Covid lockdowns in China. Moderating demand easing capacity constraints. Softening e-commerce sales as brick-and-mortar stores make a comeback. Is it just an early, temporary seasonal lull for parcel carriers or a harbinger of a shifting market?
Gary Frantz is a contributing editor for DC Velocity and its sister publication, Supply Chain Xchange. He is a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He's served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He's a proud graduate of the Journalism program at California State University–Chico.
A year ago, parcel carriers were awash in e-commerce–fueled shipments as homebound consumers, flush with Covid-stimulus cash, flocked online to buy everything from foodstuffs to furniture to home-improvement goods. Home deliveries and overall parcel volumes exploded. E-commerce levels once expected to take four years to reach arrived with a vengeance in 2021, stressing carrier service levels and consuming capacity.
A year later, e-commerce continues to drive strong parcel volumes. Despite consumers once again cruising the aisles at shopping malls, department stores, and big-box warehouses, those millions who discovered the ease and convenience of buying online and home delivery during the pandemic aren’t abandoning their digital shopping carts. They’re online, they’re staying there, they’re ordering nearly as much as ever, and they’re not going back.
The first quarter of 2022 saw parcel carriers report strong earnings and growth. Yet despite confidence in continued growth, the picture coming into focus for the remainder of 2022 is muddled. Challenges abound from issues already present and on the horizon: Painful, persistent inflation. Shrinking consumer paychecks and increasing living expenses across the board. Rising interest rates. Record-high gas prices. Continued supply hiccups impacting the production of everything from refrigerators to automobiles. And a stubborn resurgence of Covid-19 cases in China that’s locked down Shanghai’s port, has delayed ships, and threatens a repeat of last year’s port logjams and supply chain delays.
John Janson is senior director of global logistics at promotional products company SanMar, which operates eight distribution centers around the country and dispatches some 100,000 parcel shipments each night. He recalls seeing a recent overhead view of the Port of Shanghai and the surrounding waters. “You could hardly see water,” there were so many ships parked offshore, he notes. And stacks and stacks of containers waiting on shore. Rising Covid cases had dramatically curtailed port operations.
As cases subside and the port plays catchup, he fears “the potential to throw us right back into a very congested period” as a delayed surge of goods—a “bullwhip effect,” if you will—begins to make its way across the ocean, hitting U.S. ports in early to mid-June. “You look at the number of container moves Shanghai can do in an hour, and what they can do at [the ports of] Long Beach and Los Angeles. Just do the math. It will be hard for Los Angeles and Long Beach to catch up.”
He adds that the current negotiations between U.S. port operators and the International Longshore and Warehouse Union, which began in mid-May, create another potential concern. “We can’t afford to have the West Coast go on strike,” Janson says. He estimates that a one-week strike, timed just as the China surge of ships is arriving, “will cause three- to four-week delays in supply chain flows.”
David Gonzalez, VP analyst with research firm Gartner, echoes Janson’s China concerns. “We … expect service issues [on the Asia trades] and maybe some [canceled] sailings by ship lines as they try to recover from the delays.” He also notes that any significant resurgence of Covid cases in the U.S. would have supply chain implications as well, as rising cases could disrupt the pool of warehouse workers, truckers, and other logistics personnel who keep parcel volumes flowing.
THE CHALLENGE OF “UGLY” FREIGHT
Nevertheless, shippers are devising strategies and parcel carriers are marshaling their resources to meet the challenges, and hopefully continue the momentum they’ve enjoyed so far this year. Some dynamics that all players seem to agree on: Rates will increase, fuel and peak surcharges and accessorials will continue to be imposed, and carriers will do all they can to avoid odd-sized “ugly” shipments that are difficult and expensive to handle.
“Carriers have become very disciplined in understanding the effect of large and bulky packages,” notes Satish Jindel, chief executive officer of analytics firm ShipMatrix, adding that “it’s only ugly if it has bad pricing. When one of those [big and bulky shipments] displaces 10 or 20 smaller parcels, [carriers] are intent on making sure that the big and bulky shipment generates the same, or closer to the same, amount of revenue.”
Jindel adds that those shippers who want to secure reliable capacity will do best by forecasting their needs more precisely and updating them regularly; making their freight as efficient as possible for parcel carriers to pick up, process, and deliver; and helping carriers maximize use of every cubic foot of space on the truck.
Carol Tomé, chief executive officer of parcel giant UPS, in its first-quarter 2022 earnings conference call, noted as well the focus on quality traffic, improving productivity, and strengthening customer relationships. “We continue to pivot toward opportunity,” she said. “We are leveraging the power of our data to become much more agile. Under our ‘Better, not bigger’ framework, we are investing in the capabilities that matter most to our customers … this is about creating a frictionless customer experience.”
Technology investments are driving both better customer experiences and productivity gains at UPS. One initiative, its “Digital Access Program” (DAP), is helping speed the customer onboarding process, particularly with small and medium-sized businesses. In the first quarter, UPS created more than 500,000 DAP customer accounts, which is more than three times the number created in the first quarter of last year, Tomé said.
Investments in automated facilities along with productivity initiatives have enabled the company to eliminate 1,300 trailer loads per day. And the rollout of RFID (radio-frequency identification) technology, to be completed at 100 sort centers in 2022, is expected to eliminate manual scanning by pre-loaders and help reduce mis-sorts. “We’re really about putting our resources where we can get the highest return,” Tomé said.
As for pricing, “[it’s] really a function of demand and supply, and there is still a demand and supply imbalance, particularly in certain geographies around the world,” she said.
With respect to e-commerce behemoth Amazon, Tomé commented, “We have a very good relationship with Amazon. They are our largest customer,” she said, adding “we’ve reached agreement with Amazon about the packages that we will take in our network and the packages they will deliver on their behalf. And it’s a mutually beneficial relationship.”
POOR PACKAGING PRACTICES RAISE COSTS
Still, as shippers struggle to cope with the steady rise in parcel rates and challenges securing ample, consistent capacity, there remain cost-saving and efficiency-driving steps they can undertake to make their parcel traffic more attractive to carriers.
One area is packaging. “Shippers can focus on smarter packaging,” notes Helane Becker, who follows the parcel carrier market as senior research analyst covering airlines and air-related industries for investment firm Cowen & Co. “The one thing we still hear constantly is all these trucks cube out before they weigh out,” she says, noting that too often, shippers are putting a tiny box into a large box, wasting precious space and paying more than they should.
She recommends that shippers take advantage of services and resources available from both UPS and FedEx, which offer packaging tips “to help them ship more ‘ecofriendly’ and more efficiently, with less wasted space.”
ShipMatrix’s Jindel agrees. “[Shippers] need to work on getting rid of the ‘one-pound product tossed in a box that is designed for 15 pounds’ mentality,” he notes. He cites the example of a tube of mascara, which a colleague recently ordered. “A one- by three-inch tube, already packed in a small (1.5- by 1.5- by 3.75-inch) box came in a five- by eight- by 11-inch box. That’s 50 times the cube of the package it was already in. That’s a tremendous waste of packaging and shipping capacity. And the consumer is paying extra” for that unused space.
“Transportation is perishable,” explains Jindel. “If you don’t use it on the day you have it, it’s gone the next day.”
FINDING PILOTS, TRUCKERS, WAREHOUSE WORKERS
Cowen’s Becker points to another intractable, and likely worsening, issue for shippers and parcel carriers: finding and keeping enough skilled workers to work in warehouses and fulfillment centers, drive trucks, deliver parcels, and fly freighter aircraft. “We talked a lot about this during the past peak season,” she notes. “In 2018, UPS was hiring seasonal workers for $13 an hour. This past peak, it was hiring at $25 an hour. That’s a huge increase in labor expense.”
She also cites the projected retirement of aircargo pilots. “UPS and FedEx have a fair number of pilots retiring this decade,” she notes. At the same time, the traditional pool of replacement pilots, which normally come from regional passenger airlines, is under pressure from all-cargo airlines like Atlas Air and Amazon’s growing freighter fleet, which are hiring aggressively.
“We think pilot attrition in the regional airline industry is somewhere between 10% and 25%,” Becker says. “Forecasts project that the airline industry will have to hire 10,000 pilots a year to make up for attrition,” she notes. Yet the U.S. “only trains 5,000 a year.” She cited a comment by United Airlines’ CEO, who projects the shortage will last five years.
In the meantime, Becker says, “to the extent they can, [parcel carriers] will try to shift all they can from air to road,” where they will run smack into a shortage of drivers for trucks. “If you have to pay more to attract drivers, you are going to raise rates to cover it, and that just creates additional inflationary pressure.”
At the end of the day, “shippers who have undesirable freight will pay a heavy price for it,” says SanMar’s Janson. “Those who pit one carrier against [another] are the ones who will struggle and will face capacity constraints. [Parcel carriers] want to work with shippers who recognize the challenges they face and will work with them to help optimize their networks and the finite capacity they have available.”
Economic activity in the logistics industry expanded in January, growing at its fastest clip in more than two years, according to the latest Logistics Managers’ Index (LMI) report, released this week.
The LMI jumped nearly five points from December to a reading of 62, reflecting continued steady growth in the U.S. economy along with faster-than-expected inventory growth across the sector as retailers, wholesalers, and manufacturers attempted to manage the uncertainty of tariffs and a changing regulatory environment. The January reading represented the fastest rate of expansion since June 2022, the LMI researchers said.
An LMI reading above 50 indicates growth across warehousing and transportation markets, and a reading below 50 indicates contraction. The LMI has remained in the mid- to high 50s range for most of the past year, indicating moderate, consistent growth in logistics markets.
Inventory levels rose 8.5 points from December, driven by downstream retailers stocking up ahead of the Trump administration’s potential tariffs on imports from Mexico, Canada, and China. Those increases led to higher costs throughout the industry: inventory costs, warehousing prices, and transportation prices all expanded to readings above 70, indicating strong growth. This occurred alongside slowing growth in warehousing and transportation capacity, suggesting that prices are up due to demand rather than other factors, such as inflation, according to the LMI researchers.
The LMI is a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
As commodities go, furniture presents its share of manufacturing and distribution challenges. For one thing, it's bulky. Second, its main components—wood and cloth—are easily damaged in transit. Third, much of it is manufactured overseas, making for some very long supply chains with all the associated risks. And finally, completed pieces can sit on the showroom floor for weeks or months, tying up inventory dollars and valuable retail space.
In other words, the furniture market is ripe for disruption. And John "Jay" Rogers wants to be the catalyst. In 2022, he cofounded a company that takes a whole new approach to furniture manufacturing—one that leverages the power of 3D printing and robotics. Rogers serves as CEO of that company, Haddy, which essentially aims to transform how furniture—and all elements of the "built environment"—are designed, manufactured, distributed, and, ultimately, recycled.
Rogers graduated from Princeton University and went to work for a medical device startup in China before moving to a hedge fund company, where he became a Chartered Financial Analyst (CFA). After that, he joined the U.S. Marine Corps, serving eight years in the infantry. Following two combat tours, he earned an MBA from the Harvard Business School and became a consultant for McKinsey & Co.
During this time, he founded Local Motors, a next-generation vehicle manufacturer that launched the world's first 3D-printed car, the Strati, in 2014. In 2021, he brought the technology to the furniture industry to launch Haddy. The father of four boys, Rogers is also a director of the RBR Foundation, a philanthropic organization focused on education and health care.
Rogers spoke recently with DC Velocity Group Editorial Director David Maloney on an episode of the "Logistics Matters" podcast.
Q: Could you tell us about Haddy and how this unique company came to be?
A: Absolutely. We have believed in the future of distributed digital manufacturing for a long time. The world has gone from being heavily globalized to one where lengthy supply chains are a liability—thanks to factors like the growing risk of terrorist attacks and the threat of tariffs. At the same time, there are more capabilities to produce things locally. Haddy is an outgrowth of those general trends.
Adoption of the technologies used in 3D printing has been decidedly uneven, although we do hear about applications like tissue bioprinting and food printing as well as the printing of trays for dental aligners. At Haddy, we saw an opportunity to take advantage of large-scale structural printing to approach the furniture and furnishings industry. The technology and software that make this possible are already here.
Q: Furniture is a very mature market. Why did you see this as a market that was ripe for disruption?
A:The furniture market has actually been disrupted many times in the last 200 years. The manufacturing of furniture for U.S. consumption originally took place in England. It then moved to Boston and from there to New Amsterdam, the Midwest, and North Carolina. Eventually, it went to Taiwan, then China, and now Vietnam, Indonesia, and Thailand. And each of those moves brought some type of disruption.
Other disruptions have been based on design. You can look at things like the advent of glue-laminated wood with Herman Miller, MillerKnoll, and the Eames [furniture design and manufacturing] movement. And you can look at changes in the way manufacturing is powered—the move from manual operations to machine-driven operations powered by steam and electricity. So the furniture industry has been continuously disrupted, sometimes by labor markets and sometimes by machines and methods.
What's happening now is that we're seeing changes in the way that labor is applied in furniture manufacturing. Furniture has traditionally been put together by human hands. But today, we have an opportunity to reassign those hands to processes that take place around the edges of furniture production. The hands are now directing robotics through programming and design; they're not actually making the furniture.
And so, we see this mature market as being one that's been continuously disrupted during the last 200 years. And this disruption now has a lot to do with changing the way that labor interacts with the making of furniture.
Q: How do your 3D printers actually create the furniture?
A:All 3D printing is not the same. The 3D printers we use are so-called "hybrid" systems. When we say hybrid, what we mean is that they're not just printers—they are holders, printers, polishers, and cutters, and they also do milling and things like that. We measure things and then print things, which is the additive portion. Then we can do subtractive and polishing work—re-measuring, moving, and printing parts again. And so, these hybrid systems are the actual makers of the furniture.
Q: What types of products are you making?
A: We've started with hardline or case goods, as they're sometimes known, for both residential and commercial use—cabinets, wall bookshelves, freestanding bookshelves, tables, rigid chairs, planters, and the like. Basically, we've been concentrating on products that don't have upholstery.
It's not that upholstery isn't necessary in furniture, as it is used in many pieces. But right now, we have found that digital furniture manufacturing becomes analog again when you have to factor in the sewing process. And so, to move quickly and fully leverage the advantages of digital manufacturing, we're sticking to the hardline groups, except for a couple of pieces that we have debuted that have 3D-printed cushions, which are super cool.
Q: Of course, 3D printers create objects in layers. What types of materials are you running through your 3D printers to create this furniture?
A: We use recycled materials, primarily polymer composites—a bio-compostable polymer or a synthetic polymer. We look for either recycled or bio-compostable [materials], which we then reinforce with fibers and fillers, and that's what makes them composites. To create the bio-compostables, we marry them with bio-fibers, such as hemp or bamboo. For synthetic materials, we marry them with things like glass or carbon fibers.
Q: Does producing goods via 3D printing allow you to customize products easily?
A: Absolutely. The real problem in the furniture and furnishings industries is that when you tool up to make something with a jig, a fixture, or a mold, you tend to be less creative because you now feel you have to make and sell a lot of that item to justify the investment.
One of the great promises of 3D printing is that it doesn't have a mold and doesn't require tooling. It exists in the digital realm before it becomes physical, and so customization is part and parcel of the process.
I would also add that people aren't necessarily looking for one-off furniture. Just because we can customize doesn't mean we're telling customers that once we've delivered a product, we break the digital mold, so to speak. We still feel that people like styles and trends created by designers, but the customization really allows enterprise clients—like businesses, retailers, and architects—to think more freely.
Customization is most useful in allowing people to "iterate" quickly. Our designers can do something digitally first without having to build a tool, which frees them to be more creative. Plus, because our material is fully recyclable, if we print something for the first time and find it doesn't work, we can just recycle it. So there's really no penalty for a failed first printing—in fact, those failures bring their own rewards in the form of lessons we can apply in future digital and physical iterations.
Q: You currently produce your furniture in an automated microfactory in Florida, with plans to set up several more. Could you talk a little about what your microfactory looks like and how you distribute the finished goods?
A: Our microfactory is a 30,000-square-foot box that mainly contains the robots that make our furniture along with shipping docks. But we don't intend for our microfactories to be storage warehouses and trans-shipment facilities like the kind you'd typically see in the furniture industry—all of the trappings of a global supply chain. Instead, a microfactory is meant to be a site where you print the product, put it on a dock, and then ship it out. So a microfactory is essentially an enabler of regional manufacturing and distribution.
Q: Do you manufacture your products on a print-to-order basis as opposed to a print-to-stock model?
A: No. We may someday get to the point where we receive an order digitally, print it, and then send it out on a truck the next day. But right now, we aren't set up to do a mini-delivery to one customer out of a microfactory.
We are an enterprise company that partners with architects, designers, builders, and retailers, who then distribute our furnishings to their customers. We are not trying to go direct-to-consumer at this stage. It's not the way a microfactory is set up to distribute goods.
Q: You've mentioned your company's use of recycled materials. Could you talk a little bit about other ways you're looking to reduce waste and help support a circular economy?
A: Yes. Sustainability and a circular economy are really something that you have to plan for. In our case, our plans call for moving toward a distributed digital manufacturing model, where we establish microfactories in various regions around the world to serve customers within a 10-hour driving radius of the factory. That is a pretty large area, so we could cover the United States with just four or five microfactories.
That also means that we can credibly build our recycling network as part of our microfactory setup. As I mentioned, we use recycled polymer stock in our production, so we're keeping that material out of a landfill. And then we tell our enterprise customers that while the furniture they're buying is extremely durable, when they're ready to run a special and offer customers a credit for turning in their used furniture, we'll buy back the material. Buying back that material actually reduces our costs because it's already been composited and created and recaptured. So our microfactory network is well designed for circularity in concert with our enterprise customers.
Generative AI (GenAI) is being deployed by 72% of supply chain organizations, but most are experiencing just middling results for productivity and ROI, according to a survey by Gartner, Inc.
That’s because productivity gains from the use of GenAI for individual, desk-based workers are not translating to greater team-level productivity. Additionally, the deployment of GenAI tools is increasing anxiety among many employees, providing a dampening effect on their productivity, Gartner found.
To solve those problems, chief supply chain officers (CSCOs) deploying GenAI need to shift from a sole focus on efficiency to a strategy that incorporates full organizational productivity. This strategy must better incorporate frontline workers, assuage growing employee anxieties from the use of GenAI tools, and focus on use-cases that promote creativity and innovation, rather than only on saving time.
"Early GenAI deployments within supply chain reveal a productivity paradox," Sam Berndt, Senior Director in Gartner’s Supply Chain practice, said in the report. "While its use has enhanced individual productivity for desk-based roles, these gains are not cascading through the rest of the function and are actually making the overall working environment worse for many employees. CSCOs need to retool their deployment strategies to address these negative outcomes.”
As part of the research, Gartner surveyed 265 global respondents in August 2024 to assess the impact of GenAI in supply chain organizations. In addition to the survey, Gartner conducted 75 qualitative interviews with supply chain leaders to gain deeper insights into the deployment and impact of GenAI on productivity, ROI, and employee experience, focusing on both desk-based and frontline workers.
Gartner’s data showed an increase in productivity from GenAI for desk-based workers, with GenAI tools saving 4.11 hours of time weekly for these employees. The time saved also correlated to increased output and higher quality work. However, these gains decreased when assessing team-level productivity. The amount of time saved declined to 1.5 hours per team member weekly, and there was no correlation to either improved output or higher quality of work.
Additional negative organizational impacts of GenAI deployments include:
Frontline workers have failed to make similar productivity gains as their desk-based counterparts, despite recording a similar amount of time savings from the use of GenAI tools.
Employees report higher levels of anxiety as they are exposed to a growing number of GenAI tools at work, with the average supply chain employee now utilizing 3.6 GenAI tools on average.
Higher anxiety among employees correlates to lower levels of overall productivity.
“In their pursuit of efficiency and time savings, CSCOs may be inadvertently creating a productivity ‘doom loop,’ whereby they continuously pilot new GenAI tools, increasing employee anxiety, which leads to lower levels of productivity,” said Berndt. “Rather than introducing even more GenAI tools into the work environment, CSCOs need to reexamine their overall strategy.”
According to Gartner, three ways to better boost organizational productivity through GenAI are: find creativity-based GenAI use cases to unlock benefits beyond mere time savings; train employees how to make use of the time they are saving from the use GenAI tools; and shift the focus from measuring automation to measuring innovation.
According to Arvato, it made the move in order to better serve the U.S. e-commerce sector, which has experienced high growth rates in recent years and is expected to grow year-on-year by 5% within the next five years.
The two acquisitions follow Arvato’s purchase three months ago of ATC Computer Transport & Logistics, an Irish firm that specializes in high-security transport and technical services in the data center industry. Following the latest deals, Arvato will have a total U.S. network of 16 warehouses with about seven million square feet of space.
Terms of the deal were not disclosed.
Carbel is a Florida-based 3PL with a strong focus on fashion and retail. It offers custom warehousing, distribution, storage, and transportation services, operating out of six facilities in the U.S., with a footprint of 1.6 million square feet of warehouse space in Florida (2), Pennsylvania (2), California, and New York.
Florida-based United Customs Services offers import and export solutions, specializing in remote location filing across the U.S., customs clearance, and trade compliance. CTPAT-certified since 2007, United Customs Services says it is known for simplifying global trade processes that help streamline operations for clients in international markets.
“With deep expertise in retail and apparel logistics services, Carbel and United Customs Services are the perfect partners to strengthen our ability to provide even more tailored solutions to our clients. Our combined knowledge and our joint commitment to excellence will drive our growth within the US and open new opportunities,” Arvato CEO Frank Schirrmeister said in a release.
And many of them will have a budget to do it, since 51% of supply chain professionals with existing innovation budgets saw an increase earmarked for 2025, suggesting an even greater emphasis on investing in new technologies to meet rising demand, Kenco said in its “2025 Supply Chain Innovation” survey.
One of the biggest targets for innovation spending will artificial intelligence, as supply chain leaders look to use AI to automate time-consuming tasks. The survey showed that 41% are making AI a key part of their innovation strategy, with a third already leveraging it for data visibility, 29% for quality control, and 26% for labor optimization.
Still, lingering concerns around how to effectively and securely implement AI are leading some companies to sidestep the technology altogether. More than a third – 35% – said they’re largely prevented from using AI because of company policy, leaving an opportunity to streamline operations on the table.
“Avoiding AI entirely is no longer an option. Implementing it strategically can give supply chain-focused companies a serious competitive advantage,” Kristi Montgomery, Vice President, Innovation, Research & Development at Kenco, said in a release. “Now’s the time for organizations to explore and experiment with the tech, especially for automating data-heavy operations such as demand planning, shipping, and receiving to optimize your operations and unlock true efficiency.”
Among the survey’s other top findings:
there was essentially three-way tie for which physical automation tools professionals are looking to adopt in the coming year: robotics (43%), sensors and automatic identification (40%), and 3D printing (40%).
professionals tend to select a proven developer for providing supply chain innovation, but many also pick start-ups. Forty-five percent said they work with a mix of new and established developers, compared to 39% who work with established technologies only.
there’s room to grow in partnering with 3PLs for innovation: only 13% said their 3PL identified a need for innovation, and just 8% partnered with a 3PL to bring a technology to life.