (PMI), was 68.0 in March, up from 64.8 in February. However, manufacturers face increasing raw material prices and supply chain challenges from import through to the last mile.
As first-quarter earnings reports get underway this way, I'll be tracking commentaries from the business-to-business (B2B) community. Two such companies, Fastenal and PPG, reported earnings last week. Both noted improving conditions but higher costs, delayed deliveries, inventory shortages, and a nod to their digital efforts.
Fastenal Company, a fastener distributor, noted on its earnings call on April 13 said that fasteners grew 7.1% from the previous quarter. However, it is experiencing "significant material cost inflation," particularly for steel, fuel, and transportation costs. As a result, the company is raising its prices beginning in the second quarter.
It further noted that the lead times to move its products had increased, resulting in shortages in its hubs. As a result, Fastenal turned to the spot market to move its items, resulting in lower margins. Fastenal expects spot buys to continue through 2021 but "perhaps not quite as intensely in the second half."
Similar to Fastenal, PG Industries, a supplier of paints, coatings, and specialty materials, also noted raw material and logistics cost inflation during the quarter. During its earnings call, there was a good bit of discussion of when inventory restocking from its customers will begin in earnest. In terms of days of inventory availability, PPG estimates that the US automotive industry has about mid-40s days of inventory, typically 70 or 80.
PPG executives said that its customers' order books were strong, but some experienced input or component shortages. As a result, their production capabilities and schedules remain "choppy." This could delay the need for PPG's services.
PPG is also experiencing a few spot outages of direct coatings raw materials. As a result, the company expects "some unfavorable" sales impacts from both its direct supply chain disruptions and production curtailments at some of its customers. It estimates about a $70 million to $90 million hit during the second quarter.
In response to lower inventory levels, PPG consolidated its warehouses with no plans to bring them back. The company appears fine with its lower inventory levels and does not plan to increase them to levels before COVID-19.
B2B Digital
Much is written on B2C e-commerce, but the B2B e-commerce market is much more significant by many industry estimates. According to Digital Commerce 360, an e-commerce market research and publication firm, 2019 B2B ecommerce sales, which includes log-in portals and marketplaces, increased by 18.2% to $1.3 trillion from $1.1 trillion in 2018. In comparison, B2C ecommerce sales grew 15% to $601.75 billion.
For its quarter, Fastenal's e-commerce daily sales increased 35%. According to the company's CEO, web sales were up 29%, and Fastenal's largest customer-oriented EDI was up almost 38%.
Meanwhile, not much was said about PPG's digital efforts other than "finding different ways of working digital," such as using it to reduce costs. For example, in Europe, it is reviewing its footprint in terms of brick and mortar within its architectural division.
Stay tuned for more.
Mondays seem to be a good day to publish, so expect that going forward.
In case you're interested in reading more of my stories, a couple were published last week:
Air Cargo World: UPS increases international peak surcharges for second time in 2021
Journal of Commerce: 3PLs, tech partners plant their flag in last-mile market
A big thank you to Transportation Impact for inviting me to talk about the parcel market on their podcast, Let's Talk Ship, last week.
Also, a big thank you to Triangle for asking me to moderate a session on cross-border e-commerce for their World Mail & Express Americas conference last week.
Thank you for reading,
Cathy