On time—or else! In 2017, Walmart introduced On-Time and In-Full (OTIF) metrics that required a 70% completion rate or the supplier was fined 3% of the cost of goods shipped.
Since then, OTIF requirements have become progressively more strict. In 2019, Walmart raised the bar, anticipating revenue of $1 billion in OTIF fines as a result. On September 1, Walmart notified shippers that starting September 15, the required completion rate would jump to 98% from 87% in 2019. Earlier in the year, Walmart exempted its suppliers from OTIF requirements due to COVID, but that exemption expired on August 17. Two weeks later, Walmart announced that OTIF would be more strict than ever.
(Chart: FreightWaves SONAR)
This announcement came amid a global pandemic as trucking capacity is extremely tight on both an absolute and relative basis. The national Outbound Tender Reject Index (OTRI.USA), a gauge of relative capacity, is right at all-time highs indicating that 26.76% of tenders are being rejected by carriers.
Things aren’t going well, to put it mildly. In the past week we’ve spoken to freight brokers whose Fortune 500 CPG customers are paying in excess of $10 million per year in OTIF fines to Walmart alone.
The necessity of supply chain evolution. CPG companies have realized that if they do not build superior visibility tools and drive excellent service from their transportation partners, they could be hit with fines large enough to materially impact margins. Bain & Company estimates that CPG companies could lose as much as 30% of their margins by 2030 if they don’t take steps to optimize their supply chains.
Half of the expected cost increases will stem from increased supply chains costs. Companies can help alleviate these cost pressures by updating their warehouses with automated warehousing features along with machine learning capabilities to help better forecast their needs.
Where is my turkey?! Turkey is an essential dish at many family Thanksgiving dinners and it is unlikely to change even with the coronavirus spreading rapidly across the country. According to a survey issued by NCSolutions, 83% of Americans surveyed view this year’s Thanksgiving as just as important or more important than last year’s holiday.
The numbers are showing up in the data, outbound refrigerated tenders have soared out markets in Arkansas and surrounding areas over the past month. Over the past month, reefer tenders have exploded 126.39% out of Lafayette, Arkansas; 50.94% out of Little Rock, Arkansas; and 40.25% out of Joplin, Missouri.
(Chart: FreightWaves SONAR. Fayetteville reefer tender volumes (white) and rejections (green).
The supply chain issue presents itself when looking at the amount of refrigerated tenders that are being rejected combined with the sheer amount of volumes that are coming out of this market. Currently, roughly 7 out of ten reefer tenders are being rejected by carriers, causing shippers to pay dramatically higher rates out of this market.
Taking into account the reefer outbound tender reject index level, reefer volumes have exploded higher by 102.3% y/y which is astounding. Shippers are likely going to have to pay meaningfully higher rates out of this market until after the Thanksgiving holiday.