First they wanted your parcel business. Then all they went after ground freight and international business. Now the companies best known for moving small packages have become big-time players in third-party logistics.
Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.
It seems mighty odd in retrospect. Yet back when the term 3PL, or third-party logistics, first entered the lexicon, the radical notion of handing off responsibility for this crucial business function caused barely a stir. That's not to say Corporate America greeted the notion of logistics outsourcing with a collective shrug: The topic was endlessly debated at conferences and in the trade press. But the arguments centered less on the wisdom of outsourcing logistics than on the best kind of provider. Was it wiser to use an asset-based provider that could call upon its own trucks, warehouses, or whatever in a pinch? Or was it more prudent to seek out partners with no assets to speak of but that boasted strong logistics management skills?
Barely mentioned in the debate were some very big logistics players: United Parcel Service, Federal Express, Airborne Express and a company with only a small share of U.S. business at the time, DHL. Their early entry into the third-party business escaped most people's notice. Yet they were there right from the start, opening parts depot operations in which they stored clients' inventory close to their air hubs so they could rush the parts right out when needed.
But the days when the "express" carriers' third-party services carried a low profile are long gone. Today, UPS, FedEx and DHL—which swallowed up Airborne in 2003—all operate large business units designed for clients that want to outsource all or part of their logistics operations. Their 3PL businesses have developed well beyond the parts depot operations that gave them a toehold in the market.
Today, those businesses encompass everything from ocean shipping, customs brokerage, freight forwarding, warehousing and fulfillment to consulting. What's more, these carriers bring formidable networks and technological prowess to bear on the market.
Not surprisingly, shippers are signing on in droves. For example, DHL announced in February that it had been awarded all of Caboodles Cosmetics' distribution business. Caboodles, a Memphis-based supplier of cosmetics and accessories for teens, ships to retailers from DCs in Memphis and Mississauga, Ontario, and has a huge stake in ensuring that its cross-border shipments flow smoothly. And it appears that where Caboodles' deal with DHL is concerned, it's so far, so good. "By switching to DHL, we increased our on-time delivery service performance, reduced penalties for shipment delays and significantly improved the satisfaction of our retail customers," reports Patrick Duffy, the company's transportation manager.
Replacing the engine
Like Caboodles, Hub Distributing, an Ontario, Calif.-based owner of clothing stores, just completed outsourcing its entire distribution process to UPS Supply Chain Solutions. Hub Distributing (no relation to the intermodal marketing company Hub Group) is the parent of Anchor Blue, a 157-store apparel chain that markets to mid-income 16- to 19-yearolds, and Levi's Outlets by MOST, a 50-store chain selling Levi Strauss & Co. apparel.
The decision to outsource was made by Richard Space, senior vice president of logistics for Hub Distributing, who joined the company shortly after it was acquired by Sun Capital Partners. What he found was a company with an antiquated distribution system. The former owners, Space says, "thought store operations were the most important. They didn't look at what was keeping the engine running."
The sputtering engine Space inherited clearly hadn't seen much in the way of maintenance for quite some time. "The ERP was inadequate to handle the process flow," Space recalls. "We had nine miles of conveyor, no WMS, and 550,000 square feet of space." Receiving operations had gotten bogged down to the point where products weren't available until hours after their arrival (the facility receives 5,600 cartons a day from some 250 vendors, on average). Worse yet, the company, which ships about 5,000 cartons a day to the stores, had no visibility of shipments from the time they left the facility until they arrived at the stores. Even then, store managers had to open cartons to find out what they had received.
Though Space took some intermediate steps to get the goods moving through the building faster (he installed flow racking to replace picking off pallets, for example), he quickly became convinced that the situation called for more drastic measures. "We decided after doing some due diligence that by the time we retrofitted the building and brought in a new WMS, it would cost $5 million to $7 million and take two years," he says. "We wanted it much faster than that."
Though time was of the essence, Space tried not to rush the process of reviewing the outsourcing bids he gathered. "I've gone through five or six outsourcing projects," he says. "When you're outsourcing your DC—that's your lifeblood—you want to be sure of your partner in the operation." After reviewing seven proposals, the company picked UPS. "At the end of the day," Space says, "UPS brought more to the table in terms of technology and a partnership."
Hub Distributing is hardly alone among apparel companies in taking the outsourcing route. "Clothing is a particular sweet spot [for UPS]," says Scott Carter, a vice president of consulting in UPS Supply Chain Solutions' retail and consumer products consulting services unit. Part of the reason is that the business is highly seasonal. (Space, for example, reports that Anchor Blue has two peak seasons: back to school and Christmas.) "Your typical retailer [earns] 70 percent of its revenue in a short window at the end of the year," says Carter, noting that UPS is well geared to handle seasonal business.
Of course, seasonal business isn't limited to clothing companies. Carter cites the case of another customer that makes outdoor furniture (which requested anonymity)."They have a very narrow window to sell a lot of patio furniture," he says. Using sophisticated technology, UPS set up a system that allowed the furniture maker to meet 80 percent of its demand with non-expedited freight, shipping only the final 20 percent via expedited service. It was cheaper for the company to use that expedited freight than to carry the inventory in advance or to build a permanent nfrastructure that would be needed only eight weeks a year.
Quest for world domination
For all their success, it appears that UPS, FedEx and DHL are not content to gobble up domestic business. As more U.S. companies start sourcing and selling overseas, all three are aggressively marketing their international experience and expertise. For example, FedEx Trade Networks now offers an array of international business services, including customs brokerage, air and ocean forwarding, and trade consultancy services. Along with sister companies like FedEx Ground and FedEx Freight, FedEx Trade Networks can manage the flow of goods from point of origin to final destination, often bypassing customers' distribution centers.
"Our target audience—it may be a seasonal issue—does not want to go through the normal supply chain," says Gerald Leary, FedEx Trade Networks' executive vice president and chief operating officer. "We're finding more and more companies are part of an international supply chain. We can shave two to three weeks off the transit time over putting goods into a regular DC."
Not only is it quicker, it's easier. Take the case of a FedEx customer that purchased Halloween goods in China for distribution across the United States. (Again, the customer requested anonymity.) "We did a consolidation in China that made up several container loads," Leary says. "We moved the shipment to Los Angeles, where we cleared it through Customs." Some containers went to a nearby FedEx facility for stripping and deconsolidation into individual store shipments; others moved by rail to different regions of the United States. The result, says Leary: "The customer gets distribution to 400 outlets from one consolidation, then gets a single bill."
Leary touts FedEx's technology as a key differentiator from traditional forwarding service. "We know where the product is at all times," he says.
For its part, UPS offers international services through its Trade Direct business. "Trade Direct was born out of retail customers' needs," says Carter. "They want the perfect order from a supply base thousands of miles, three languages, and eight time zones away."
The idea, he insists, is not to create express shipments, but to build what he calls "warehouses in motion.""We want to create the ability to bypass DC operations in North America and go direct to the store shelf or as near as we can. We do that by managing order flow from the purchase order to handling containers in Asia. We're creating outbound containers that are store orders, so they can be distributed directly to the store. So we reduce the material handling requirements and number of touches."
A big plus, Carter adds, is the visibility provided by UPS's service. "The customer has a consistent, high-visibility flow of goods," he says. "We create a steady flow that allows customers to make real-time decisions based on real-time information without incurring unnecessary cost. For a clothing retailer, obsolescence or lost sales are a huge cost. If he knows he's getting too many large blues, he can stop the flow and instead arrange to get the pink smalls that are flying off the store shelves."
Most of the apparel sold in North America is manufactured in Asia, meaning the finished goods travel long distances to reach end markets, with all the associated greenhouse gas emissions. On top of that, apparel manufacturing itself requires a significant amount of energy, water, and raw materials like cotton. Overall, the production of apparel is responsible for about 2% of the world’s total greenhouse gas emissions, according to a report titled
Taking Stock of Progress Against the Roadmap to Net Zeroby the Apparel Impact Institute. Founded in 2017, the Apparel Impact Institute is an organization dedicated to identifying, funding, and then scaling solutions aimed at reducing the carbon emissions and other environmental impacts of the apparel and textile industries.
The author of this annual study is researcher and consultant Michael Sadowski. He wrote the first report in 2021 as well as the latest edition, which was released earlier this year. Sadowski, who is also executive director of the environmental nonprofit
The Circulate Initiative, recently joined DC Velocity Group Editorial Director David Maloney on an episode of the “Logistics Matters” podcast to discuss the key findings of the research, what companies are doing to reduce emissions, and the progress they’ve made since the first report was issued.
A: While companies in the apparel industry can set their own sustainability targets, we realized there was a need to give them a blueprint for actually reducing emissions. And so, we produced the first report back in 2021, where we laid out the emissions from the sector, based on the best estimates [we could make using] data from various sources. It gives companies and the sector a blueprint for what we collectively need to do to drive toward the ambitious reduction [target] of staying within a 1.5 degrees Celsius pathway. That was the first report, and then we committed to refresh the analysis on an annual basis. The second report was published last year, and the third report came out in May of this year.
Q: What were some of the key findings of your research?
A: We found that about half of the emissions in the sector come from Tier Two, which is essentially textile production. That includes the knitting, weaving, dyeing, and finishing of fabric, which together account for over half of the total emissions. That was a really important finding, and it allows us to focus our attention on the interventions that can drive those emissions down.
Raw material production accounts for another quarter of emissions. That includes cotton farming, extracting gas and oil from the ground to make synthetics, and things like that. So we now have a really keen understanding of the source of our industry’s emissions.
Q: Your report mentions that the apparel industry is responsible for about 2% of global emissions. Is that an accurate statistic?
A: That’s our best estimate of the total emissions [generated by] the apparel sector. Some other reports on the industry have apparel at up to 8% of global emissions. And there is a commonly misquoted number in the media that it’s 10%. From my perspective, I think the best estimate is somewhere under 2%.
We know that globally, humankind needs to reduce emissions by roughly half by 2030 and reach net zero by 2050 to hit international goals. [Reaching that target will require the involvement of] every facet of the global economy and every aspect of the apparel sector—transportation, material production, manufacturing, cotton farming. Through our work and that of others, I think the apparel sector understands what has to happen. We have highlighted examples of how companies are taking action to reduce emissions in the roadmap reports.
Q: What are some of those actions the industry can take to reduce emissions?
A: I think one of the positive developments since we wrote the first report is that we’re seeing companies really focus on the most impactful areas. We see companies diving deep on thermal energy, for example. With respect to Tier Two, we [focus] a lot of attention on things like ocean freight versus air. There’s a rule of thumb I’ve heard that indicates air freight is about 10 times the cost [of ocean] and also produces 10 times more greenhouse gas emissions.
There is money available to invest in sustainability efforts. It’s really exciting to see the funding that’s coming through for AI [artificial intelligence] and to see that individual companies, such as H&M and Lululemon, are investing in real solutions in their supply chains. I think a lot of concrete actions are being taken.
And yet we know that reducing emissions by half on an absolute basis by 2030 is a monumental undertaking. So I don’t want to be overly optimistic, because I think we have a lot of work to do. But I do think we’ve got some amazing progress happening.
Q: You mentioned several companies that are starting to address their emissions. Is that a result of their being more aware of the emissions they generate? Have you seen progress made since the first report came out in 2021?
A: Yes. When we published the first roadmap back in 2021, our statistics showed that only about 12 companies had met the criteria [for setting] science-based targets. In 2024, the number of apparel, textile, and footwear companies that have set targets or have commitments to set targets is close to 500. It’s an enormous increase. I think they see the urgency more than other sectors do.
We have companies that have been working at sustainability for quite a long time. I think the apparel sector has developed a keen understanding of the impacts of climate change. You can see the impacts of flooding, drought, heat, and other things happening in places like Bangladesh and Pakistan and India. If you’re a brand or a manufacturer and you have operations and supply chains in these places, I think you understand what the future will look like if we don’t significantly reduce emissions.
Q: There are different categories of emission levels, depending on the role within the supply chain. Scope 1 are “direct” emissions under the reporting company’s control. For apparel, this might be the production of raw materials or the manufacturing of the finished product. Scope 2 covers “indirect” emissions from purchased energy, such as electricity used in these processes. Scope 3 emissions are harder to track, as they include emissions from supply chain partners both upstream and downstream.
Now companies are finding there are legislative efforts around the world that could soon require them to track and report on all these emissions, including emissions produced by their partners’ supply chains. Does this mean that companies now need to be more aware of not only what greenhouse gas emissions they produce, but also what their partners produce?
A: That’s right. Just to put this into context, if you’re a brand like an Adidas or a Gap, you still have to consider the Scope 3 emissions. In particular, there are the so-called “purchased goods and services,” which refers to all of the embedded emissions in your products, from farming cotton to knitting yarn to making fabric. Those “purchased goods and services” generally account for well above 80% of the total emissions associated with a product. It’s by far the most significant portion of your emissions.
Leading companies have begun measuring and taking action on Scope 3 emissions because of regulatory developments in Europe and, to some extent now, in California. I do think this is just a further tailwind for the work that the industry is doing.
I also think it will definitely ratchet up the quality requirements of Scope 3 data, which is not yet where we’d all like it to be. Companies are working to improve that data, but I think the regulatory push will make the quality side increasingly important.
Q: Overall, do you think the work being done by the Apparel Impact Institute will help reduce greenhouse gas emissions within the industry?
A: When we started this back in 2020, we were at a place where companies were setting targets and knew their intended destination, but what they needed was a blueprint for how to get there. And so, the roadmap [provided] this blueprint and identified six key things that the sector needed to do—from using more sustainable materials to deploying renewable electricity in the supply chain.
Decarbonizing any sector, whether it’s transportation, chemicals, or automotive, requires investment. The Apparel Impact Institute is bringing collective investment, which is so critical. I’m really optimistic about what they’re doing. They have taken a data-driven, evidence-based approach, so they know where the emissions are and they know what the needed interventions are. And they’ve got the industry behind them in doing that.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”
That result showed that driver wages across the industry continue to increase post-pandemic, despite a challenging freight market for motor carriers. The data comes from ATA’s “Driver Compensation Study,” which asked 120 fleets, more than 150,000 employee drivers, and 14,000 independent contractors about their wage and benefit information.
Drilling into specific categories, linehaul less-than-truckload (LTL) drivers earned a median annual amount of $94,525 in 2023, while local LTL drivers earned a median of $80,680. The median annual compensation for drivers at private carriers has risen 12% since 2021, reaching $95,114 in 2023. And leased-on independent contractors for truckload carriers were paid an annual median amount of $186,016 in 2023.
The results also showed how the demographics of the industry are changing, as carriers offered smaller referral and fewer sign-on bonuses for new drivers in 2023 compared to 2021 but more frequently offered tenure bonuses to their current drivers and with a greater median value.
"While our last study, conducted in 2021, illustrated how drivers benefitted from the strongest freight environment in a generation, this latest report shows professional drivers' earnings are still rising—even in a weaker freight economy," ATA Chief Economist Bob Costello said in a release. "By offering greater tenure bonuses to their current driver force, many fleets appear to be shifting their workforce priorities from recruitment to retention."