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.
Every business sector has a tipping point. For the cluster of companies providing regional parcel shipping services in the United States, the tipping point may very well have been Jan. 30, 2009.
On that date, DHL Express, one of the "Big Three" parcel companies, ceased domestic operations, effectively ceding the $55 billion a year market to FedEx Corp. and UPS Inc. With DHL gone, parcel shippers feared it would just be a matter of time before the two behemoths leveraged their duopoly status to raise rates, jack up fees for add-on services, and generally behave in ways that resembled a 1,600-pound pachyderm rather than two 800-pound gorillas.
In the Boston suburb of Woburn, Mass., James A. Berluti, president and CEO of Eastern Connection, a regional parcel firm whose network extends from Maine to Virginia, also saw the writing on the wall. He realized that, at some point, the marketplace would demand a third-party player to check the actions of the big boys, especially since DHL had been the low-price provider. Barring the entry of another large national carrier, a scenario deemed highly unlikely, established regional players like Eastern Connection would need to step up and fill the void, he reasoned.
Nearly three years later, much of what parcel shippers envisioned has come true. FedEx and UPS have raised their base rates in almost identical fashion; increased the number of "accessorials"—add-on charges for services beyond basic transportation—and hiked prices on those as well; changed the formula for measuring the dimensions of light-density packages in a way that has led to double-digit rate increases on non-compliant shippers, and begun phasing out relationships with third-party consultants retained by shippers to help them save money on parcel services.
The search for alternatives
In the meantime, Berluti's vision has also come to fruition: As shippers have begun to weary of the duopoly's practices and to seek alternate remedies, the regional carriers' value proposition has never seemed more relevant.
DHL's exit "would become the most important event in the history of the regionals," said Berluti, who co-founded his firm in 1983.
As it happens, FedEx and UPS have become the regionals' best marketing tools. "The strategy of the big two has opened the door for regional carriers to get a more welcome reception from shippers than they have in the past," said Douglas O. Kahl, a consultant with TranzAct Technologies Inc., an Elmhurst, Ill.-based transportation consultancy.
Added Craig Heurung, who heads sales for Spee-Dee Delivery Service Inc., a St. Cloud, Minn.-based regional carrier that serves eight states in the Midwest, "some our best leads are driven to us by FedEx and UPS."
Heurung said most of Spee-Dee's business comes from FedEx and UPS customers disenchanted with the rapid proliferation of accessorial charges that can significantly drive up the total shipping tab. "People are simply sick and tired of the add-on fees that they continue to pile on," said Heurung, noting that the increases in accessorial fees are in many cases outpacing the hikes in transportation charges.
The regional difference
The regionals don't pretend to be all things to all shippers. They don't have the resources to map out a national footprint supported by the high-tech tools demanded by many large shippers to manage their shipment visibility. The U.S. Southeast—and particularly Florida—currently lacks any significant regional carrier presence.
While there are no firm figures because the regionals are privately held, it is estimated the sector's total revenue is about $500 million a year, a fraction of FedEx's and UPS's total annual revenue of about $90 billion. On average, UPS moves as many packages and envelopes in two days as the largest regional carrier will handle in a year.
In addition, regional carriers can't gain much traction among larger shippers because they already enjoy significant volume-based discounts from either FedEx or UPS. As a result, the regionals focus on small to mid-sized shippers who often lack the leverage to get price breaks from the two giants.
However, the composition of the regionals' networks allows them to do what FedEx and UPS generally can't or won't do: provide next-day ground deliveries at distances up to 400�450 miles, and do it without an abundance of accessorial charges. FedEx and UPS, by contrast, require their shippers to upgrade to costlier air services if they want a shipment delivered the next business day at those distances.
For example, Phoenix-based OnTrac, which serves eight Western states, charges a tariff rate of $5.99 for delivering a package the next business day from Los Angeles and San Francisco, a distance of about 400 miles. FedEx and UPS would charge about $36.00 for the same shipment delivered via air by 10: 30 a.m. the next business day, and a bit over $30.00 for next-afternoon delivery.
The rate gap exists on shorter hauls as well. Spee-Dee charges a tariff rate of $3.67 for a one-pound package shipped from Minneapolis to Eau Claire, Wis., and delivered the next day, while UPS charges $5.12 for the same shipment.
Spee-dee and OnTrac have eight and 10 accessorial charges, respectively. FedEx and UPS, on the other hand, have an estimated 42 accessorials, and that's a conservative figure, according to The Colography Group Inc., a research and consulting firm based in Marietta, Ga.
Because of their focused service areas, the regionals can provide late pickups—sometimes up to 9 p.m.—and still deliver the goods the next day. Rick Jones, CEO of Austin, Texas-based Lone Star Overnight (LSO), which serves four states including every address in Texas, said the later pickups are a boon to his company's customers because it enables them to push more goods out the door per day.
The regional model also becomes more viable as the nation's supply chain itself becomes more regional in scope. Mark Magill, OnTrac's director of business development, said one of his largest customers, a retailer with a distribution facility on the East Coast, uses OnTrac's network as a mobile DC out West, enabling the retailer to tap into the carrier's service area of 60 million people without building a brick-and-mortar facility.
OnTrac's geography is so vast for a regional carrier that a customer can ship a package overnight from Bellingham, Wash., to Yuma, Ariz., achieving NAFTA-like next-day coverage for its deliveries, Magill said.
The top regionals agree they while they cannot replace FedEx and UPS, they can peel off business from the two that might be best suited to moving in regional networks. But their tactics differ. Spee-Dee touts its initial rate as its best offering and does not discount from there. Its rates are the same whether a parcel is delivered to a business or residence, according to Heurung.
Eastern Connection's tariff rates will match those of FedEx and UPS, but from there, the regional will discount its prices to undercut the big two. Lone Star, whose customer mix is somewhat different in that it is heavily skewed toward the business-to-business segment, will offer rates that, in some cases, are higher than FedEx's and UPS's. The company does offer an express product, "LSO Simple," which matches FedEx's and UPS's base rates but comes with the promise of no fuel surcharges or accessorials.
Jones of LSO said he shies away from serving the retail industry and instead focuses on sectors like legal and health care, which have better margins. He steers his company to clients and sectors with supply chain needs that go beyond the basic transportation solution. And unlike other regionals that have de-emphasized the more time-sensitive express service in favor of the much larger ground parcel business, Lone Star pushes its express products and lets the ground parcel category "come along for the ride," according to Jones.
The Lone Star CEO said he wants to avoid situations where his firm's value play is based on price alone. "I don't want to get into a commodity price war with multibillion dollar giants who can crush me," he said.
A national network?
For years, there has been talk among the major regionals of knitting together a unified national network to compete with FedEx and UPS. Until now, the extent of their cooperation has been to share information that would, for example, allow Eastern Connection to refer a customer to OnTrac if the shipper needed a regional presence out West.
Berluti of Eastern Connection said that although there is no specific timetable, the development of a national network is "absolutely going to happen." He said the "marketplace needs a third player because the duopoly is not working for the customer. The regionals are interested, and the shipping community is as well."
There is no shortage of obstacles, however. They range from building a uniform IT system, to establishing a presence in the Southeast, to working out revenue-sharing issues, to harmonizing disparate product lines among the various players.
The regionals have "different billing systems, different accounting and tracking systems, and different tracking algorithms," said Jerry Hempstead, who runs the Orlando, Fla.-based Hempstead Consulting and was a top U.S. sales executive with DHL and the former Airborne Express, which DHL bought in 2003.
Hempstead said DHL tried to convert Airborne's customers to DHL's tracking, billing, and shipment rating systems, only to encounter enormous problems in the execution. The failed conversion "killed the Airborne acquisition," Hempstead said. "The wheels just fell off."
Berluti said regional carrier executives are mindful of the challenges and are working diligently to remove them. He noted that Eastern Connection has an interline relationship with U.S. Cargo, a regional carrier that serves Ohio, Pennsylvania, Virginia, and West Virginia, where Eastern Connection tenders packages to U.S. Cargo network for two- to three-day deliveries into a region mostly beyond Eastern Connection's geography. In return, Eastern Connection handles packages originating in the Ohio region for delivery throughout New England, the Northeast, and the Middle Atlantic.
"We are already a super-regional carrier through this relationship," Berluti said.
The venture-backed fleet telematics technology provider Platform Science will acquire a suite of “global transportation telematics business units” from supply chain technology provider Trimble Inc., the firms said Sunday.
Trimble's other core transportation business units — Enterprise, Maps, Vusion and Transporeon — are not included in the proposed transaction and will remain part of Trimble's Transportation & Logistics segment, with a continued focus on priority growth areas following completion of the proposed transaction.
Terms of the deal were not disclosed but as part of this agreement, Colorado-based Trimble will become a shareholder in Platform Science's expanded business. Specifically, Trimble will have a 32.5% stake in the newly expanded global Platform Science business and will receive a Platform Science board seat. The company joins C.R. England, Cummins, Daimler Truck, PACCAR, Prologis, RyderVentures, and Schneider as a key strategic investor in Platform Science along with financial investors 8VC, Activant Capital, BDT & MSD Partners, Softbank, and NewRoad Capital Partners.
According to San Diego-based Platform Science, the proposed transaction aims to enhance driver experience, fleet safety, efficiency, and compliance by combining two cutting-edge in-cab commercial vehicle ecosystems, which will give customers access to more applications and offerings.
From Trimble customers’ point of view, they will continue to enjoy the benefits of their Trimble solutions, with the added flexibility of the Virtual Vehicle platform from Platform Science. That means Virtual Vehicle-enabled fleets will receive access to the Virtual Vehicle Marketplace, offering hundreds of new and expanded applications, software, and solution providers focused on innovating and improving drivers' quality of life and fleet performance.
Meanwhile, Platform Science customers will enjoy the added choice of Trimble's remaining portfolio of transportation solutions which will be available on the Virtual Vehicle platform, the partners said.
"We believe combining our global transportation telematics portfolio with Platform Science's will further advance fleet mobility and provide our customers with a broader portfolio of solutions to solve industry problems," Rob Painter, president and CEO of Trimble, said in a release. "Increased collaboration between the new Platform Science business and Trimble's remaining transportation businesses will enhance our ability to provide positive outcomes for our global customers of commercial mapping, transportation management, freight procurement, and visibility solutions. This deal will result in significant synergies along with tremendous opportunities for employees to continue to grow in a more-competitive business."
The acquisition comes just five months after Platform Science raised $125 million in growth capital from some of the biggest names in freight trucking, saying the money would help accelerate innovation in the commercial transportation sector.
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
With the economy slowing but still growing, and inflation down as the Federal Reserve prepares to lower interest rates, the United States appears to have dodged a recession, according to the National Retail Federation (NRF).
“The U.S. economy is clearly not in a recession nor is it likely to head into a recession in the home stretch of 2024,” NRF Chief Economist Jack Kleinhenz said in a release. “Instead, it appears that the economy is on the cusp of nailing a long-awaited soft landing with a simultaneous cooling of growth and inflation.”
Despite an “eventful August” with initial reports of rising unemployment and a slowdown in manufacturing, more recent data has “calmed fears of a deteriorating U.S. economy,” Kleinhenz said. “Concerns are now focused on the direction of the labor market and the possibility of a job market slowdown, but a recession is far less likely.”
That analysis is based on data in the NRF’s Monthly Economic Review, which said annualized gross domestic product growth for the second quarter has been revised upward to 3% from the original report of 2.8%. And consumer spending, the largest component of GDP, was revised up to 2.9% growth for the quarter from 2.3%.
Compared to its recent high point of 9.1% in July of 2022, inflation is nearly back to normal. Year-over-year growth in the Personal Consumption Expenditures Price Index – the Fed’s preferred measure of inflation – was at 2.5% in July, unchanged from June and only half a percentage point above the Fed’s target of 2%.
The labor market “is not terribly weak” but “is showing signs of tottering,” Kleinhenz said. Only 114,000 jobs were added in July, lower than expected, and the unemployment rate rose to 4.3% from 4.1% in June. Despite the increase, the unemployment rate is still within the normal range, Kleinhenz said.
“Now the guessing game begins on the magnitude and frequency of rate cuts and how far the federal funds rate will be reduced,” Kleinhenz said. “While lowering interest rates would be good news, it takes time for rate reductions to work their way through the various credit channels and the economy as a whole. Consequently, a reduction is not expected to provide an immediate uplift to the economy but would stabilize current conditions.”
Going forward, Kleinhenz said lower rates should benefit households under pressure from loans used to meet daily needs. Lower rates will also make it more affordable to borrow through mortgages, home improvement loans, car loans, and credit cards, encouraging spending and increasing demand for goods and services. Small businesses would also benefit, since lower intertest rates could lower their financing costs on existing loans or allow them to take out new loans to invest in equipment and plants or to hire more workers.
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.