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 nation's leading shipper executives didn't rise to the top of their profession by accident. It took resourcefulness and determination, honed by decades of experience and results, to get to where they are.
They will need all of those qualities, and then some, to cope with what is coming at them. However, underestimating their cat-skinning abilities could be a mistake.
To be sure, the obstacles are daunting. To begin with, there's the run-up in fuel costs. The average national price of diesel fuel rose to more than $4.10 a gallon as of April 18, according to the Department of Energy's Energy Information Administration. In California, diesel prices reached a near-punitive $4.44 a gallon. As this story was written, the national average had risen by $1.03 a gallon from mid-April 2010 levels, hitting its highest point since August 2008, when diesel reached a monthly average of $4.30 a gallon. As of mid-April, fuel had surpassed labor as the largest expense for many truckers.
At the same time, tractor counts continue to shrink at a rate that has alarmed even the most seasoned shipper executives. A spate of bankruptcies and a weak economy that forced rigs and trailers off the road has led to a 16-percent decline in truckload capacity from the industry's 2006 peak, according to Transport Capital Partners, a transport mergers and acquisitions advisory firm.
A monthly Shippers' Condition Index (SCI) published by the Nashville, Ind.-based consultancy FTR Associates declined in April to levels not seen since 2004, the firm said in mid-April. The index, which sums up all "market influences" affecting shippers, came in at -7.7 in April, FTR said. A reading below zero reflects an unfavorable climate for shippers.
"Shippers are being hit in two ways as ... base rates are moving higher for all major modes and fuel surcharges are surging," said Larry Gross, senior consultant for FTR. "While there might be some relief later in the year on fuel surcharges, we expect base rates to continue to increase." Although estimates vary, consultancy IHS Global Insight says the average fuel surcharge today is equal to one-fourth of the truckers' base rate for line-haul service.
Tactical maneuvers
Transport costs were much on the minds of an elite group of about 100 shipper executives gathered in Atlanta in mid-April at a conference hosted by Georgia Tech's Supply Chain & Logistics Institute. Executives and analysts attending the National Logistics & Distribution Conference voiced concerns that as fuel surcharges course through the supply chain, the result will be a surge in consumer prices—perhaps as early as the summer—to levels the nation hasn't seen for decades.
One executive, speaking without being identified, said that unless oil prices receded quickly and dramatically, "I don't see how we can avoid consumer price inflation in the double digits later this year."
Yet there was also a sense that shippers will find their way through the morass. From the use of "load bars" that can reduce damage claims by securing freight aboard a trailer, to the development of capacity-sharing arrangements, to paying bonuses to drivers to finish local multi-stop routes earlier than planned to save time and fuel, to simply asking partners if they could adjust their delivery schedules to accept less-expensive services, shippers and truckers will look under every rock in their bid to neutralize higher fuel spend with better productivity—and cost savings—elsewhere.
"I can't offset it completely, but I can minimize the hurt," said Gough Grubbs, senior vice president of logistics and distribution for Stage Stores, a Houston-based retail chain with more than 780 stores operating under the Goody's, Bealls, Palais Royal, Peebles, and Stage brands.
Stage has begun a pooling program with other retailers that operate in roughly the same geographic footprint, Grubbs said. Under the program, Stage's competitors bring their small parcels to one of the company's distribution centers, located in South Hill, Va.; Jeffersonville, Ohio; and Jacksonville, Texas. Once those shipments arrive, Stage will break down the trailers and cross-dock the shipments onto its own trailers—along with its own goods—for outbound truckload deliveries to its 21 hubs that augment the DCs.
The pooling agreement has three-tiered benefits, according to Grubbs. Stage's rivals, which were forced to pay much-higher small-parcel rates because they lacked the density to build less-costly truckloads, now have access to truckload pricing because their shipments ride along with Stage's freight. Stage benefits by filling its trailers faster, thus avoiding the cost of holding a rig and trailer overnight to build a truckload. And the trucker gains by having more freight to transport. In addition, service levels increase because the supply chain is effectively sped up, Grubbs said.
Stage has already signed up two retailers, the names of which Grubbs wouldn't disclose. A third was expected to come on board by the end of May, and talks were ongoing with six more retailers, he said.
The agreement and others like it herald a new era in supply chain cooperation, Grubbs said. Today's mantra is "we compete on the shelf and collaborate in the supply chain," he said, adding that the company "welcomes any inquiries from companies who believe their circumstances fit this model."
At the heart of Stage's strategy is to create as many truckload shipments as possible and reduce its reliance on less-than-truckload (LTL) or small-parcel service, where the shipping costs can be up to 40 percent greater. Grubbs estimates that about 90 percent of Stage's annual inbound deliveries of 9 million cartons now move in truckload service, up from about 70 percent four to five years ago.
Going for full loads
Converting freight from LTL to less-costly truckload service is also the holy grail of The Home Depot Inc.'s five-year supply chain transformation plan, which is now nearing completion. The Atlanta-based home improvement giant has created 19 "rapid deployment centers" (RDCs), which are flow-through facilities that, as with Stage's plan, enable the cross-docking of large quantities of merchandise.
By leveraging the RDCs, suppliers who used to ship direct to stores using LTL service can now consolidate their shipments into truckload quantities for shipping to the facilities.
Mark Holifield, Home Depot's senior vice president, supply chain, said the company should realize 40 basis points—roughly 0.4 of 1 percent—of profit margin improvement largely through the savings in converting LTL to truckload. Given the company's $55 billion in annual sales, that level of margin expansion is significant, Holifield said.
In addition, Home Depot is looking to share capacity with other retailers on its dedicated contract carrier network, according to Michelle D. Livingstone, the company's vice president, supply chain-transportation. Under the dedicated concept, a shipper commits to a multi-year contract where it tenders a certain amount of volume and pays for transportation on a round-trip basis. In return, the shipper gets predictable capacity and pricing, no small matter in the current volatile environment.
Holifield said that Home Depot, one of the world's largest users of LTL services, would like to dramatically shrink its use of LTL. Both he and Livingstone stressed, however, that the company would always rely on LTL to some degree, given the requirements of its supply chain.
An orderly approach
Some shipping executives may be loath to re-engineer their networks in response to the current fuel pressures, perhaps not feeling the same sense of urgency today after recalling how the 2008 spike was followed by an equally violent price downdraft after the economy collapsed.
Chuck Taylor, whose firm consults with companies on the interconnections between energy and the supply chain, said shippers and carriers were so focused on surviving the recession and riding the recovery that they paid scant attention to escalating oil prices. The recent run-up, he said, "is catching many off guard."
Taylor, who has long preached that the supply chain must adjust to permanently elevated oil prices, said he has "heard nothing about any new or innovative approaches" to counteract rising energy costs. "It seems to be a stunned acceptance of higher fuel prices followed by the usual beat-the-carrier-down approach," he said.
Starbucks Coffee Co. is trying to take an orderly approach to the problem. For the past year, the Seattle-based giant, which each year consumes about 7 million gallons of fuel moving product from its DCs to its thousands of retail stores, has been modeling various supply chain scenarios and responses with oil at different price points, according to Gregory Javor, Starbucks' senior vice president, supply chain operations, global logistics.
Javor told the conference that with diesel fuel prices at mid-April levels, the company is "ready for a refresh" of its transport network requirements. It is considering expanding its current DC capabilities, and adding to its network of five regional facilities to bring inventory closer to its customers, Javor said. Starbucks has tripled its use of more cost-effective intermodal service on inbound consignments into its DCs and will use more intermodal if necessary, Javor said.
In the past 12 months, Starbucks has cut fuel usage 3.6 percent by reducing delivery frequencies, reconfiguring the location of what it terms its "last-mile facilities," and integrating more energy-efficient vehicles into its fleet, Javor said. The company will continue to drill deep into its transportation system to uncover cost-saving opportunities, he added. "Transportation connects all the dots," Javor said in an interview following his presentation.
Brian P. Clancy, managing director and co-founder of Logistics Capital & Strategy LLC, an Arlington, Va.-based consultancy, said higher fuel prices will force many businesses to shrink the length of haul from DC to retailer, and to ship in large quantities to achieve economies of scale. "To accomplish this, additional and larger warehouses will be needed, which implies more stock and higher inventory levels and costs," he told the group.
Clancy said the big winner in all of this could be Mexico, a country where cumbersome regulations, primitive infrastructure, a reputation for corruption, and language barriers have kept many producers away. With fuel and transport costs on the rise, however, producing closer to the U.S. market is starting to look more attractive than manufacturing in Asia and shipping across the Pacific. In a recent survey by his firm of 250 U.S., European, and Asian manufacturers with a presence in Mexico, 200 said they plan to either maintain or expand operations there.
"Mexico is finally going to get its turn," he said.
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."