The contract between UPS and the Teamsters calls for shifting part of Big Brown's traffic from intermodal to over-the-road. Is this a wake-up call for the railroads?
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.
The relationship between UPS Inc. and the nation's railroads goes back decades. Like all long relationships, it has been marked by high expectations, successes, disappointments, major investments of time and money, and a fair amount of tension. Through it all, UPS remains a core rail customer, though it is believed to no longer be the largest individual user, a status it held for many years.
The up-and-down marriage could face its severest test yet. The catalyst is language in a tentative five-year labor contract between Atlanta-based UPS and the Teamsters union that would divert traffic from the rails to an expanded network of two-person over-the-road sleeper teams run by UPS and staffed by union drivers. The contract's terms do not quantify the level of diversion, but the Teamsters have characterized it as significant.
In 2017, UPS moved 750,000 pieces of equipment, most of that 53-foot boxes, in intermodal service and spent about $1 billion with the rails, according to estimates from SJ Consulting, a consulting firm. UPS, which zealously guards its competitive data, would not disclose how much intermodal business it gives the railroads. It also would not comment on the contract's language because it was still in proposal form as of the end of August when this story was written. UPS's 256,000 unionized small-package workers are expected to vote sometime in October to ratify the five-year master contract, along with its numerous regional and local supplements and riders. None of the four major east-west railroads—Union Pacific Corp., BNSF Railway Co., CSX Corp., and Norfolk Southern Corp.—would comment for this story.
What is known is that UPS has pledged to recruit 2,000 drivers for the expanded sleeper network, starting with 200 drivers by the end of calendar 2019 and the remainder spread out, in one-quarter annualized increments over the contract's life, until the threshold is reached. Sleeper teams are not new to UPS, and each of the recent Teamster contracts has given the company more flexibility to deploy them, according to a source close to the company. This means UPS can improve its transit times through more direct routings and can do so in an economical fashion—no small feat in light of the cost headwinds of moving goods via truck versus rail. UPS is investing billions to expand and automate its domestic package-sorting hubs, giving it the ability to build loads more efficiently, according to the source. This could make additional sleeper teams valuable for increased point-to-point and hub bypass routings, the source added.
UPS has traditionally been one of the railroads' most lucrative intermodal customers. It has also been one of the most demanding. For its premiums, UPS has expected "priority" service on train loading, arrival, and unloading. That has not always come to pass, however. Rail reliability, though it has notably improved through the years, has not always been consistent. The notorious Chicago chokepoint, where all North American railroads converge, has long been a burr in the saddles of UPS and many rail customers.
Taking no chances, UPS would position its ground fleet almost at the railhead in order to be first in line for unloading. Many are the anecdotes of intermodal executives getting earfuls from UPS over service delays that would throw its highly calibrated network out of kilter.
UPS's frustration with rail service has been amplified in recent years as e-commerce delivery requirements put greater stress on provider networks and as Memphis, Tenn.-based FedEx Corp., UPS's chief rival, touts faster ground transit times in many U.S. lanes. In an environment with less margin for delivery error, UPS may feel it needs to boost its reliance on teams that can travel as far as 1,000 miles so it maintains better control over its deliveries and feels more confident about hitting its transit times.
"Railroads, on their best day, are competitive with single-driver trucks," said Ted Prince, chief operating officer of Tiger Cool Express LLC, an Overland Park, Kan.-based provider of temperature-controlled intermodal service for produce and food products. Prince said the contract language is UPS's form of tough love, noting the company values its rail alliances and wants the railroads to "get back to where they used to be."
THE AMAZON EFFECT (REDUX, REDUX)
The railroads can ill afford to lose a meaningful volume of UPS business. Not only is the traffic abundant and profitable, but UPS's consummate operating knowledge is an important tool in helping the railroads improve their network flow. The latter factor could be crucial as Amazon.com Inc. becomes a more prominent intermodal user—one with the potential to replace UPS in the pantheon of high-volume users. The Seattle-based e-tailer is investing billions of dollars to develop a transport and logistics network, and intermodal is seen as a key element of that strategy. However, Amazon is still climbing the logistics learning curve, and its relative lack of operating acumen, combined with its growing volumes and incessant price demands, adds unwanted friction to the intermodal chain, according to an industry executive who asked not to be identified.
There have been more than a few episodes where intermodal train speeds and dwell times have been gummed up by Amazon shipments that are brought late to origin ramps and by shipments that sit at destinations for days, and sometimes weeks, before they are picked up and hauled to a warehouse, the executive said. "Amazon is like an unguided missile" as far as service reliability is concerned, the executive said.
What's more, Amazon expects the type of high-end service that is normally reserved for a customer like UPS but wants access to the lower rates typically obtained by more traditional trucking firms that don't have such time-sensitive transit needs, the executive added. Amazon did not respond to a request for comment.
UPS'S CHALLENGES
UPS faces several challenges of its own in maintaining strong relationships with the railroads. It can build unit trains dedicated only to its loads and position the traffic to run on high-density rail lanes. However, consistently executing such a feat is difficult even for a business of UPS's prowess.
Another is doing business with railroads that may have become complacent in regard to intermodal and may not have an all-in attitude toward investment in the category. Of the six primary North American railroads—the four U.S. rails and Canadian carriers Canadian National Inc. (CN) and Canadian Pacific Railway (CP)—only BNSF, Norfolk Southern, and CN have demonstrated a willingness to invest "in a big way to secure intermodal growth in units of traffic," according to Jim Blaze, a long-time rail consultant and author. CSX, in particular, shows little interest in cultivating intermodal business, Blaze added.
Blaze said that UPS should focus its team-driver strategy on lanes where it "detects intelligence suggesting the rail carrier in a lane or two is just too profitable and happy with its current intermodal results."
With intermodal business strong in general so far this year, the ramifications of the UPS-Teamster contract language may not yet be on a railroad's radar. Rail executives may not say publicly that they are concerned by the threat of UPS's diversion. But costing experts deep in the rails' corporate bowels may be revising their spreadsheets to account for a possible hit from the loss of UPS traffic. Accustomed to seeing numbers that include dependable, high-volume, and high-margin traffic, they might start asking some questions and raising red flags. As one source said, "They don't want to lose UPS."
“The latest data continues to show some positive developments for the freight market. However, there remain sequential declines nationwide, and in most regions,” Bobby Holland, U.S. Bank director of freight business analytics, said in a release. “Over the last two quarters, volume and spend contractions have lessened, but we’re waiting for clear evidence that the market has reached the bottom.”
By the numbers, shipments were down 1.9% compared to the previous quarter while spending dropped 1.4%. This was the ninth consecutive quarterly decrease in volume, but the smallest drop in more than a year.
Truck freight conditions varied greatly by region in the third quarter. In the West, spending was up 4.4% over the previous quarter and volume increased 1.1%. Meanwhile, in the Southeast spending declined 3.3% and shipments were down 3.0%.
“It’s a positive sign that spending contracted less than shipments. With diesel fuel prices lower, the fact that pricing didn’t erode more tells me the market is getting healthier,” Bob Costello, senior vice president and chief economist at the American Trucking Associations (ATA), said in the release.
The U.S. Bank Freight Payment Index measures quantitative changes in freight shipments and spend activity based on data from transactions processed through U.S. Bank Freight Payment, which processes more than $42 billion in freight payments annually for shippers and carriers across the U.S. The Index insights are provided to U.S. Bank customers to help them make business decisions and discover new opportunities.
Parcel giant FedEx Corp. is automating its fulfillment flows by investing in the AI robotics and autonomous e-commerce fulfillment technology firm Nimble, and announcing plans to use the San Francisco-based startup’s tech in its own returns network.
The move is significant because FedEx Supply Chain operates at a large scale, running more than 130 warehouse and fulfillment operations in North America and processing 475 million returns annually. According to FedEx, the “strategic alliance” will help to scale up FedEx Fulfillment with Nimble’s “fully autonomous 3PL model.”
“Our strategic alliance and financial investment with Nimble expands our footprint in the e-commerce space, helping to further scale our FedEx Fulfillment offering across North America,” Scott Temple, president, FedEx Supply Chain, said in a release. “Nimble’s cutting-edge AI robotics and autonomous fulfillment systems will help FedEx streamline operations and unlock new opportunities for our customers.”
According to Nimble founder and CEO Simon Kalouche, the collaboration will help enable FedEx to leverage Nimble’s “fast and cost-effective” fulfillment centers, powered by its intelligent general purpose warehouse robots and AI technology.
Nimble says that more than 90% of warehouses today still operate manually with minimal or no robotics, and even those automated warehouses use robots with limited intelligence that are restricted to just a few warehouse functions—primarily storage and retrieval. In contrast, Nimble says its “intelligent general-purpose warehouse robot” is capable of performing all core fulfillment functions including storage and retrieval, picking, packing, and sorting.
For the past seven years, third-party service provider ODW Logistics has provided logistics support for the Pelotonia Ride Weekend, a campaign to raise funds for cancer research at The Ohio State University’s Comprehensive Cancer Center–Arthur G. James Cancer Hospital and Richard J. Solove Research Institute. As in the past, ODW provided inventory management services and transportation for the riders’ bicycles at this year’s event. In all, some 7,000 riders and 3,000 volunteers participated in the ride weekend.
Photo courtesy of Dematic
For the past four years, automated solutions provider Dematic has helped support students pursuing careers in the STEM (science, technology, engineering, and mathematics) fields with its FIRST Scholarship program, conducted in partnership with the corporate nonprofit FIRST (For Inspiration and Recognition of Science and Technology). This year’s scholarship recipients include Aman Amjad of Brookfield, Wisconsin, and Lily Hoopes of Bonney Lake, Washington, who were each awarded $5,000 to support their post-secondary education. Dematic also awarded $1,000 scholarships to another 10 students.
Motive, an artificial intelligence (AI)-powered integrated operations platform, has launched an initiative with PGA Tour pro Jason Day to support the Navy SEAL Foundation (NSF). For every birdie Day makes on tour, Motive will make a contribution to the NSF, which provides support for warriors, veterans, and their families. Fans can contribute to the mission by purchasing a Jason Day Tour Edition hat at https://malbongolf.com/products/m-9189-blk-wht-black-motive-rope-hat.
MTS Logistics Inc., a New York-based freight forwarding and logistics company, raised more than $120,000 for autism awareness and acceptance at its 14th annual Bike Tour with MTS for Autism. All proceeds from the June event were donated to New Jersey-based nonprofit Spectrum Works, which provides job training and opportunities for young adults with autism.
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.”