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.
FedEx Freight, the less-than-truckload unit of FedEx Corp., announced today that it will increase tariff rates by 4.5 percent across its North American system, effective July 1. The increase by the nation's leading LTL carrier by revenues dramatically undercuts the recently announced tariff hikes by rivals UPS Freight, YRC Freight, and ABF Freight System Inc.
The increase will affect FedEx Freight's noncontractual business moving within the United States, within Canada, and within Mexico. It also covers shipments moving between the contiguous 48 U.S. states and Canada, and between the 48 states and Mexico, FedEx Freight said.
FedEx Freight also said it will maintain its current fuel surcharge levels, adding that its surcharges are, in aggregate, 29 percent less than the next six carriers combined.
Within the past three weeks, three of FedEx Freight's main competitors—UPS Freight, UPS Inc.'s LTL unit; YRC Freight, YRC Worldwide Inc.'s long-haul unit; and ABF, the largest division of Arkansas Best Corp.—have announced general rate increases (GRIs) of 5.9 percent. UPS' increases took effect today. The YRC and ABF increases are already in effect.
ABF said its increases would affect about 40 percent of its business. A spokeswoman for UPS Freight would not divulge such data, saying it was proprietary to the company. YRC did not respond to a request for comment by press time.
SMART STRATEGY, OR NOT?
The latest round of increases comes amid what has turned into a virtuous cycle for carriers. Freight demand, though not explosive, is holding up fairly well. Carriers have done a reasonably effective job of rationalizing capacity and pricing. In so doing, they have regained some of the ground lost during the last down cycle, when LTL revenues fell significantly and carriers were engaged in vicious rate wars that may have gained market share but did so at the expense of their profits.
Still, with the economy failing to fire on all cylinders, some wonder if the rate hikes are becoming overkill. UPS Freight, for example, has raised its tariff rates five times in the past three and a half years. None of those increases was less than 5.9 percent.
"While carrier costs are rising, larger-than-five-percent general rate increases are a bit strong, given the fact that these increases are passed down, and end up in many cases raising the price of the goods," said Charles W. Clowdis, Jr., managing director of transportation advisory services at the research and consulting firm IHS Global Insight.
To some, the FedEx Freight hike is reminiscent of the unpleasant days of predatory pricing, when the carrier was a primary player in that game. Back then the race to the bottom was driven by efforts to put YRC Freight (at that time the market leader, and with its parent facing bankruptcy) out of business. The gambit failed, as YRC not only stayed alive but has regained part of its luster under the leadership of CEO James L. Welch and Jeff Rogers, head of the YRC Freight unit.
"I think (FedEx Freight) is still of the opinion it can make a market-share grab somehow," said a trucking executive who asked not to be named. "It is a poor strategy, in my opinion. Fools can cut rates, but it takes a smart guy to raise them."
At press time, William J. Logue, president and CEO of Memphis-based FedEx Freight, had not responded to an e-mail request for comment.
With annualized revenues of just over $5 billion, FedEx Freight controls slightly more than 15 percent of the $32 billion U.S. LTL market, according to data from SJ Consulting.
An executive of a large shipper, whose $50 million annual LTL spend gives it the clout to get better and more stable pricing through contractual relationships, said the dynamics of GRI pricing are "a bit tough to understand" because "they only seem to widen the gap between the craziness of the carriers' standard rates and what people actually pay."
The shipper added that "anybody can get a 60-percent discount" off of a carrier's base rates, and that carriers lose credibility by publicly boosting tariff rates only to negotiate away most of those increases later on.
STRONGER DEMAND SIGNALS
In what could be considered a positive sign on the demand front, Old Dominion Freight Line Inc., arguably the nation's most successful truck line, on Friday increased its "expectations for growth" for the second quarter of 2013. The Thomasville, N.C.-based LTL carrier said it expects its daily tonnage to rise by between 5 and 5.5 percent compared to the same quarter in 2012. Old Dominion had forecast earlier this year that second-quarter tonnage would grow between 4.5 percent and 5 percent over the year-earlier period.
Old Dominion said its average daily tonnage rose 5.7 percent in April and 5.8 percent in May over the same periods in 2012. Revenue per hundredweight, a key measure of LTL carrier profitability, is expected to increase by 1.5 percent to 2 percent over the 2012 quarter. That forecast excludes the impact of fuel surcharges, Old Dominion said.
The number of container ships waiting outside U.S. East and Gulf Coast ports has swelled from just three vessels on Sunday to 54 on Thursday as a dockworker strike has swiftly halted bustling container traffic at some of the nation’s business facilities, according to analysis by Everstream Analytics.
As of Thursday morning, the two ports with the biggest traffic jams are Savannah (15 ships) and New York (14), followed by single-digit numbers at Mobile, Charleston, Houston, Philadelphia, Norfolk, Baltimore, and Miami, Everstream said.
The impact of that clogged flow of goods will depend on how long the strike lasts, analysts with Moody’s said. The firm’s Moody’s Analytics division estimates the strike will cause a daily hit to the U.S. economy of at least $500 million in the coming days. But that impact will jump to $2 billion per day if the strike persists for several weeks.
The immediate cost of the strike can be seen in rising surcharges and rerouting delays, which can be absorbed by most enterprise-scale companies but hit small and medium-sized businesses particularly hard, a report from Container xChange says.
“The timing of this strike is especially challenging as we are in our traditional peak season. While many pulled forward shipments earlier this year to mitigate risks, stockpiled inventories will only cushion businesses for so long. If the strike continues for an extended period, we could see significant strain on container availability and shipping schedules,” Christian Roeloffs, cofounder and CEO of Container xChange, said in a release.
“For small and medium-sized container traders, this could result in skyrocketing logistics costs and delays, making it harder to secure containers. The longer the disruption lasts, the more difficult it will be for these businesses to keep pace with market demands,” Roeloffs said.
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
As the hours tick down toward a “seemingly imminent” strike by East Coast and Gulf Coast dockworkers, experts are warning that the impacts of that move would mushroom well-beyond the actual strike locations, causing prevalent shipping delays, container ship congestion, port congestion on West coast ports, and stranded freight.
However, a strike now seems “nearly unavoidable,” as no bargaining sessions are scheduled prior to the September 30 contract expiration between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX) in their negotiations over wages and automation, according to the transportation law firm Scopelitis, Garvin, Light, Hanson & Feary.
The facilities affected would include some 45,000 port workers at 36 locations, including high-volume U.S. ports from Boston, New York / New Jersey, and Norfolk, to Savannah and Charleston, and down to New Orleans and Houston. With such widespread geography, a strike would likely lead to congestion from diverted traffic, as well as knock-on effects include the potential risk of increased freight rates and costly charges such as demurrage, detention, per diem, and dwell time fees on containers that may be slowed due to the congestion, according to an analysis by another transportation and logistics sector law firm, Benesch.
The weight of those combined blows means that many companies are already planning ways to minimize damage and recover quickly from the event. According to Scopelitis’ advice, mitigation measures could include: preparing for congestion on West coast ports, taking advantage of intermodal ground transportation where possible, looking for alternatives including air transport when necessary for urgent delivery, delaying shipping from East and Gulf coast ports until after the strike, and budgeting for increased freight and container fees.
Additional advice on softening the blow of a potential coastwide strike came from John Donigian, senior director of supply chain strategy at Moody’s. In a statement, he named six supply chain strategies for companies to consider: expedite certain shipments, reallocate existing inventory strategically, lock in alternative capacity with trucking and rail providers , communicate transparently with stakeholders to set realistic expectations for delivery timelines, shift sourcing to regional suppliers if possible, and utilize drop shipping to maintain sales.