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.
UPS Inc. has long faced challenges to optimize its vast U.S. surface transportation network. On one hand, it deals with traffic surges that put its network under stress and forces it to pay exorbitant rates to have others move its shipments. On the other, it struggles with empty miles and missed backhaul opportunities.
That could explain why the Atlanta-based giant was willing to spend $1.8 billion in cash and debt to acquire Chicago-based truckload and less-than-truckload (LTL) broker Coyote Logistics LLC. The deal, announced this morning, is the largest in UPS's 108-year history and the biggest pure brokerage deal ever. Beyond the headlines is the profound change the deal may bring to UPS's system by finally reducing the network variability that has bugged the company for decades.
For UPS, the deal has two parts: First, it adds an important arrow to its product quiver. UPS plans to stand back and let Coyote do its thing, which is to arrange transportation of more than 6,000 daily loads for shipper customers. UPS can now come to market with a portfolio that includes truckload brokerage, and can position itself as more of a lead logistics provider than it has in the past. Sources close to the deal said UPS's desire to boost its competitive position at the bidding table, or to compete with a company like C.H. Robinson Worldwide Inc., the nation's leading broker and a big third-party logistics provider, were not the primary drivers behind its purchase.
Others find that rationale hard to swallow. "Robinson needs to pay attention. They are no longer swinging the biggest bat," said Michael P. Regan, founder of TranzAct Technologies Inc., a consultancy and audit firm based in Elmhurst, Ill. Robinson was unavailable to comment. Regan said other freight brokers also should be concerned because Coyote now has the deepest pockets in U.S. transportation behind it. UPS generated $3.3 billion in free cash flow in the first half of 2015 and is on track this year to break the $60 billion annual-revenue barrier.
The problem of maintaining Coyote's freewheeling culture and keeping an organizational firewall between the two companies was not lost on UPS. In the statement announcing the deal, UPS said: "Coyote possesses significant industry knowledge, intellectual property, [and] employee talent, and has a strong company culture." Coyote will operate as a UPS subsidiary and will stay in its Chicago home base, and husband-and-wife cofounders Jeff and Marianne Silver will remain in charge for what appears to be an open-ended period, though there remains some question as to how long an entrepreneurial couple like the Silvers can comfortably coexist in UPS's bureaucracy.
FILLING THE GAPS
The second, and perhaps most relevant, part of the deal is the role Coyote will play to help fill the gaps in UPS's road network. Each day, UPS moves tens of millions of parcels and freight across its ground system. In addition, shipments booked to move "air" freight often move on the ground, depending on the distance and the delivery windows. A network so large and complex inevitably suffers from the plague of "variability," where supply and demand are not always in proper alignment. The result can be less-than-optimal utilization of the company's fleet, at least by UPS's standards.
UPS has longstanding relationships with many truckload carriers to move shipments that, for whatever reason, can't go on its equipment. Those relationships will remain in place, and UPS will continue to be responsible for purchasing space. It also uses Coyote to broker shipments.
The plan under the acquisition is for Coyote to serve as an adviser of sorts, leveraging its expertise and technology to enhance truckload-shipment visibility for UPS, thus identifying new opportunities and reducing UPS's network variability. In effect, Coyote's goal is not to do UPS's job, but to help UPS do a better job. UPS CEO David Abney said in the statement that UPS expects to realize as much as $150 million a year of "annual operating synergies," ranging from better backhaul utilization to increased cross-selling opportunities.
Coyote has also helped behind the scenes to support UPS's capacity needs during prior holiday peak seasons, a period when demand goes on steroids and the pressure on UPS's system is immense. During the 2013 peak, when bad weather and an avalanche of last-minute shipments from e-tailing giant Amazon.com gummed up its air network, UPS paid dearly to reroute packages to truckload carriers for rush delivery. Chastened by the 2013 problems, UPS ramped up its operational spending for the 2014 peak, only to find that it overinvested for expected volumes that never materialized.
In January, Abney disclosed that the company would not meet its fourth-quarter earnings estimates due to the higher costs associated with the peak ramp-up. Abney also said at the time that UPS would implement "new pricing strategies" for the upcoming holiday cycle. That could mean the implementation of so-called surge pricing, similar to the system that ride-sharing firm Uber employs during its peak riding periods. If so, Coyote's skills and clout could allow UPS to push through surge pricing while keeping its line-haul rates in check, said Jett McCandless, founder and CEO of CarrierDirect LLC, a logistics consulting and sales company.
The emergence of UPS in a segment that it has largely avoided is likely to spark another wave of consolidation among brokers, who are unaccustomed to a company like this in their midst. The $50-billion-a-year business has a handful of big players, but is composed mostly of small companies, many of which are profitable but lack the resources to move up the ladder.
McCandless, who at 36 is one of the industry's "young turks," sees transportation and brokerage becoming "agnostic," with technology being the key differentiator. As a result, the next five years will witness major consolidation as the smaller companies, lacking the technology and robust carrier relationships, lose out to the large "one-stop shops" and are either acquired or fold their tents, said McCandless.
However, this cycle will beget another phase in years 6 through 10, as big players effectively become too big to adequately serve a broad shipper base, McCandless said. New, smaller niche providers will then step into the breach, pick up the slack, and expand the number of providers in the market, he predicted.
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.