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.
For UPS Inc. and its legion of shippers, fourth quarters may never be the same.
For generations, UPS could count on the fourth quarter, and the busy holiday season accompanying it, to be its most
profitable period. But as the company has discovered, the quarter has become an unpredictable animal that even the parcel
industry's master operator has not yet been able to tame.
With e-commerce becoming the dominant force in holiday shipping, UPS has been forced to adjust its operations to handle a
new and somewhat unfamiliar type of transaction. Furthermore, this new type of transaction is not nearly as lucrative as the
business-to-business (B2B) traffic that had been its bread and butter for more than a century. As Chief Financial Officer Kurt
Kuehn told analysts today in discussing the company's quarterly results, it "will take a few years" for UPS to return to the
fourth-quarter profitability it became accustomed to.
UPS' challenges became evident on Jan. 23 when it
pre-announced that fourth-quarter profits would come in significantly below
expectations. UPS officially confirmed the warning today when it disclosed its fourth-quarter earnings per share came in flat over
the 2013 period and 22 cents per share below what it originally forecast. Revenue was up 6.1 percent year-over-year to $15.9
billion, which the company said reflected an 8.1-percent increase in volumes across its three product lines: domestic package,
international package, and supply chain and freight.
For UPS, the profit shrinkage was due to the higher costs of an unprecedented build-out of its U.S.
network to handle a sustained level of peak traffic that didn't occur. Although pre-holiday volumes swelled well beyond an average shipping day
when about 16.5 million pieces move across UPS' global network, traffic flows did not reach the levels that the company had
anticipated except for on "Cyber Monday" and on Dec. 22, UPS' busiest delivery day of the cycle. The year-long planning came
after a difficult 2013 holiday season when a torrent of last-minute online orders, combined with inclement weather in parts
of the country, overwhelmed UPS' network and led to late deliveries of thousands, if not millions, of packages.
UPS RE-EVALUATES 2014 STRATEGY
CEO David P. Abney, who just lived through his first peak season at the helm, told analysts that UPS would re-evaluate its
decision in 2014 to deploy its domestic air and ground network the day after Thanksgiving, now known as "Black Friday." In years
past, only UPS' air network was operational on that day. In the future, UPS plans to implement peak-season delivery surcharges
on a "segmented" basis, with the focus to be on residential deliveries and the company's "SurePost" product operated in conjunction
with the U.S. Postal Service. The surcharges will be phased in over a multi-year period as contracts come up for renewal, Abney
said.
Abney also said that UPS plans to expand its "permanent" hub capacity and scale back or phase out work on facilities used for
temporary purposes. In his prepared remarks, Abney said that in the future, use of purchased transportation, such as contract road
carriage and intermodal services, will be "optimized," but he did not provide any further details.
UPS is renowned for having a nimble and efficient infrastructure capable of flexing when shipping patterns change. Managing the
changes wrought by e-commerce, however, may turn out to be the company's biggest challenge to date. In the U.S., annual online
sales are expected to grow four times faster than gross domestic product (GDP). International e-commerce is projected to rise
seven times faster than annualized world GDP. What's more, secular changes in online distribution patterns aimed at positioning
goods closer to the end customer have led to a trade-down in delivery services, further pressuring UPS' margins, Kuehn said.
In the past, the majority of UPS' business consisted of business-to-business services. Now, however, business-to-consumer (B2C)
volumes account for nearly half of UPS' traffic composition. The company had not expected to confront this change in mix so
quickly, and the shift presents it with several challenges. First, B2C business lacks the profitable delivery density
characteristics of B2B services. Second, while UPS and rival FedEx Corp. currently dominate the B2B world, the two companies
face pressure in the B2C space from the U.S. Postal Service (USPS), whose offerings generally underprice them. Finally, as
William J. Greene, transport analyst for Morgan Stanley & Co., pointed out in a research note yesterday, the extreme seasonal
swings inherent in B2C commerce require further investment in carrier network capacity, which, in turn, adds to pricing pressures.
Greene's note says that UPS faces a crucial strategic decision: Either defend its market share position through aggressive
pricing, or maintain its return on invested capital at the risk of losing share. Greene said he believes UPS should opt for the
former strategy to repel advances from the USPS and from a cadre of regional B2C players that can affect pricing trends on the
margin.
On the shipper side, John Haber, CEO of Spend Management Experts, a consultancy, said today that UPS' purported peak-season
surcharges would whack e-commerce companies hard in the 2015 holiday season. Haber urged shippers to act now to evaluate all
carrier options because UPS is likely to make "material pricing changes" during the year rather than just waiting until each
January to roll out price hikes on its tariffs.
States across the Southeast woke up today to find that the immediate weather impacts from Hurricane Helene are done, but the impacts to people, businesses, and the supply chain continue to be a major headache, according to Everstream Analytics.
The primary problem is the collection of massive power outages caused by the storm’s punishing winds and rainfall, now affecting some 2 million customers across the Southeast region of the U.S.
One organization working to rush help to affected regions since the storm hit Florida’s western coast on Thursday night is the American Logistics Aid Network (ALAN). As it does after most serious storms, the group continues to marshal donated resources from supply chain service providers in order to store, stage, and deliver help where it’s needed.
Support for recovery efforts is coming from a massive injection of federal aid, since the White House declared states of emergency last week for Alabama, Florida, Georgia, North Carolina, and South Carolina. Affected states are also supporting the rush of materials to needed zones by suspending transportation requirement such as certain licensing agreements, fuel taxes, weight restrictions, and hours of service caps, ALAN said.
E-commerce activity remains robust, but a growing number of consumers are reintegrating physical stores into their shopping journeys in 2024, emphasizing the need for retailers to focus on omnichannel business strategies. That’s according to an e-commerce study from Ryder System, Inc., released this week.
Ryder surveyed more than 1,300 consumers for its 2024 E-Commerce Consumer Study and found that 61% of consumers shop in-store “because they enjoy the experience,” a 21% increase compared to results from Ryder’s 2023 survey on the same subject. The current survey also found that 35% shop in-store because they don’t want to wait for online orders in the mail (up 4% from last year), and 15% say they shop in-store to avoid package theft (up 8% from last year).
“Retail and e-commerce continue to evolve,” Jeff Wolpov, Ryder’s senior vice president of e-commerce, said in a statement announcing the survey’s findings. “The emergence of e-commerce and growth of omnichannel fulfillment, particularly over the past four years, has altered consumer expectations and behavior dramatically and will continue to do so as time and technology allow.
“This latest study demonstrates that, while consumers maintain a robust
appetite for e-commerce, they are simultaneously embracing in-person shopping, presenting an impetus for merchants to refine their omnichannel strategies.”
Other findings include:
• Apparel and cosmetics shoppers show growing attraction to buying in-store. When purchasing apparel and cosmetics, shoppers are more inclined to make purchases in a physical location than they were last year, according to Ryder. Forty-one percent of shoppers who buy cosmetics said they prefer to do so either in a brand’s physical retail location or a department/convenience store (+9%). As for apparel shoppers, 54% said they prefer to buy clothing in those same brick-and-mortar locations (+9%).
• More customers prefer returning online purchases in physical stores. Fifty-five percent of shoppers (+15%) now say they would rather return online purchases in-store–the first time since early 2020 the preference to Buy Online Return In-Store (BORIS) has outweighed returning via mail, according to the survey. Forty percent of shoppers said they often make additional purchases when picking up or returning online purchases in-store (+2%).
• Consumers are extremely reliant on mobile devices when shopping in-store. This year’s survey reveals that 77% of consumers search for items on their mobile devices while in a store, Ryder said. Sixty-nine percent said they compare prices with items in nearby stores, 58% check availability at other stores, 31% want to learn more about a product, and 17% want to see other items frequently purchased with a product they’re considering.
Ryder said the findings also underscore the importance of investing in technology solutions that allow companies to provide customers with flexible purchasing options.
“Omnichannel strength is not a fad; it is a strategic necessity for e-commerce and retail businesses to stay competitive and achieve sustainable success in 2024 and beyond,” Wolpov also said. “The findings from this year’s study underscore what we know our customers are experiencing, which is the positive impact of integrating supply chain technology solutions across their sales channels, enabling them to provide their customers with flexible, convenient options to personalize their experience and heighten customer satisfaction.”
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.
Two European companies are among the most recent firms to put autonomous last-mile delivery to the test with a project in Bern, Switzerland, that debuted this month.
Swiss transportation and logistics company Planzer has teamed up with fellow Swiss firm Loxo, which develops autonomous driving software solutions, for a two-year pilot project in which a Loxo-equipped, Planzer parcel delivery van will handle last-mile logistics in Bern’s city center.
The project coincides with Swiss regulations on autonomous driving that are expected to take effect next spring.
Referred to as “Planzer–Dynamic Micro-Hub w LOXO,” the project aims to address both sustainability issues and traffic congestion in urban areas.
The delivery vehicle, a Volkswagen ID. Buzz battery-electric minivan, will feature Loxo’s Level 4 Digital Driver navigation software, a highly automated solution that allows driverless operation. The van was retrofitted to include space for two swap boxes for parcel storage.
During the two-year pilot phase, Loxo’s Digital Driver will navigate a commercial vehicle several times a day from Planzer’s railway center to various logistics points in Bern's city center. There, the parcels will be reloaded onto small electric vehicles and delivered to end customers by Planzer’s parcel delivery staff.
Following the completion of the pilot phase, Planzer and Loxo will build on the program for rollout in other Swiss cities, the companies said.
The partners said the project addresses the increasing requirements of urban supply chains and aims to ensure the “scalability of their disruptive solution.” With largely emission-free delivery, it contributes to greater levels of sustainability for the city as a living space, they also said.
“The uniqueness of this project lies in the fact that it will have a direct impact on society,” Planzer’s CEO and Chairman Nils Planzer said in a statement announcing the project. “We didn't just want to integrate automated technology into existing systems, we wanted to develop a completely new concept and a new business model.”
As the hours tick down toward a “seemingly imminent” strike by East Coast and Gulf Coast dockworkers, experts are warning that the impacts of that move would mushroom well-beyond the actual strike locations, causing prevalent shipping delays, container ship congestion, port congestion on West coast ports, and stranded freight.
However, a strike now seems “nearly unavoidable,” as no bargaining sessions are scheduled prior to the September 30 contract expiration between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX) in their negotiations over wages and automation, according to the transportation law firm Scopelitis, Garvin, Light, Hanson & Feary.
The facilities affected would include some 45,000 port workers at 36 locations, including high-volume U.S. ports from Boston, New York / New Jersey, and Norfolk, to Savannah and Charleston, and down to New Orleans and Houston. With such widespread geography, a strike would likely lead to congestion from diverted traffic, as well as knock-on effects include the potential risk of increased freight rates and costly charges such as demurrage, detention, per diem, and dwell time fees on containers that may be slowed due to the congestion, according to an analysis by another transportation and logistics sector law firm, Benesch.
The weight of those combined blows means that many companies are already planning ways to minimize damage and recover quickly from the event. According to Scopelitis’ advice, mitigation measures could include: preparing for congestion on West coast ports, taking advantage of intermodal ground transportation where possible, looking for alternatives including air transport when necessary for urgent delivery, delaying shipping from East and Gulf coast ports until after the strike, and budgeting for increased freight and container fees.
Additional advice on softening the blow of a potential coastwide strike came from John Donigian, senior director of supply chain strategy at Moody’s. In a statement, he named six supply chain strategies for companies to consider: expedite certain shipments, reallocate existing inventory strategically, lock in alternative capacity with trucking and rail providers , communicate transparently with stakeholders to set realistic expectations for delivery timelines, shift sourcing to regional suppliers if possible, and utilize drop shipping to maintain sales.