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. delivered fourth-quarter and full-year results today that appeared to beat investor and analyst expectations. Yet a $125 million fourth-quarter charge to cope with a surge of delivery orders early in the peak holiday period; higher-than-expected capital expenditures; and numbers that analysts, on second look, deemed a little light sent UPS' stock price down nearly $8 a share in one of its worst downdrafts in years.
The Atlanta-based transport and logistics giant posted an 11-percent year-over-year gain in fourth-quarter revenue and an 8-percent increase for the year to a record $65.9 billion. Its three operating units—domestic package, international package, and supply chain and freight—posted high single-digit or double-digit revenue increases in the quarter. The international unit was profitable on a "constant currency" basis, or excluding the impact of currency fluctuations. Domestic ground parcel volume rose 5.9 percent in the quarter, while next-day and second-day air traffic increased 4.9 and 2.2 percent, respectively.
David Abney, UPS' chairman and CEO, said in a statement announcing the results that the company's domestic air traffic is "expanding to record levels" as e-commerce demand puts more of a sense of urgency into the delivery step. The company will bring nine Boeing 747-8 and three 767 freighters converted from passenger configuration into the U.S. market before this year's peak, according to UPS spokesman Steve Gaut.
Abney's comments are instructive in that they may signal a renaissance in air commerce in the U.S., the market where air was king during the 1970s, 1980s, and 1990s, only to go into hibernation at the start of the century as cheaper surface transportation emerged as a viable alternative for cost-conscious businesses. After a tough six-year stretch, global air cargo traffic surged 9 percent in 2017, the International Air Transport Association (IATA) said earlier this week, as a synchronized worldwide recovery prompted more and faster inventory restocking. The global airline trade group expects cargo volumes to rise 4.5 percent in 2018.
UPS also announced today that it would boost 2018 capital expenditures to between $6.5 billion and $7 billion, or approximately 10 percent of projected 2018 revenue, thanks in large part to the new tax law that reduces the federal corporate rate and includes generous expensing provisions for capital investments. The company, which allocated $5.2 billion to capital expenditures in 2017, had originally forecast that 2018 capital expenditures would equal 5 to 6 percent of this year's revenue.
UPS estimated it will spend an additional $12 billion over three years as a result of the new law. Of that, $7 billion is earmarked for overall network improvements and the remaining $5 billion has been contributed to further fund the company's three pension plans.
PEAK PROBLEMS
The quarterly results were highly anticipated, as they included holiday-season activity during the first peak period in which UPS imposed a delivery surcharge. Industry experts said the surcharge did not result in the loss of business to any of its competitors. In fact, UPS ended up deferring or waiving the surcharge for customers that were sufficiently put off by it, according to Rob Martinez, CEO of Shipware LLC, a parcel consultancy.
On an analyst call today, Abney said the surcharges were effective in incentivizing customers to shift shipments that would normally have been delivered during the very busy last holiday week into the prior week, thus enabling UPS to manage its network more efficiently. UPS will again impose surcharges during the 2018 peak, though when they will be applied, and what service levels will be affected, has not been determined.
The company got behind the eight ball early in the cycle when it underestimated the deluge of orders on the day after Thanksgiving, known as Black Friday; the following Monday, known as Cyber Monday; and for the entire first full week of the period called Cyber Week. Myron Gray, head of UPS' U.S. operations, said the company recovered quickly after the initial hit. Others, though, were not so sure. Martinez of Shipware said UPS' on-time delivery performance trailed FedEx's for the entire six-week holiday cycle. In the 2016 peak, UPS started behind FedEx, but caught up and eventually surpassed its rival in the latter half of the peak period, according to Shipware data.
Nearly 15 percent of UPS ground shipments faced delays of some type during the peak period, based on the activity monitored by consultancy LateShipment.com, which helps shippers identify and get reimbursed for late parcel deliveries. That was worse than FedEx's performance, said LateShipment co-founder and CEO Sriram Sridhar.
Sridhar acknowledged that UPS confronted record peak volumes—about 750 million parcels in all. However, he added that the company had anticipated such a high level of activity, and that the problems it faced lay more with the infrastructure's ability to respond than with the magnitude of the traffic.
Martinez and Sridhar said that UPS and FedEx were largely successful in ensuring that all shipments were delivered by Dec. 23 or 24.
Separately, UPS said it ordered 18 Boeing freighters—14 747-8s and four 767s—that will be delivered in staggered intervals through the end of 2022. The aircraft will join the 14 747-8s the company ordered in 2016. The new planes will be used exclusively on international routes linking the company's "Worldport" global air hub in Louisville, Ky., with Asian markets through Anchorage, Alaska, according to Jim Mayer, a spokesman for the company's UPS Airlines unit. As more of the planes enter the fleet, they may be used in round-the-world services as well, Mayer said.
Mayer wouldn't comment on the order's price tag. Jim Smith, editor of U.K. publication Global Transport Finance, said the order was large enough to have qualified for a 50-percent discount off the planes' respective list prices. Smith added that it was likely that Airbus Industrie, the European aircraft-maker consortium and Boeing's fiercest rival for commercial business, was also keenly interested in getting the UPS order.
Smith estimated that a 747-8 freighter lists for $360 million, and a 767 freighter lists for approximately $185 million.
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.