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."
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.