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.
Depending on one's perspective, FedEx Corp.'s planned Jan. 1 switch to dimensional pricing on ground parcel shipments
measuring less than three cubic feet is either another attempt to grab shippers by the short hairs or a rational move to
price its surface capacity in line with an evolving traffic mix. The policy change could also wean customers off an addiction
to excess packaging that adds unnecessary cube and cost to each delivery.
Because the announcement is only 10 days old, the debate is just taking shape. Yet two points are clear: The move is
unprecedented—as of Jan. 1 all FedEx ground shipments will be priced based on their dimensions instead of their weight.
But though the move is unprecedented, the objective isn't. Memphis-based FedEx and its chief rival, Atlanta-based UPS Inc.,
have tried for seven years to convince shippers to either tighten up their packaging or to fit more weight within the parcels
they tender.
Since 2007, both have used the tool of volumetric division, where a parcel's cube is divided by a preset divisor, to price
packages based not on their weight but on how much space they occupy on a delivery van. In January 2011, both shrunk their
divisors to 166 from 194 to make it even costlier to tender lightweight, bulky parcels that take up a disproportionate share of
van capacity and, according to the carriers, distort their pricing. Currently, however, shipments under the three cubic-feet
threshold are exempt. As a result, a 5-pound parcel measuring less than three cubic feet is priced based on its weight.
FedEx's move changes the game. Take, for example, a one cubic foot box that measures 1,728 cubic inches, the sum of multiplying
the shipment's height, weight, and length. Dividing that number by the divisor of 166 now in effect yields dimensional pricing of
about 11 pounds, even if the parcel weighs less than that.
Extending the math to the three cubic-feet threshold only amplifies the magnitude of the change: Dividing 5,184 cubic inches by
the 166 divisor yields a rate equal to that of a 36-pound shipment. Shippers generally pay the greater of the actual or dimensional
weight.
To put it in ways a layperson could understand, come Jan. 1, a package of toilet paper ordered on Amazon.com that weighs 5
pounds could be priced as if it was a 20-pound shipment.
SHEDDING B2C WEIGHT?
Those affected by the shift have several choices: add heft to their packages so they can be priced by the weight, reduce
the cubic dimensions of the parcels through more efficient packaging, pay the higher charges, minimize the damage through
effective negotiation, or go elsewhere. Some choices are considered feasible. Others appear less so.
However, it is the last option that FedEx may have had in mind when developing its strategy. The explosive growth of
e-commerce has pushed more business-to-consumer (B2C) shipments into FedEx's ground network than ever before. Most of those
shipments consist of lightweight, bulky items. What's more, an e-commerce transaction often involves the delivery of only one
item. By contrast, a typical business-to-business (B2B) delivery stop comprises multiple packages each weighing a decent amount,
a more profitable scenario for a carrier.
Given that carriers price their delivery expenses on a per-stop basis, it isn't surprising B2C shipments have become an
exercise in margin compression. The problem is amplified by a shipper's insistence to surround the product with Styrofoam popcorn,
Bubble Wrap, or other types of padding that may or may not add protection but certainly add to cube. Jaris Briski, general manager
of integrated parcel solutions for Pittsburgh-based third party logistics provider Genco, said he's concluded from numerous visits
to shippers' facilities that "they are very generous" with additional packaging and that the FedEx move will force many to "take a
serious look at their configurations."
The low-margin nature of B2C deliveries drove FedEx and UPS several years ago to partner with the U.S. Postal Service (USPS) to
use the USPS' low-cost, universal delivery network to bring parcels mostly to residential destinations. (The FedEx-USPS alliance,
known as "SmartPost," is exempt from the pricing change.) It could also explain why the FedEx move is aimed largely at the 1- to
10-pound weight range where e-commerce lives. Most B2C shipments weigh 5 pounds or less.
Rick Jones, president and CEO of Austin, Texas-based LSO (formerly Lone Star Overnight), a regional parcel carrier, reckons
that FedEx wants to recalibrate its traffic mix so B2B shipments comprise more of its density. This, in turn, may lead to a
shedding of B2C business as merchants that lack the volume leverage of a company like Amazon.com are effectively priced out of
the FedEx system, he said.
Jones, who spent 22 years at UPS, said his old employer would likely follow FedEx's lead because it faces the same predicament.
UPS has said it is studying the FedEx decision, but declined further comment.
It is difficult to quantify the volume of shipments that could be affected by the FedEx change, and the estimates get murkier
if UPS, which handles three times the daily ground volumes, is thrown into the mix. According to consulting company SJ Consulting,
which maintains a database of 100 million domestic parcels moved annually, 32 percent of that number have shipment characteristics
that would make them vulnerable to the FedEx move. Within that subset, about 57 percent of shipments weigh 5 pounds or less, weight
breaks that would face the steepest increase, according to Satish Jindel, SJ's president.
Jindel said his database may understate the impact, however. FedEx and UPS combined handle about 16 million ground parcels each
shipping day. When that number is multiplied by 250 or so shipping days, the volume of affected packages "can go much higher" than
the universe his company tracks, Jindel said. The change will add an estimated $186 million to FedEx's annual operating income
without its FedEx Ground unit doing anything to change its operations, he forecast.
RATIONAL BEHAVIOR
Jindel said pundits who claim FedEx's actions smack of price gouging have little clue about the cost structure of its ground
business. As more e-commerce flows into the system, the traffic mix will get lighter and bulkier. This will require the company
to spend more on various types of equipment, notably larger delivery vans. Add to that the cube-busting bloat of extra packaging,
and it is easy to see why FedEx believes it has no choice but to be properly compensated for carrying parcels that don't pay their
way.
"This is not exploitation," he said. "This is a company that is adjusting to profound changes in its business."
Over the next seven months, many FedEx customers will have key decisions to make. Much depends on the course UPS takes.
Presuming UPS follows suit, they can turn to the Postal Service, which does not employ dimensional pricing. However, USPS may
not be able to handle an avalanche of new B2C business without increased capital investment in plant, facilities, and equipment,
moves that could force it to take significant rate increases of its own.
Customers could also turn to the regional parcel carriers. Mark Magill, vice president of business development for Chandler,
Ariz.-based OnTrac, a regional carrier that serves eight western states including all of California, said his company employs a
more shipper-friendly volumetric divisor of 194. Magill said he uses that as a selling point, adding that he will go even higher
if the customer is large enough. Jones of LSO, which uses the same divisor of 166 as FedEx and UPS, said the regionals could
exempt shipments measuring one to two cubic feet from dimensional pricing; this would give a break to the many e-commerce
shipments that cube out at such micro levels.
Customers could bargain for exemptions. Briski of Genco, which helps customers negotiate with the carriers, said he's begun
advising clients on ways to leverage their contractual volumes to minimize the impact of the pricing change. It will be virtually
impossible, however, to eliminate the impact, he said.
The next step, Briski said, will be to work with clients to modify their packaging. For decades, packaging sizes were basically
uniform. The result was a lot of empty air that ended up being filled with useless stuff. But the world has changed. Today,
packaging comes in all shapes and sizes. What's more, it can be customized, almost on the fly, to meet a shipper's individual
needs.
As with so many circumstances, one person's misery is another's opportunity. "It's a good time to be in the packaging
engineering business," said Jones of LSO.
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 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.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.