USPS, regional parcel carrier OnTrac to launch "last-mile" delivery service in late summer
Offering to challenge big three parcel carriers in the West; news comes as USPS announces plans to keep Saturday delivery for parcels but not for first-class mail.
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
Western regional parcel carrier OnTracwill launch a delivery
service later this year in conjunction with the U.S. Postal Service, a move that will give retailers a
fourth major package delivery option in a territory of 60 million buyers.
The service, which hasn't been formally named, is slated to begin in late August or early to mid-September,
according to Mark Magill, director of business development for Phoenix-based OnTrac. The company has hired Andy
Webber—who had been vice president of operations for DHL Global Mail, a unit of DHL—to head operations
for the new venture.
OnTrac has been granted authority by USPS to begin the service and will spend the next few months putting
the necessary equipment and systems in place to launch in late summer, according to Magill.
OnTrac currently serves seven Western states, and its network goes as far east as Colorado. An eighth state,
Idaho, comes online March 4. Most notable is OnTrac's presence in California, the nation's most populous state,
where it serves every ZIP code. OnTrac serves the major metro areas in the other states.
The initiative comes as USPS announced today it plans to end Saturday deliveries of first-class mail starting
the week of Aug. 5, a move that it will save $2 billion a year. However, in a change of plans, USPS said it would
maintain Saturday deliveries of packages, an acknowledgment of parcel's growing relevance to the quasi-government
agency's future. Parcel's growth is being driven in large part due to the explosion in e-commerce transactions.
"Over the past several years, the Postal Service has advocated shifting to a five-day delivery schedule for mail
and packages," Postmaster General Patrick R. Donahoe said today in announcing the change. "However, recent strong growth
in package delivery (14-percent volume increase since 2010) and projections of continued strong package growth throughout
the coming decade led to the revised approach to maintain package delivery six days per week."
An announcement to end Saturday first-class mail deliveries was long expected, especially as USPS continues to lose
volumes to electronic diversion, a trend that is likely secular in nature. However, the timing caught some by surprise,
especially since Donahoe made no mention of it when he spoke late last week before the Parcel Shippers Association. There
may also be Congressional backlash as politicians concerned about constituent reaction may argue that such a cutback be
addressed through legislation and not through administrative fiat.
The OnTrac-USPS service will be patterned after the relationships USPS has developed over the past few years with the
three major parcel carriers: FedEx Corp., UPS Inc. and, to a lesser extent, DHL Express. Under the service, known within
USPS as "Parcel Select," the carriers pick up and aggregate
large volumes of parcels from retailers and e-tailers, induct the parcels deep into the USPS distribution network, and have
the Post Office make the "last-mile" deliveries, mostly to residential destinations. By law, USPS must deliver to every
address in the United States.
For the past four years, OnTrac has partnered with USPS on a last-mile offering but has only made the service available
to parcel consolidators, firms that aggregate shipments for retailers and rely on OnTrac's intraregional distribution network
because they don't have their own. The new service signals a major change because OnTrac can now pursue large retailers for
their traffic and, in many cases, bypass the consolidators.
"We want to play in the big leagues," Magill told DC Velocity in an interview yesterday.
In mid-October, the company opened a 400,000-square-foot distribution center (DC) in Commerce, Calif., just east of
Los Angeles. The opening of the DC essentially served as the catalyst for the new service because OnTrac can now offer
larger retailers shipping across the West an integrated pick-up, distribution, and delivery solution in concert with USPS,
according to Magill.
OnTrac's relatively limited coverage area enables it to make next-day ground deliveries at distances of up to 500 miles,
something the larger carriers cannot or will not do. Yet the company's network, which stretches from Washington State in the
northwest to Arizona in the southwest, is expansive enough to allow it to provide next-day deliveries that encompass a NAFTA
(North America Free Trade Agreement)-like geography.
By leveraging its territorial advantage, OnTrac's service will undercut the big carriers on both price and time-in-transit,
according to Magill. For example, OnTrac offers next-day ground deliveries from Los Angeles and San Francisco, a 400-mile trek,
at a tariff charge of about $6.00. UPS and FedEx do not offer next-day ground deliveries in that lane, so a next-day delivery
would have to move by air at a much higher price, Magill said.
The same type of differential would extend into the USPS venture, Magill said. All three delivery companies would offer
second-day deliveries to the final destinations, but OnTrac's economies of scale would enable it to price its service well
below its larger rivals, he said.
Regional carrier executives have said their operating models are well suited to support e-commerce growth as retailers
refine their delivery offerings and look to move merchandise in compressed time windows over shorter distances but without
paying for expensive air services.
The USPS' "Parcel Select" service has been priced inexpensively relative to the carriers' own closed-loop services,
in part because of the low rates offered by USPS for its portion of the delivery. Online retailers find the model
particularly attractive because the cheap rates give them the flexibility to offer dramatically discounted, or in
many cases, free shipping to their customers.
USPS is taking advantage of the model's success. Effective Jan. 27, it increased Parcel Select rates by between
7 and 10 percent. "[This move] raises the floor on [busness-to-consumer] pricing quite significantly, in our view,"
said Douglas O. Kahl, executive consultant at transport and logistics consultancy TranzAct Technologies Inc., based
in Elmhurst Ill.
For the carriers, the sizable volume increases under the service apparently are sufficient enough to absorb the low yields,
or revenue per package, generated by each shipment. The revenue per package for FedEx's service, known as "SmartPost," is $1.81,
according to TranzAct data culled from FedEx reports. By contrast, FedEx generates $8.77 in revenue for the typical shipment
moving on its "FedEx Ground" ground-parcel service, and between $11.65 and $22.31 in revenue for the average shipment moving
on its air and international delivery product known as "FedEx Express," the consultancy said.
In its fiscal 2013 second quarter, which ended Nov. 30, FedEx said SmartPost's average daily volume increased 17 percent
year-over-year, primarily due to the growth in e-commerce. Net revenue per package increased by two percent due to a change
in service mix and to rate increases, both of which were partially offset by higher postage rates.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The U.S. manufacturing sector has become an engine of new job creation over the past four years, thanks to a combination of federal incentives and mega-trends like nearshoring and the clean energy boom, according to the industrial real estate firm Savills.
While those manufacturing announcements have softened slightly from their 2022 high point, they remain historically elevated. And the sector’s growth outlook remains strong, regardless of the results of the November U.S. presidential election, the company said in its September “Savills Manufacturing Report.”
From 2021 to 2024, over 995,000 new U.S. manufacturing jobs were announced, with two thirds in advanced sectors like electric vehicles (EVs) and batteries, semiconductors, clean energy, and biomanufacturing. After peaking at 350,000 news jobs in 2022, the growth pace has slowed, with 2024 expected to see just over half that number.
But the ingredients are in place to sustain the hot temperature of American manufacturing expansion in 2025 and beyond, the company said. According to Savills, that’s because the U.S. manufacturing revival is fueled by $910 billion in federal incentives—including the Inflation Reduction Act, CHIPS and Science Act, and Infrastructure Investment and Jobs Act—much of which has not yet been spent. Domestic production is also expected to be boosted by new tariffs, including a planned rise in semiconductor tariffs to 50% in 2025 and an increase in tariffs on Chinese EVs from 25% to 100%.
Certain geographical regions will see greater manufacturing growth than others, since just eight states account for 47% of new manufacturing jobs and over 6.3 billion square feet of industrial space, with 197 million more square feet under development. They are: Arizona, Georgia, Michigan, Ohio, North Carolina, South Carolina, Texas, and Tennessee.
Across the border, Mexico’s manufacturing sector has also seen “revolutionary” growth driven by nearshoring strategies targeting U.S. markets and offering lower-cost labor, with a workforce that is now even cheaper than in China. Over the past four years, that country has launched 27 new plants, each creating over 500 jobs. Unlike the U.S. focus on tech manufacturing, Mexico focuses on traditional sectors such as automative parts, appliances, and consumer goods.
Looking at the future, the U.S. manufacturing sector’s growth outlook remains strong, regardless of the results of November’s presidential election, Savills said. That’s because both candidates favor protectionist trade policies, and since significant change to federal incentives would require a single party to control both the legislative and executive branches. Rather than relying on changes in political leadership, future growth of U.S. manufacturing now hinges on finding affordable, reliable power amid increasing competition between manufacturing sites and data centers, Savills said.
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.