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.
William J. Logue knew the whole world wouldn't be watching when FedEx Freight, the less-than-truckload (LTL) unit of FedEx Corp. that he heads, rolled out its revamped service on Monday.
But he knew one person would be watching intently: Fred Smith, FedEx's founder, chairman, and CEO, and Logue's direct boss. As far as Logue and his team were concerned, it might as well have been the whole world.
A year in the planning, the reconstituted FedEx Freight took the field one week before Super Bowl XLV with the goal of forever changing the LTL game. To do so, the unit seeks to take a page from the playbook used so successfully by the parent's air express business: leverage a dual-use network design and robust information technology to give LTL shippers choices and service levels they've never had before.
The new services "reflect a unique approach to the LTL arena," Logue said in a late December e-mail interview with DC Velocity. "In general, the LTL industry [has] focused on the number of miles a shipment traveled instead of the type of service needed."
The rollout also represents FedEx's most ambitious effort yet to wring profitability from a unit that has struggled with an economic downturn, a severe freight recession, and destructive price wars that took their toll on the entire LTL field. However, the launch comes amid encouraging signs for truckers that the years of margin-denting rate discounts may finally be abating. In its fiscal second-quarter results released in mid-December, FedEx reported mid-single-digit gains in base rates for both its regional and national freight units, citing an improving overall pricing environment.
FedEx Freight's two new services—"priority" for expedited shipments that require delivery within two days, and "economy" for less-urgent deliveries (typically three days or more)—are the byproducts of extensive research into what LTL shippers want in 2011 and beyond, according to Logue.
But even as the operation gets its sea legs, the question being asked is how unique it really is. One trucking industry veteran, speaking on condition of anonymity, said shippers already have their pick of carriers offering a menu of transit times regardless of the shipment's characteristics or the length of haul.
For example, LTL carrier ABF Freight System Inc. says it has operated a dual-system network for regional and long-haul deliveries for five years. ABF launched its network in 2006 along the Eastern Seaboard, expanded it to the eastern two-thirds of the United States several years later, and will soon take it coast to coast, according to Roy Slagle, the trucker's senior vice president of sales and marketing.
"It's a proven model that meets the customer's requirements, no matter the distance," he says.
How it works
The new FedEx unit fuses the former regional and national LTL units into a single operation with one point of contact, one driver, and one truck. For the first time in its history, FedEx Freight will tap into the railroads' intermodal network to support its "economy" service, though Logue stressed it would just be for a small fraction of its moves.
Here's how it works for a hypothetical load moving from Boston to Jacksonville, Fla.: A shipment booked as "priority" is routed through a dedicated sorting facility in Newburgh, N.Y., about 50 miles north of New York City. The next morning, the cargo is loaded on the company's relay network for delivery to a dedicated hub in Valdosta, Ga. From Valdosta, the shipment is delivered to a service center in Jacksonville for two-day delivery to the consignee. The same shipment moving via "economy" service is routed through a sorting facility in Harrisburg, Pa., and then shipped to a hub in Orlando, Fla., where it is prepped for delivery on the third day to Jacksonville.
At each shipment's origin point, the cargo will be sorted and segregated based on the delivery level requested by the customer. Once the shipment arrives at the origin facility, the cargo will be scanned by on-dock computers to determine how the shipment should be loaded and the appropriate departure times.
A key distinction between the two service levels is that shipments booked for the slower deliveries will be handled in daytime sort shifts, while the expedited cargoes will move through nighttime sorts. That parallels the network design that the company's air express unit has used for decades.
The operation has hubs dedicated to each service level in addition to dual-use hubs like the one in Orlando. Logue says the dual-use hubs are located to "maximize efficiency and density as well as [to provide] access to rail facilities." The dual-use model is a "critical component" of the program's success, he adds.
As part of the restructuring, FedEx Freight shuttered 100 freight terminals, nearly 20 percent of the unit's 470 terminals. In the process, about 1,700 of the unit's 34,000 jobs were eliminated. FedEx estimates the restructuring will cost between $140 million and $170 million by the time it's completed.
No room for fumbles
As for how the new service will fare in the marketplace, a lot will depend on the execution.
Charles W. Clowdis Jr., managing director, transportation and supply chain advisory services for consultancy IHS Global Insight, says the new FedEx service could make market inroads as long as it focuses on careful and near-flawless segregation of each shipment.
In fact, Clowdis foresees a day when the network's reliability allows FedEx to offer services that "segment [shipments] by specific delivery dates and times, accompanied by appropriate pricing." From this could evolve a spate of products that guarantee deliveries before 10 a.m., by 12 noon, and the next afternoon, service levels long available to air express users but virtually unheard of in the LTL category, he says.
From an operations standpoint, it would be hard to find someone inside FedEx more qualified to quarterback the new game than Bill Logue. A 22-year FedEx veteran, Logue has held top operational positions throughout the company; before being named FedEx Freight's president in late 2009 (he added the CEO title in the spring of 2010), Logue was executive vice president and COO of FedEx Express's U.S. operations, responsible for all of the unit's air, ground, and domestic support services.
According to sources, Logue sold top management on the combination not just as a way to cut costs and improve efficiency, but to reshape the way LTL is sold in the United States and how shippers perceive its value.
Management agreed. Now, for Logue, it's game time. Mr. Smith is watching from the luxury box.
Even as a last-minute deal today appeared to delay the tariff on Mexico, that deal is set to last only one month, and tariffs on the other two countries are still set to go into effect at midnight tonight.
Once new U.S. tariffs go into effect, those other countries are widely expected to respond with retaliatory tariffs of their own on U.S. exports, that would reduce demand for U.S. and manufacturing goods. In the context of that unpredictable business landscape, many U.S. business groups have been pressuring the White House to pull back from the new policy.
Here is a sampling of the reaction to the tariff plan by the U.S. business community:
American Association of Port Authorities (AAPA)
“Tariffs are taxes,” AAPA President and CEO Cary Davis said in a release. “Though the port industry supports President Trump’s efforts to combat the flow of illicit drugs, tariffs will slow down our supply chains, tax American businesses, and increase costs for hard-working citizens. Instead, we call on the Administration and Congress to thoughtfully pursue alternatives to achieving these policy goals and exempt items critical to national security from tariffs, including port equipment.”
Retail Industry Leaders Association (RILA)
“We understand the president is working toward an agreement. The leaders of all four nations should come together and work to reach a deal before Feb. 4 because enacting broad-based tariffs will be disruptive to the U.S. economy,” Michael Hanson, RILA’s Senior Executive Vice President of Public Affairs, said in a release. “The American people are counting on President Trump to grow the U.S. economy and lower inflation, and broad-based tariffs will put that at risk.”
National Association of Manufacturers (NAM)
“Manufacturers understand the need to deal with any sort of crisis that involves illicit drugs crossing our border, and we hope the three countries can come together quickly to confront this challenge,” NAM President and CEO Jay Timmons said in a release. “However, with essential tax reforms left on the cutting room floor by the last Congress and the Biden administration, manufacturers are already facing mounting cost pressures. A 25% tariff on Canada and Mexico threatens to upend the very supply chains that have made U.S. manufacturing more competitive globally. The ripple effects will be severe, particularly for small and medium-sized manufacturers that lack the flexibility and capital to rapidly find alternative suppliers or absorb skyrocketing energy costs. These businesses—employing millions of American workers—will face significant disruptions. Ultimately, manufacturers will bear the brunt of these tariffs, undermining our ability to sell our products at a competitive price and putting American jobs at risk.”
American Apparel & Footwear Association (AAFA)
“Widespread tariff actions on Mexico, Canada, and China announced this evening will inject massive costs into our inflation-weary economy while exposing us to a damaging tit-for-tat tariff war that will harm key export markets that U.S. farmers and manufacturers need,” Steve Lamar, AAFA’s president and CEO, said in a release. “We should be forging deeper collaboration with our free trade agreement partners, not taking actions that call into question the very foundation of that partnership."
Healthcare Distribution Alliance (HDA)
“We are concerned that placing tariffs on generic drug products produced outside the U.S. will put additional pressure on an industry that is already experiencing financial distress. Distributors and generic manufacturers and cannot absorb the rising costs of broad tariffs. It is worth noting that distributors operate on low profit margins — 0.3 percent. As a result, the U.S. will likely see new and worsened shortages of important medications and the costs will be passed down to payers and patients, including those in the Medicare and Medicaid programs," the group said in a statement.
National Retail Federation (NRF)
“We support the Trump administration’s goal of strengthening trade relationships and creating fair and favorable terms for America,” NRF Executive Vice President of Government Relations David French said in a release. “But imposing steep tariffs on three of our closest trading partners is a serious step. We strongly encourage all parties to continue negotiating to find solutions that will strengthen trade relationships and avoid shifting the costs of shared policy failures onto the backs of American families, workers and small businesses.”
Businesses are scrambling today to insulate their supply chains from the impacts of a trade war being launched by the Trump Administration, which is planning to erect high tariff walls on Tuesday against goods imported from Canada, Mexico, and China.
Tariffs are import taxes paid by American companies and collected by the U.S. Customs and Border Protection (CBP) Agency as goods produced in certain countries cross borders into the U.S.
In a last-minute deal announced on Monday, leaders of both countries said the tariffs on goods from Mexico will be delayed one month after that country agreed to send troops to the U.S.-Mexico border in an attempt to stem to flow of drugs such as fentanyl from Mexico, according to published reports.
If the deal holds, it could avoid some of the worst impacts of the tariffs on U.S. manufacturers that rely on parts and raw materials imported from Mexico. That blow would be particularly harsh on companies in the automotive and electrical equipment sectors, according to an analysis by S&P Global Ratings.
However, tariff damage is still on track to occur for U.S. companies with tight supply chain connections to Canada, concentrated in commodity-related processing sectors, the firm said. That disruption would increase if those countries responded with retaliatory tariffs of their own, a move that would slow the export of U.S. goods. Such an event would hurt most for American businesses in the agriculture and fishing, metals, and automotive areas, according to the analysis from Satyam Panday, Chief US and Canada Economist, S&P Global Ratings.
To dull the pain of those events, U.S. business interests would likely seek to cushion the declines in output by looking to factors such as exchange rate movements, availability of substitutes, and the willingness of producers to absorb the higher cost associated with tariffs, Panday said.
Weighing the long-term effects of a trade war
The extent to which increased tariffs will warp long-standing supply chain patterns is hard to calculate, since it is largely dependent on how long these tariffs will actually last, according to a statement from Tony Pelli, director of supply chain resilience, BSI Consulting. “The pause [on tariffs with Mexico] will help reduce the impacts on agricultural products in particular, but not necessarily on the automotive industry given the high degree of integration across all three North American countries,” he said.
“Tariffs on Canada or Mexico will disrupt supply chains beyond just finished goods,” Pelli said. “Some products cross the US, Mexico, and Canada borders four to five times, with the greatest impact on the auto and electronics industries. These supply chains have been tightly integrated for around 30 years, and it will be difficult for firms to simply source elsewhere. There are dense supplier networks along the US border with Mexico and Canada (especially Ontario) that you can’t just pick up and move somewhere else, which would likely slow or even stop auto manufacturing in the US for a time.”
If the tariffs on either Canada or Mexico stay in place for an extended period, the effects will soon become clear, said Hamish Woodrow, head of strategic analytics at Motive, a fleet management and operations platform. “Ultimately, the burden of these tariffs will fall on U.S. consumers and retailers. Prices will rise, and businesses will pass along costs as they navigate increased expenses and uncertainty,” Woodrow said.
But in the meantime, companies with international supply chains are quickly making contingency plans for any of the possible outcomes. “The immediate impact of tariffs on trucking, freight, and supply chains will be muted. Goods already en route, shipments six weeks out on the water, and landed inventory will continue to flow, meaning the real disruption will be felt in Q2 as businesses adjust to the new reality,” Woodrow said.
“By the end of the day, companies will be deploying mitigation strategies—many will delay inventory shipments to later in the year, waiting to see if the policy shifts or exemptions are introduced. Those who preloaded inventory will likely adopt a wait-and-see approach, holding off on further adjustments until the market reacts. In the short term, sourcing alternatives are limited, forcing supply chains to pause and reassess long-term investments while monitoring policy developments,” said Woodrow.
Editor's note: This story was revised on February 3 to add input from BSI and Motive.
Businesses dependent on ocean freight are facing shipping delays due to volatile conditions, as the global average trip for ocean shipments climbed to 68 days in the fourth quarter compared to 60 days for that same quarter a year ago, counting time elapsed from initial booking to clearing the gate at the final port, according to E2open.
Those extended transit times and booking delays are the ripple effects of ongoing turmoil at key ports that is being caused by geopolitical tensions, labor shortages, and port congestion, Dallas-based E2open said in its quarterly “Ocean Shipping Index” report.
The most significant contributor to the year-over-year (YoY) increase is actual transit time, alongside extraordinary volatility that has created a complex landscape for businesses dependent on ocean freight, the report found.
"Economic headwinds, geopolitical turbulence and uncertain trade routes are creating unprecedented disruptions within the ocean shipping industry. From continued Red Sea diversions to port congestion and labor unrest, businesses face a complex landscape of obstacles, all while grappling with possibility of new U.S. tariffs," Pawan Joshi, chief strategy officer (CSO) at e2open, said in a release. "We can expect these ongoing issues will be exacerbated by the Lunar New Year holiday, as businesses relying on Asian suppliers often rush to place orders, adding strain to their supply chains.”
Lunar New Year this year runs from January 29 to February 8, and often leads to supply chain disruptions as massive worker travel patterns across Asia leads to closed factories and reduced port capacity.
That changing landscape is forcing companies to adapt or replace their traditional approaches to product design and production. Specifically, many are changing the way they run factories by optimizing supply chains, increasing sustainability, and integrating after-sales services into their business models.
“North American manufacturers have embraced the factory of the future. Working with service providers, many companies are using AI and the cloud to make production systems more efficient and resilient,” Bob Krohn, partner at ISG, said in the “2024 ISG Provider Lens Manufacturing Industry Services and Solutions report for North America.”
To get there, companies in the region are aggressively investing in digital technologies, especially AI and ML, for product design and production, ISG says. Under pressure to bring new products to market faster, manufacturers are using AI-enabled tools for more efficient design and rapid prototyping. And generative AI platforms are already in use at some companies, streamlining product design and engineering.
At the same time, North American manufacturers are seeking to increase both revenue and customer satisfaction by introducing services alongside or instead of traditional products, the report says. That includes implementing business models that may include offering subscription, pay-per-use, and asset-as-a-service options. And they hope to extend product life cycles through an increasing focus on after-sales servicing, repairs. and condition monitoring.
Additional benefits of manufacturers’ increased focus on tech include better handling of cybersecurity threats and data privacy regulations. It also helps build improved resilience to cope with supply chain disruptions by adopting cloud-based supply chain management, advanced analytics, real-time IoT tracking, and AI-enabled optimization.
“The changes of the past several years have spurred manufacturers into action,” Jan Erik Aase, partner and global leader, ISG Provider Lens Research, said in a release. “Digital transformation and a culture of continuous improvement can position them for long-term success.”
Women are significantly underrepresented in the global transport sector workforce, comprising only 12% of transportation and storage workers worldwide as they face hurdles such as unfavorable workplace policies and significant gender gaps in operational, technical and leadership roles, a study from the World Bank Group shows.
This underrepresentation limits diverse perspectives in service design and decision-making, negatively affects businesses and undermines economic growth, according to the report, “Addressing Barriers to Women’s Participation in Transport.” The paper—which covers global trends and provides in-depth analysis of the women’s role in the transport sector in Europe and Central Asia (ECA) and Middle East and North Africa (MENA)—was prepared jointly by the World Bank Group, the Asian Development Bank (ADB), the German Agency for International Cooperation (GIZ), the European Investment Bank (EIB), and the International Transport Forum (ITF).
The slim proportion of women in the sector comes at a cost, since increasing female participation and leadership can drive innovation, enhance team performance, and improve service delivery for diverse users, while boosting GDP and addressing critical labor shortages, researchers said.
To drive solutions, the researchers today unveiled the Women in Transport (WiT) Network, which is designed to bring together transport stakeholders dedicated to empowering women across all facets and levels of the transport sector, and to serve as a forum for networking, recruitment, information exchange, training, and mentorship opportunities for women.
Initially, the WiT network will cover only the Europe and Central Asia and the Middle East and North Africa regions, but it is expected to gradually expand into a global initiative.
“When transport services are inclusive, economies thrive. Yet, as this joint report and our work at the EIB reveal, few transport companies fully leverage policies to better attract, retain and promote women,” Laura Piovesan, the European Investment Bank (EIB)’s Director General of the Projects Directorate, said in a release. “The Women in Transport Network enables us to unite efforts and scale impactful solutions - benefiting women, employers, communities and the climate.”