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.
In the spring of 2014, FedEx Corp. and UPS Inc. announced plans to price deliveries of ground parcels measuring less than three cubic feet by their dimensions instead of their weight. At the same time, they said the respective changes would not be implemented until after the 2014 holiday season. That way, the carriers reasoned, businesses would have time to adjust to what was expected to be major changes to their shipping patterns. It would also avoid any unnecessary headaches during the hectic peak shipping period.
The start of the 2015 peak cycle is less than three months away, and shippers have been through nearly a year under the new pricing regimes. While no crystal balls were available for comment, it seems logical to postulate that, for shippers, the upcoming holiday experience will resemble that of the first 10 months: namely, those who've not felt much of an impact, for whatever reason, will skate through the holidays unscathed. Those whose budgets have been hit will continue to feel the pain, amplified by the increased holiday volumes and the year-round increase in shipping complexity brought about by the digital commerce and fulfillment tsunami.
When the changes were announced, several parcel consultants who work with shippers every day warned they would result in massive price increases for shippers tendering lightweight, bulky packages, which account for a large chunk of digital commerce. Dividing a three-cubic-foot package that measures 5,184 cubic inches by 166, the divisor set by the carriers in 2011 to calculate dimensional weight (or dim weight), would result in a rate equal to a 36-pound shipment, even though the parcel's actual weight would be much less. Shippers generally pay the greater of the actual or dimensional weight rate. Until this year, ground shipments measuring less than three cubic feet had been exempt from dimensional pricing.
Rob Martinez, president and CEO of consultancy Shipware, LLC, who forecast huge rate increases at the time the changes were made public, said prices have indeed risen significantly throughout the year and will cause economic turbulence for shippers through the holiday period as volumes accelerate. "Just because the impact of the increases has already been felt doesn't mean it will stop being felt," he said.
Based on Shipware data, the 2015 billed weight for parcels moving via FedEx Ground, the company's ground-delivery unit, was 28.7 percent higher than the parcels' actual weight. At FedEx Home Delivery, which delivers business-to-consumer (B2C) shipments to residences, the discrepancy was even wider; in 2015, the billed weight was 45.1 percent higher than the actual weight, according to Shipware data. In 2014, the gap was 11.6 percent.
At UPS, the 2015 billed weight for all its ground services was 16.4 percent higher than the actual weight, according to Shipware data; in 2014, the discrepancy was 12.8 percent. Martinez believes the UPS differential is not as extreme because the pricing change fell more heavily on B2C transactions and UPS handles more commercial packages than residential shipments.
Martinez said only a handful of the very largest shippers have been granted waivers or deferrals from the pricing changes. Virtually the entire shipping population lost the exemption, though some of the larger shippers were given a higher divisor to work with, thus effectively mitigating some of the increases, he said.
FedEx will likely decrease the benefits of the higher divisor over the life of the contract, which is typically three years, Martinez said. By contrast, UPS generally ties any divisor-related concessions to the length of the contract without any phase-outs, he added.
A DIFFERENT VIEW
Martinez's comments stand in sharp contrast with those of Paul Steiner, vice president of strategic analysis at consultancy Spend Management Experts. Steiner said the vast majority of large shippers his firm consults for have received either full waivers for the length of their contracts or, in the worst case, deferrals that run for most of the contractual period. He added that few customers have felt the need to ask how to reduce box sizes and empty packing space, steps that would help cut dimensional shipping costs.
Steiner said the 2011 reductions in the carriers' dim-weight divisors to 166 from 194, which applied to all shipments except ground parcels of under three cubic feet, had more of a profound change on the market than the most recent adjustments.
That said, Steiner, who spent 17 years at UPS in various executive roles including global pricing, said both carriers will find ways to offset foregone revenue associated with waivers and that their compensation will likely come from the budgets of small to mid-sized shippers that lack the volume and negotiating leverage of bigger companies.
Paula Heikell, chief marketing officer for consultancy Advanced Distribution Solutions Inc. (ADSI), concurred with Steiner's assessment of a bifurcated market with large and small shippers experiencing different outcomes. Heikell said all shippers stand to benefit from the development of mobile handheld dimensioning devices that provide upstream visibility of package dimensions so orders then don't have to be pulled and repacked to comply with the carriers' guidelines. The equipment, which is not cheap but stands to gain critical mass as prices come down, will also be invaluable in helping companies manage dimensioning in the complex but increasingly important area of returns management.
Michael Lambert, vice president of strategic solutions for consultancy Green Mountain Technology (formerly Green Mountain Consulting), falls somewhere in between Martinez's views and those of Steiner and Heikell. Lambert said the company and its customer base, whose core is large retailers, have spent a lot of time over the past 16 months preparing for the changes. Through negotiations with the carriers, Lambert said, Green Mountain has helped shippers mitigate a portion of the increases. "There has been some impact, but it's not as bad as it could have been," he said.
Lambert said the most revealing part of the past year's process was discovering that many shippers had no data-collection tools to capture dimensions or to determine whether their package sizes met the carriers' revised criteria. Before the changes, shippers were "not really thinking about what they were giving" the carriers, he said, adding that the new regimen sparked a behavioral change on the part of shippers.
Lambert said Green Mountain has followed a three-step plan to deal with the changes: understanding its impact, collaborating with carriers in rate negotiations, and implementing data-collection practices. The first two have largely been completed; the third is a work in progress that will take some time, he added. All of this will come as retailers move from having two to four distribution centers for fulfillment, to managing hundreds if not thousands of nontraditional locales like retail stores that are now beginning to serve as DCs.
ALTERNATIVE ACTIONS
FedEx and UPS originally made the moves in an effort to better align package pricing with the amount of space the parcels occupied on a truck. They also believed that customers could gain by streamlining their packaging to remove unneeded "empty air" surrounding the product. Spokeswomen for the carriers said they've made a concerted effort to work with customers to make their packaging more efficient, in some cases connecting shippers with packaging and technology companies to help them remove "filler" and shrink shipment dimensions.
There are also alternatives. Shippers can use regional parcel carriers and the U.S. Postal Service (USPS), both of which offer higher dim-weight divisors and thresholds. They could shift packages to services like FedEx "SmartPost," managed in conjunction with USPS and which does not use dimensional pricing. Apparel shippers in particular could migrate to polybags for lighter, smaller shipments. Martinez suggested that merchants offer online shippers free shipping only to retail stores rather than to the consumer's residence. That way, multiple orders can be consolidated into one commercial shipment, he said.
The logistics process automation provider Vanderlande has agreed to acquire Siemens Logistics for $325 million, saying its specialty in providing value-added baggage and cargo handling and digital solutions for airport operations will complement Netherlands-based Vanderlande’s business in the warehousing, airports, and parcel sectors.
According to Vanderlande, the global logistics landscape is undergoing significant change, with increasing demand for efficient, automated systems. Vanderlande, which has a strong presence in airport logistics, said it recognizes the evolving trends in the sector and sees tremendous potential for sustained growth. With passenger travel on the rise and airports investing heavily in modernization, the long-term market outlook for airport automation is highly positive.
To meet that growing demand, the proposed transaction will significantly enhance customer value by providing accelerated access to advanced technologies, improving global presence for better local service, and creating further customer value through synergies in technology development, Vanderlande said.
In a statement, Nuremberg, Germany-based Siemens Logistics said that merging with Vanderlande would “have no operational impact on ongoing or new projects,” but that it would offer its current customers and employees significant development and value-add potential.
"As a distinguished provider of solutions for airport logistics, Siemens Logistics enjoys a first-class reputation in the baggage and air-cargo handling areas. Together with Vanderlande and our committed global teams, we look forward to bringing fresh impetus to the airport industry and to supporting our customers' business with future-oriented technologies," Michael Schneider, CEO of Siemens Logistics, said in a release.
The initiative is the culmination of the companies’ close working relationship for the past five years and represents their unified strength. “We recognized that going to market under a cadre of names was not helping our customers understand our complete turn-key services and approach,” Scott Lee, CEO of Systems in Motion, said in a release. “Operating as one voice, and one company, Systems in Motion will move forward to continue offering superior industrial automation.”
Systems in Motion provides material handling systems for warehousing, fulfillment, distribution, and manufacturing companies. The firm plans to complete a rebranded web site in January of 2025.
I recently came across a report showing that 86% of CEOs around the world see resiliency problems in their supply chains, and that business leaders are spending more time than ever tackling supply chain-related challenges. Initially I was surprised, thinking that the lessons learned from the Covid-19 pandemic surely prepared industry leaders for just about anything, helping to bake risk and resiliency planning into corporate strategies for companies of all sizes.
But then I thought about the growing number of issues that can affect supply chains today—more frequent severe weather events, accelerating cybersecurity threats, and the tangle of emerging demands and regulations around decarbonization, to name just a few. The level of potential problems seems to be increasing at lightning speed, making it difficult, if not impossible, to plan for every imaginable scenario.
What is it Mike Tyson said? Everyone has a plan until they get punched in the mouth.
It has never been more important to be able to pivot and adjust to challenges that can throw you off your game. The report I referenced—the “2024 Supply Chain Barometer” from procurement, supply chain, and sustainability consulting firm Proxima—makes the case for just that. The company surveyed 3,000 CEOs from the United Kingdom, Europe, and the United States and found that the growing complexities in global supply chains necessitate a laser-sharp focus on this area of the business. One example: Rightshoring, which is the process of moving business operations to the best location, means companies are redesigning and reconfiguring their supply chains like never before. The study found that large numbers of CEOs are grappling with the various subsets of rightshoring: 44% said they are planning to or have already undertaken onshoring, for instance; 41% said they are planning to or have undertaken nearshoring; 41% said they are planning to or have undertaken friendshoring; and 35% said they are planning to or have undertaken offshoring.
But that’s not all. CEOs are also struggling to deal with the rise of artificial intelligence (AI) and its application to business processes, the potential for abuse and labor rights issues in their supply chains, and a growing number of barriers to their companies’ decarbonization efforts. For instance:
Nearly all of those surveyed (99%) said they are either using or considering the use of AI in their supply chains, with 82% saying they are planning new initiatives this year;
More than 60% said they are concerned about the potential for human or labor rights issues in their supply chains;
And virtually all (99%) said they face barriers to decarbonization, with 30% pointing to the complexity of the work required as the biggest barrier.
Those are big issues to contend with, so it’s no surprise that 96% of the CEOs Proxima surveyed said they are dedicating equal (41%) or more time (55%) to supply chain issues this year than last year. And changing economic conditions are adding to the complexity, according to the report.
“As inflation fell throughout last year, there were glimmers of markets stabilizing,” the authors wrote. “The reality, though, has been that global market dynamics are shifting. With no clear-set position for them to land in, CEOs must continue to navigate their organizations through an ever-changing landscape. Just 4% of CEOs foresee the amount of time spent on supply chain-related topics decreasing in the year ahead.”
Simon Geale, executive vice president and chief procurement officer at Proxima, added some perspective.
“It’s fair to say that the complexities of global supply chains continue to have CEOs around the world scratching their heads,” he wrote. “The results of this year’s Barometer show that business leaders are spending more and more time tackling supply chain challenges, reflecting the multiple challenges to address.”
Perhaps the extra focus on supply chain issues will help organizations improve their ability to roll with the punches and overcome resiliency challenges in the year ahead. Only time will tell.
Investing in artificial intelligence (AI) is a top priority for supply chain leaders as they develop their organization’s technology roadmap, according to data from research and consulting firm Gartner.
AI—including machine learning—and Generative AI (GenAI) ranked as the top two priorities for digital supply chain investments globally among more than 400 supply chain leaders surveyed earlier this year. But key differences apply regionally and by job responsibility, according to the research.
Twenty percent of the survey’s respondents said they are prioritizing investments in traditional AI—which analyzes data, identifies patterns, and makes predictions. Virtual assistants like Siri and Alexa are common examples. Slightly less (17%) said they are prioritizing investments in GenAI, which takes the process a step further by learning patterns and using them to generate text, images, and so forth. OpenAI’s ChatGPT is the most common example.
Despite that overall focus, AI lagged as a priority in Western Europe, where connected industry objectives remain paramount, according to Gartner. The survey also found that business-led roles are much less enthusiastic than their IT counterparts when it comes to prioritizing the technology.
“While enthusiasm for both traditional AI and GenAI remain high on an absolute level within supply chain, the prioritization varies greatly between different roles, geographies, and industries,” Michael Dominy, VP analyst in Gartner’s Supply Chain practice, said in a statement announcing the survey results. “European respondents were more likely to prioritize technologies that align with Industry 4.0 objectives, such as smart manufacturing. In addition to region differences, certain industries prioritize specific use cases, such as robotics or machine learning, which are currently viewed as more pragmatic investments than GenAI.”
The survey also found that:
Twenty-six percent of North American respondents identified AI, including machine learning, as their top priority, compared to 14% of Western Europeans.
Fourteen percent of Western European respondents identified robots in manufacturing as their top choice compared to just 1% of North American respondents.
Geographical variances generally correlated with industry-specific priorities; regions with a higher proportion of manufacturing respondents were less likely to select AI or GenAI as a top digital priority.
Digging deeper into job responsibilities, just 12% of respondents with business-focused roles indicated GenAI as a top priority, compared to 28% of IT roles. The data may indicate that GenAI use cases are perceived as less tangible and directly tied to core supply chain processes, according to Gartner.
“Business-led roles are traditionally more comfortable with prioritizing established technologies, and the survey data suggests that these business-led roles still question whether GenAI can deliver an adequate return on investment,” said Dominy. “However, multiple industries including retail, industrial manufacturers and high-tech manufacturers have already made GenAI their top investment priority.”
Regardless of the elected administration, the future likely holds significant changes for trade, taxes, and regulatory compliance. As a result, it’s crucial that U.S. businesses avoid making decisions contingent on election outcomes, and instead focus on resilience, agility, and growth, according to California-based Propel, which provides a product value management (PVM) platform for manufacturing, medical device, and consumer electronics industries.
“Now is not the time to wait for the dust to settle,” Ross Meyercord, CEO of Propel, said in a release. “Companies should approach this election cycle as an opportunity to thrive in the face of constant change by proactively investing in technology and talent that keeps them nimble. Businesses always need to be prepared for changing tariffs, taxes, or geopolitical tensions that lead to unexpected interruptions – that’s just the new normal.”
In Propel’s analysis, a Trump administration would bring a continuation of corporate tax cuts intended to bolster American manufacturing. However, Trump’s suggestion for spiraling tariffs may benefit certain industries, but would drive up costs for businesses reliant on global supply chains.
In contrast, a Harris administration would likely continue the current push for regulatory reforms that support sectors like AI, digital assets, and manufacturing while protecting consumer rights. Harris would also likely prioritize strategic investments in new technologies and provide tax incentives to promote growth in underserved areas.
And regardless of the new administration, the real challenge will come from a potentially divided Congress, which could impact everything from trade negotiations to tax policies, Propel said.
“The election outcome is less material for businesses,” Meyercord said. “What is important is quickly adapting to shifting policies or disruptions that address ‘what if’ scenarios and having the ability to pivot your strategy. A responsive manufacturing sector will have a significant impact on the broader economy, driving growth and favorably influencing GDP. One thing is clear: the only certainty is change.”