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1. US supply chain delays – driven by ocean freight and port struggles – are getting worse
  • The slowdown has been attributed to the Lunar New Year (42% of containers come to the US from China), and is expected to be temporary. Most of the ships in queue are slow-steaming across the Pacific or loitering in Mexico beyond the ports’ Safety and Air Quality Area (SAQA), due to a new system (Nov 2021) that assigns a spot based on departure from last port of call rather than when the ship arrives.
  • Experts are predicting that the ocean-freight supply chain strains – which began more than a year ago, cascading across industries and driving up inflation – will persist into 2H 2022. The reality is that the situation appears to be getting worse, not better. As of this week, Flexport’s Ocean Timeliness Indicator – which measures the time from when the cargo is ready at the exporter to when it is ready to leave the destination port – has reached 110 days for China to US West Coast routes, near all-time highs (pre-pandemic this was around 50-60 days).
  • Even running West Coast ports 24/7 – a move that was announced in Oct 2021 – only helps throughput at one point in the supply chain and creates a backlog at the next stage. In the case of ports, the next stage is transport by truckers (trucking moves about 72% of US freight) and storage in local warehouses. At the Port of Los Angeles, 30% of trucker appointments were no-shows in Jul 2021. More recently in Oct 2021, Flexport reported seeing just one truck show up in the evening at the Port of Long Beach, and port workers said some nights they had zero trucks coming in late.
  • Businesses – and their customers – are bearing the brunt of high shipping prices. Prices for a 40-foot equivalent unit (FEU) container still costs about $15K to transport from China to the US West Coast, vs. $1,200 before the pandemic. Companies, expecting continued delays, are building up safety stock to avoid stockouts. This, however, risks surplus inventory and excess overhead costs down the road, in addition to limiting their agility.
  • These disruptions have disproportionately impacted smaller businesses (who may now be more susceptible to the lure of ecommerce rollups’ capital and support). Larger companies are better able to absorb higher supply chain costs, and adopt pricey tactics like chartering their own ships (e.g. Amazon, Walmart, Home Depot, Costco, IKEA, Target) or flying their own cargo aircraft. (Even the big ocean-shipping lines are buying their own air cargo fleets.) These large retailers gain more flexibility – for instance, to use less congested ports with shorter delays. Recently, however, the West Coast port congestion has been spreading to other ports.
  • These supply chain troubles have drawn the attention of policymakers, who fear their impact on key industries and inflation. The $1T infrastructure bill signed Nov 2021 dedicates $17B to port infrastructure and waterways. The funding includes construction projects at coastal ports (e.g. deepening harbors), pop-up container yards near ports to expand capacity, grant programs for port infrastructure, standardized data exchange, and initiatives to reduce congestion and emissions (which may forestall automation). Whether the funding will address the core near-term issues behind the current snarls remains an open question.
Related Content:
  • Jan 31 2022 (Special Edition): Looking ahead – 14 market shifts that will unfold in 2022
  • Apr 4 2020 (Brief #28): Global supply chains diversify away from China
2. Meta’s advertising dilemma – and what it means for the digital-advertising wars
  • Meta described the headwinds: “Apple created two challenges for advertisers. One is that the accuracy of our ads targeting decreased, which increased the cost of driving outcomes. The other is that measuring those outcomes [attribution] became more difficult.” Meta’s disclosures contributed to its stock plunging 26% in one day – wiping $232B in market value, the largest one-day decline in value for a stock in US history.
  • Meta is at a critical juncture. Its business is largely app-based, which means it is reliant on other big tech firms’ operating systems and hardware (i.e. Apple and Google). Meta’s ad platform is reliant on its ability to track users across sites and measure conversions/outcomes. Apple’s ATT breaks the virtuous cycle by which Meta could use conversion-tracking to optimize targeting of similar “lookalike” audiences that are likely to respond favorably to ads.
  • Notably, Google – a major Apple partner that funnels billions of dollars (as much as $18B-20B this year) to Apple from its search ads – does not face the same constraints. According to Meta, Apple’s ATT doesn’t apply to browsers so Google still has the advantage of accessing 3rd-party data.
  • Policymakers in Europe and the US are increasingly looking to limit the use of personal data for ad targeting. Last week, for instance, a Belgian regulator ruled that the Interactive Advertising Bureau (IAB) Europe’s widely-used Transparency and Consent Framework (TCF) used to justify data-sharing for ad auctions was not compliant with GDPR. The ruling has potential ramifications for behavioral advertising across Europe. (Meta is also facing GDPR issues stemming from its Facebook Connect single sign-on plugin and the flows of the “personal data” collected in the EU back to the US.)
  • This week, Mozilla announced it has been working with Meta for months on the development of a new “privacy-preserving attribution technology” called Interoperable Private Attribution. The technology aims to perform attribution without letting any party (e.g. websites, browsers, advertisers) learn about individuals’ behavior and without generating results that can be tracked back to any individual user.
  • Meta is not dead yet – it still owns the largest social networks in the world, with 3.6B monthly active users across its family of apps. Its biggest problem is that it has to play in other people’s sandboxes. On a mobile device, there are a series of “windows” to the consumer – the mobile device, the mobile operating system, the mobile app or browser, and the in-app experience or website – and Meta lacks control of the hardware, operating systems, and browsers. This means it often has to go through gatekeepers to collect and use data.
  • As we have said before, all paths going forward in digital advertising will lead to and through consent. Consent is becoming the standard for privacy regulation – and moving beyond just checking the box. GDPR, for instance, requires that consent be “freely given, specific, informed and unambiguous.” Consent is the reason why 1st-party data is garnering so much attention, and why large publishers and retail advertising/media (e.g. Amazon) are gaining more power and leverage.
  • Amazon, for instance, now has a $31B powerhouse advertising business based on its full end-to-end view of customer interactions from product search all the way to purchase. It can draw a direct linkage between advertising expense and ROI using only its own 1st-party data (which means it’s not significantly impacted by ATT’s crackdown on cross-site tracking). If Meta can bring more commerce activity onto its own platforms, that can help with measurement and attribution. Of course, if its metaverse play pans out, it could own the next major platform and “window” to the consumer – and finally get out of someone else’s sandbox and play by its own rules.
Related Content:
  • Jan 28 2022 (3 Shifts): TikTok plans to triple its fast-growing ad business to $12B in revenue this year
  • Apr 30 2021 (3 Shifts): App Tracking Transparency is good – and good for Apple’s business
3. Apple turns iPhones into payment terminals with its new Tap to Pay feature
  • On Tuesday, Apple debuted its Tap to Pay on iPhone feature that will enable US merchants to use their iPhones to process customers’ contactless payments without requiring any additional hardware. Expected this spring, Tap to Pay will be available via supporting iOS apps on all iPhone XS or later models. To make a payment, merchants will just ask customers to hold their payment method (e.g. contactless credit/debit card, iPhone/Apple Watch for Apple Pay) near the merchant’s iPhone. The payment is then completed using NFC (near-field communication) and “protected by the same technology that makes Apple Pay private and secure.”
  • Tap to Pay on iPhone is already being labeled as a Square Killer” that could challenge Block/Square’s hardware-based point-of-sale system (which processed $45B in gross payments volume in Q3 2021). Not all analysts, however, are convinced Tap to Pay “will have a material impact” on the payments ecosystem. More information is required on Tap to Pay (e.g. processing fees) before there’s a full understanding of how competitive it will be. (For Apple Pay, for instance, banks pay Apple 0.15% on credit card transactions.)
  • If Tap to Pay is just a set of APIs without significant fees accruing to Apple, Square could even be a potential partner on Tap to Pay. Square could bring the feature to its customers as part of its expanding suite of SMB services – especially since Tap to Pay falls well short of being a full point-of-sale system. About 116M Americans use an iPhone, unlocking a potentially sizable merchant base of small businesses and entrepreneurs. Large businesses with field workers or distributed staff may also be interested in unlocking new revenue streams – Apple has become pervasive in the enterprise with virtually all the Fortune 500 using Apple products.
  • Tap to Pay supports Apple’s broader push to leverage its extensive installed base of devices with built-in NFC chips for context-based services (e.g. AirTags). Apple understands that payments are foundational to most versions of the “super app” strategy. For big tech firms, payments is a “utility” in their ecosystem, part of the common fabric that facilitates a familiar, seamless and sticky user experience. Payments also have an impact on the cost structure for participants and the platform, and can serve as a gathering point for critical data (though Apple deliberately keeps transactions private, even from itself).
  • Mobile phones are a natural platform for payments. Visa, for instance, in 2020 announced its own “Tap to Phone” solution that enables Android devices to serve as contactless point-of-sale terminals. The solution has gained relatively limited adoption so far with just 300K devices globally using it. However, Apple’s partner- and privacy-focused approach could prove to be more attractive to merchants.
Related Content:
  • Jul 23 2021 (3 Shifts): Square’s sprawling ambitions in all-in-one SMB services and consumer financial services
  • Dec 13 2019 (Brief #16): Tech players expand their ecosystems through payments & financial services
Disclosure: Contributors have financial interests in Meta and Apple. Amazon, Google, and Stripe are vendors of 6Pages.
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