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.
For more than a decade, ABF Freight System Inc., the less-than-truckload (LTL) unit of Arkansas Best Corp., has convened a media reception on the first night of the joint annual meeting of the National Industrial Transportation League and Intermodal Association of North America. After a convivial hour of socializing, ABF's then-CEO would step to the mike to field mostly hardball queries from the assembled scribes.
The 2012 joint meeting came off as planned. But the ABF reception didn't happen.
ABF didn't comment on why the event, which would have taken place Nov. 11, wasn't scheduled. However, it may be more than coincidental that five weeks from that date, the unionized company would begin negotiations with the Teamsters union on a new contract covering about 7,500 employees. Given the talks' critical nature, it's doubtful ABF executives would have been comfortable answering questions on the issue.
The talks, scheduled to start Dec. 18, are aimed at replacing the current five-year pact when it expires March 31. On Nov. 29, the Teamsters fired the first shot, proposing a two-year agreement calling for a $1-an-hour wage hike in each year and maintenance of the union's current pension, health, and welfare benefits. Union leaders did not say at the meeting why they sought a shorter contract duration, according to those in attendance. However, the duration of the proposed contract aligns with the expiration of the union's current pact with YRC Worldwide Inc., ABF's chief unionized rival.
For Fort Smith, Ark.-based ABF, the goal is twofold: to reach an agreement as quickly as possible to avoid marketplace uncertainty and possible customer defections, and to fashion a deal that mitigates what are the LTL sector's highest labor costs. The company declined all requests for comment for this story.
As of mid-2012, salaries, benefits, and the cost of purchased transportation represented 71 percent of ABF's expenses, according to data from SJ Consulting, a Pittsburgh-based consultancy. A source who asked for anonymity said executives at several nonunion carriers estimate they hold a wage and pension cost advantage of between 25 and 40 percent over ABF.
Virtually every public pronouncement from Arkansas Best contains a reference to the economic burden imposed on the unit by the current labor pact. The parent said in a statement accompanying its third-quarter 2012 results the "most significant costs affecting ABF are associated with our labor contract." ABF reported a 1.4-percent year-over-year drop in third-quarter tonnage, blaming the drop on sluggish macroeconomic conditions.
Judy R. McReynolds, Arkansas Best's president and CEO, said in the statement that "we have remained diligent in our efforts to address ABF's high cost structure." She did not go into detail in the statement.
Arkansas Best has already taken steps to distance itself from the Teamsters. In June, it bought Panther Expedited Services, a leader in the time-critical delivery market, for $180 million in cash and debt. The purchase of nonunion Panther, a nonasset-based company that also has a growing presence in international freight forwarding, will diversify ABF into businesses outside of LTL, where before the Panther purchase it generated about 90 percent of its revenue. It also takes the company into a segment where organized labor plays a minimal role, though its workforce may benefit if Panther's sales generate additional over-the-road business.
MORE CHALLENGES AHEAD
ABF's woes aren't limited to labor, however. The company faces other challenges that will remain long after the contract talks conclude. Its "operating ratio," a measure of expenses to revenues, hit 105.5 in the first quarter of 2012. That meant ABF spent $1.05 for every $1 in revenue it took in. This was the worst performance of any publicly traded LTL carrier during that period, according to SJ data.
The company improved its operating ratio as the year progressed. Still, it stood at about break-even as of late November, and its fourth-quarter ratio was expected to climb above 100. By contrast, during 2004, the company achieved an impressive 91.9 ratio even though wages, benefits, and purchased transportation costs accounted for 76.8 percent of total expenses, SJ said.
According to the consultancy, ABF generates about $380 in revenue per shipment, $104 per shipment more than rival YRC Freight, YRC's long-haul unit, and $109 more than Old Dominion Freight Line Inc., considered by many the best-run carrier in the sector. ABF's rising revenue is due largely to pricing discipline by LTL carriers that has enabled recent rate hikes to stick.
ABF continues to expand its presence in the regional trucking category, whose trends are more favorable than the national LTL market's; ABF's regional network now accounts for 61 percent of its total tonnage, double the levels when the network was formed in 2006.
The company wins plaudits for its conservative management style and is considered a leader in driver and network safety, security, and information technology. Some analysts believe the parent's stock—which had fallen from a 52-week high of $22.79 a share in January 2012 to a low of $6.43 a share in mid-November—is significantly undervalued and will rebound smartly once the fog of uncertainty lifts over its labor situation. As of Dec. 4, ABF stock was trading at $8.31 a share.
Yet ABF's overall tonnage count, shipment volume, and profitability continue to stagnate. Erratic freight flows and its uncompetitive labor cost structure are likely contributors, but data from SJ Consulting reveal other factors at work.
For instance, consider that in mid-2012, ABF operated 265 terminals nationwide. By contrast, Old Dominion and Estes Express Lines operated 217 and 191 terminals, respectively, over similar geographies as ABF, SJ said. As of mid-year, ABF handled 70 shipments per terminal per day. By contrast, Estes handled 184, YRC Freight handled 155, and some private carriers handled more than 350, SJ said. The data indicate that ABF either lacks sufficient density or that its terminal network is too large for its traffic.
Between 2008 and 2011, financially ailing YRC, facing possible bankruptcy and coping with massive customer defections, shed 38,000 shipments a day, according to SJ data. This translated into an 18-percent compounded annual shipment loss. ABF reported a 1.8-percent annual shipment decline during that period, meaning it was unable to capitalize on YRC's woes.
YRC Freight's share of the long-haul market dropped to 27 percent in 2011 from 42 percent in 2006. Yet ABF's share fell to 7 percent from 10 percent during that time, according to SJ data.
"There is no question that labor costs are an issue for ABF," said Satish Jindel, SJ's president and a long-time industry executive and consultant. "But they are not the only issue, and they are not the biggest issue."
MAKING LABOR PEACE
Still, a Teamster contract that affords ABF some degree of cost relief would go a long way toward allaying marketplace and investor concerns. It has been a difficult last five years for the company as its labor costs have spiraled to levels that make it tough to compete just with unionized YRC, not to mention the nonunion companies that constitute most of the LTL segment.
ABF's current problems began in the 2007-08 period, when the last National Master Freight Agreement (NMFA), the compact that governs labor relations between the Teamsters and the remaining unionized truckers, came up for renewal. At the time, ABF wanted to exit the NMFA and bargain independently. According to ABF, it was persuaded by the union to remain in the pact under the proviso that the contract's terms would apply to all parties in the NMFA. A Teamster spokeswoman did not respond to a request for comment.
ABF's worst fears were realized the following year when YRC negotiated the first of three extraordinary agreements with the Teamsters calling for wage and pension cuts through 2015. ABF asked its rank and file for similar concessions, but its employees, defying the recommendations of Teamster leadership, rejected management's proposal.
ABF then sued YRC and the Teamsters' negotiating arm over the separate concessions, claiming they were illegal because they were negotiated outside of the NMFA. It also requested $750 million in damages. But in late 2010, U.S. District Court Judge Susan Webber Wright rejected ABF's claim, ruling it had no legal standing to contest the agreements. After the case was remanded to Judge Wright on appeal by a federal appeals court, she ruled against the company again in 2012.
ABF is considering another court challenge, despite calls by some to drop the legal fight and concentrate instead on the contract talks. "We've been told all along by our lawyers that they had no case," said Ken Paff, national organizer of Teamster dissident group Teamsters for a Democratic Union.
Paff called the ABF suit a "propaganda ploy" that could actually succeed in scaring the rank and file to agree to contract terms favorable to the company. Jindel took the opposite view, arguing the specter of legal action against the Teamsters doesn't create an atmosphere conducive to a productive dialogue.
Already burned once, ABF announced in August that it would end its involvement in the NMFA and bargain independently with the Teamsters. The company is also unlikely to agree to the union's Nov. 30 proposal, preferring a longer-term contract with little or no wage hikes.
PENSION HEADACHES
ABF's chief headache has been the 8 percent compound annual increase in its union pension contributions negotiated in the 2008 contract. The headache turned into a migraine in 2009 after the separate agreements between the union and YRC allowed the carrier to suspend pension payments from the end of 2009 through mid-2011, and then to resume contributions at about one-fourth the rate in place prior to the suspension. YRC is not expected to return to a full payment schedule until 2015, at the earliest.
Paff estimates that the pension expense today accounts for as much as two-thirds of the $11 to $12 an hour cost gap, per employee, between YRC and ABF.
What's more, ABF participates in about two-dozen union multiemployer pension plans, where the pensions of retirees from failed trucking companies are paid for by surviving firms. About half of ABF's pension expense is for workers who were never employed at the company, according to data from investment firm Stifel, Nicolaus & Co. The millstone around ABF's neck is the result of a multitude of unionized trucking bankruptcies over the last 30 years that stuck surviving companies with a larger share of the pension tab.
The company has sought legislative relief on the issue, but none has come to pass. It could negotiate a withdrawal from multiemployer pension schemes, but the exit would come at a price. It would cost ABF about $1.7 billion to pull out from its largest multiemployer plan, the Teamsters' Central States plan, according to recent estimates from investment firm Robert W. Baird & Co.
Paff said there's virtually no chance ABF employees will agree to concessions equal to the current differential with YRC. However, some help for the company may be on the way. The Central States plan has agreed to freeze the company's contributions at current levels through the life of the next contract. In addition, the rank and file will likely accept very small wage increases in any new contract, though the company will still have to make healthy contributions to the workers' health-care plan, Paff said.
Those factors, combined with the specter of YRC's resuming regular pension contributions by mid-decade—assuming it will have the resources to do so—should narrow the cost gap between the two carriers.
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."