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.
On Nov. 10, 2008, DHL Express announced that after six years of enormous losses,
it would withdraw from the domestic U.S. parcel market by the end of January 2009. The news stunned an industry that believed DHL
would scale back its U.S. presence but not end it. It wreaked
havoc on the small southwest Ohio town of Wilmington—population 12,000—where DHL's U.S. air and ground hub was located and where one in three households
had someone who worked there. And it left parcel shippers to the not-so-tender mercies of two companies: FedEx Corp.
and UPS Inc.
Much has changed in the past five years or so. DHL Express ended domestic U.S. operations on Jan. 30, 2009,
and the United States is to the company today what it has been for most of its 44-year history: one node in its vast
global network. Each day, international packages fly in and out of Cincinnati, where DHL Express placed its U.S.
hub serving international traffic after deciding it no longer needed a large operation in Wilmington to support a
scaled-back service. There, the planes link with 30 freighters operating for the company across a 90-city U.S. network.
DHL Express is much better off since returning to its traditional knitting, according to Ian D. Clough, who has
run U.S. operations since 2009. Profits from the U.S. business are "exceeding expectations," and revenues are growing
at a double-digit annual clip, Clough said. He would not provide specifics. "We are playing to our strength," he said.
Although DHL left Wilmington, it did
donate the facility, the nation's largest privately owned airport, to Clinton County, where Wilmington sits. Today,
one-third of the three million square-foot site is occupied; it is used mostly for aircraft maintenance and repair services.
About 1,000 people now work there, compared to 9,500 when DHL Express ceased operations.
Wilmington is still being marketed as an air logistics hub, and officials from the Cincinnati chapters of the
Council of Supply Chain Management Professionals, the Warehousing and Education Research Council, and the supply
chain and operations group APICS will convene there on Dec. 5 to check it out. For the past year, Jones Lang LaSalle (JLL),
the Chicago-based real estate and logistics giant that is pitching the hub, has led an effort to clean out DHL's infrastructure
because it was built for a parcel operation and not as a logistics center. That involved, among other things, hauling away 5,000
tons of steel and dismantling 26 miles of conveyor equipment, according to David Lotterer, JLL's
vice president-industrial/supply chain & logistics solutions and the company's point man in Wilmington.
As for parcel shippers, they find themselves in an all-too-familiar spot: caught by what might be the most ironclad duopoly
in American business. When DHL left, it took with it the third viable option for shippers, and the lowest-priced one at that.
Since then, FedEx and UPS have dominated the nation's parcel market as have few companies have in any industry.
Regional parcel carriers are gaining modest traction. However, they control less than 2 percent of the market, according to
Stifel, Nicolaus & Co., an investment firm. These regional carriers have limited coverage areas but offer low pricing, and,
unlike FedEx and UPS, impose few so-called accessorial charges—fees for additional services beyond the basic pickups
and deliveries that dramatically increase a shipping bill.
The U.S. Postal Service (USPS) has the resources to compete, but
it is primarily focused on business-to-consumer (B2C) e-commerce, and not
business-to-business (B2B). Shippers are also leery about working with USPS. More than half of the 48 shippers who responded
to an October 2013 survey by San Diego-based consultancy Shipware LLC said they probably wouldn't use USPS as an alternative
for the air and ground services offered by FedEx and UPS. The main reason cited by the shippers—who combined
account for $1.5 billion in annual parcel spending—was that it was too hard to do business with USPS.
EATING HEARTILY
Left alone in the shipper henhouse, FedEx and UPS have feasted. According to Shipware, from 1998 to 2005 FedEx's published
or "tariff" rates rose on average 3.06 percent a year for air and 3.05 percent a year for ground services. From 2006 to 2013,
its air and ground tariff rates each climbed, on average, by 5.28 percent a year.
At UPS, the contrast between the two eras is even more pronounced. From 1998 to 2005, average air tariff rates
rose 3.25 percent a year and ground tariff rates rose 3.16 percent a year. From 2006 to 2013, the rate of annualized
increases for both products roughly doubled, according to Shipware data.
But even those increases don't tell the whole story. For example, each carrier assesses a minimum charge for each residential
and commercial shipment moving by ground; both firms charged a minimum of $5.84, a 53 percent increase since 2006. For parcels
weighing between one to 10 pounds, the bread and butter of package shipping, tariff-rate increases have been significantly
higher than the average. FedEx Ground, the ground parcel unit of Memphis-based FedEx, this year raised tariff rates by 8.19
percent on shipments within that weight range, nearly doubling the 4.9-percent across-the-board increase, according to Shipware.
By contrast, FedEx's rates for ground parcels weighing between 71 pounds and the 150-pound maximum were 4.02 percent, Shipware
said.
Lest anyone think that FedEx isn't capturing much of the tariff bounty because many of its customers are under contract,
Rob Martinez, Shipware's president and CEO, said about half of the company's customers ship under the tariff. FedEx and UPS
representatives did not respond to e-mail requests seeking comment for the story.
Accessorials have also moved in lockstep. Each year, both carriers add new ones and increase the prices on those already
in place. The big kahuna came in late 2010 when the companies changed their formulas used to calculate a shipment's
dimensional weight. In virtually identical moves, each reduced their "volumetric divisor" to restrict the amount of
cubic space allocated to their customers for the same shipment weight at the prevailing rates. Shippers whose packages
fell outside the new physical parameters were hit with the equivalent of double-digit increases on their domestic and U.S.
export shipments.
Martinez of Shipware estimates the carriers have so far collected about $500 million a year in revenue as a result of
the change, with more coming once contracts get renewed or agreements that had stayed the impact of the adjustments expire.
Jerry Hempstead, who today runs his own consultancy and is a former top U.S. sales executive with DHL and predecessor
Airborne Express, which DHL bought in 2002, said DHL Express would have also gotten in on the action if it were still around.
However, its presence as a low-cost option might have mitigated the overall impact of the change, he added.
LIKES AND DISLIKES
Shippers say they are generally satisfied with FedEx's and UPS' operational efficiencies and level of service.
What they don't like is the carriers' opaque rate structure and their own lack of bargaining power. In the October
Shipware survey, 64 percent said it was harder to negotiate with the carriers than it was several years ago. They said
FedEx and UPS have no competition and are too focused on margin improvement than market share to cut shippers many breaks.
In addition, 83 percent said the recent general rate increases have been "too high."
Few of the respondents have used regional carriers, but about a quarter of those who had said they saved more than 31
percent over FedEx and UPS. Another quarter said they saved between 6 and 10 percent. Although most respondents didn't
care for USPS, about one-third of those who used a portfolio of its parcel services in order to be "modally optimized"
reported savings of 25 percent over FedEx and UPS rates.
Where the parcel market goes from here depends on the channel of distribution. The B2C segment, which is showing
substantial growth relative to the low single-digit growth of B2B, is being driven by large retailers like Amazon.com,
Wal-Mart Stores Inc., and e-Bay, just to name a few. They, not the carriers, will call the shots. USPS—which recently
announced a major revamp to its Priority Mail service in an effort to capture more e-commerce share—will be a more
formidable competitor to FedEx and UPS for B2C delivery dominance.
By contrast, in the B2B world, the status quo could long remain in place. "It is very difficult to build a
network and compete profitably against well-entrenched companies, as we found out," said Clough of DHL Express.
Martinez sees things differently, saying USPS is improving its B2B game. About one-third of Shipware's customer base,
which is comprised of B2B and B2C shippers, now implement USPS' shipping solutions, he said. One example is Priority Mail's
flat-rate pricing which could help minimize the impact of FedEx's and UPS' dimensional pricing changes on express shipments.
Martinez added that regional carriers like Chandler, Ariz.-based OnTrac, which operates in eight western states including
all of California, offer an increasingly viable alternative.
For many parcel shippers, a proper mix of geographically focused regional services, the relatively low-cost delivery
options from USPS, and the breadth of coverage and service consistency of FedEx and UPS will provide effective shipping
solutions at rates they can tolerate, he said.
Grocery shoppers at select IGA, Price Less, and Food Giant stores will soon be able to use an upgraded in-store digital commerce experience, since store chain operator Houchens Food Group said it would deploy technology from eGrowcery, provider of a retail food industry white-label digital commerce platform.
Kentucky-based Houchens Food Group, which owns and operates more than 400 grocery, convenience, hardware/DIY, and foodservice locations in 15 states, said the move would empower retailers to rethink how and when to engage their shoppers best.
“At HFG we are focused on technology vendors that allow for highly targeted and personalized customer experiences, data-driven decision making, and e-commerce capabilities that do not interrupt day to day customer service at store level. We are thrilled to partner with eGrowcery to assist us in targeting the right audience with the right message at the right time,” Craig Knies, Chief Marketing Officer of Houchens Food Group, said in a release.
Michigan-based eGrowcery, which operates both in the United States and abroad, says it gives retail groups like Houchens Food Group the ability to provide a white-label e-commerce platform to the retailers it supplies, and integrate the program into the company’s overall technology offering. “Houchens Food Group is a great example of an organization that is working hard to simultaneously enhance its technology offering, engage shoppers through more channels and alleviate some of the administrative burden for its staff,” Patrick Hughes, CEO of eGrowcery, said.
The 40-acre solar facility in Gentry, Arkansas, includes nearly 18,000 solar panels and 10,000-plus bi-facial solar modules to capture sunlight, which is then converted to electricity and transmitted to a nearby electric grid for Carroll County Electric. The facility will produce approximately 9.3M kWh annually and utilize net metering, which helps transfer surplus power onto the power grid.
Construction of the facility began in 2024. The project was managed by NextEra Energy and completed by Verogy. Both Trio (formerly Edison Energy) and Carroll Electric Cooperative Corporation provided ongoing consultation throughout planning and development.
“By commissioning this solar facility, J.B. Hunt is demonstrating our commitment to enhancing the communities we serve and to investing in economically viable practices aimed at creating a more sustainable supply chain,” Greer Woodruff, executive vice president of safety, sustainability and maintenance at J.B. Hunt, said in a release. “The annual amount of clean energy generated by the J.B. Hunt Solar Facility will be equivalent to that used by nearly 1,200 homes. And, by drawing power from the sun and not a carbon-based source, the carbon dioxide kept from entering the atmosphere will be equivalent to eliminating 1,400 passenger vehicles from the road each year.”
As a contract provider of warehousing, logistics, and supply chain solutions, Geodis often has to provide customized services for clients.
That was the case recently when one of its customers asked Geodis to up its inventory monitoring game—specifically, to begin conducting quarterly cycle counts of the goods it stored at a Geodis site. Trouble was, performing more frequent counts would be something of a burden for the facility, which still conducted inventory counts manually—a process that was tedious and, depending on what else the team needed to accomplish, sometimes required overtime.
So Levallois, France-based Geodis launched a search for a technology solution that would both meet the customer’s demand and make its inventory monitoring more efficient overall, hoping to save time, labor, and money in the process.
SCAN AND DELIVER
Geodis found a solution with Gather AI, a Pittsburgh-based firm that automates inventory monitoring by deploying small drones to fly through a warehouse autonomously scanning pallets and cases. The system’s machine learning (ML) algorithm analyzes the resulting inventory pictures to identify barcodes, lot codes, text, and expiration dates; count boxes; and estimate occupancy, gathering information that warehouse operators need and comparing it with what’s in the warehouse management system (WMS).
Among other benefits, this means employees no longer have to spend long hours doing manual inventory counts with order-picker forklifts. On top of that, the warehouse manager is able to view inventory data in real time from a web dashboard and identify and address inventory exceptions.
But perhaps the biggest benefit of all is the speed at which it all happens. Gather AI’s drones perform those scans up to 15 times faster than traditional methods, the company says. To that point, it notes that before the drones were deployed at the Geodis site, four manual counters could complete approximately 800 counts in a day. By contrast, the drones are able to scan 1,200 locations per day.
FLEXIBLE FLYERS
Although Geodis had a number of options when it came to tech vendors, there were a couple of factors that tipped the odds in Gather AI’s favor, the partners said. One was its close cultural fit with Geodis. “Probably most important during that vetting process was understanding the cultural fit between Geodis and that vendor. We truly wanted to form a relationship with the company we selected,” Geodis Senior Director of Innovation Andy Johnston said in a release.
Speaking to this cultural fit, Johnston added, “Gather AI understood our business, our challenges, and the course of business throughout our day. They trained our personnel to get them comfortable with the technology and provided them with a tool that would truly make their job easier. This is pretty advanced technology, but the Gather AI user interface allowed our staff to see inventory variances intuitively, and they picked it up quickly. This shows me that Gather AI understood what we needed.”
Another factor in Gather AI’s favor was the prospect of a quick and easy deployment: Because the drones can conduct their missions without GPS or Wi-Fi, the supplier would be able to get its solution up and running quickly. In the words of Geodis Industrial Engineer Trent McDermott, “The Gather AI implementation process was efficient. There were no IT infrastructure or layout changes needed, and Gather AI was flexible with the installation to not disrupt peak hours for the operations team.”
QUICK RESULTS
Once the drones were in the air, Geodis saw immediate improvements in cycle counting speed, according to Gather AI. But that wasn’t the only benefit: Geodis was also able to more easily find misplaced pallets.
“Previously, we would research the inventory’s systemic license plate number (LPN),” McDermott explained. “We could narrow it down to a portion or a section of the warehouse where we thought that LPN was, but there was still a lot of ambiguity. So we would send an operator out on a mission to go hunt and find that LPN,” a process that could take a day or two to complete. But the days of scouring the facility for lost pallets are over. With Gather AI, the team can simply search in the dashboard to find the last location where the pallet was scanned.
And about that customer who wanted more frequent inventory counts? Geodis reports that it completed its first quarterly count for the client in half the time it had previously taken, with no overtime needed. “It’s a huge win for us to trim that time down,” McDermott said. “Just two weeks into the new quarter, we were able to have 40% of the warehouse completed.”
Trade and transportation groups are congratulating Sean Duffy today for winning confirmation in a U.S. Senate vote to become the country’s next Secretary of Transportation.
Once he’s sworn in, Duffy will become the nation’s 20th person to hold that post, succeeding the recently departed Pete Buttigieg.
Transportation groups quickly called on Duffy to work on continuing the burst of long-overdue infrastructure spending that was a hallmark of the Biden Administration’s passing of the bipartisan infrastructure law, known formally as the Infrastructure Investment and Jobs Act (IIJA).
But according to industry associations such as the Coalition for America’s Gateways and Trade Corridors (CAGTC), federal spending is critical for funding large freight projects that sustain U.S. supply chains. “[Duffy] will direct the Department at an important time, implementing the remaining two years of the Infrastructure Investment and Jobs Act, and charting a course for the next surface transportation reauthorization,” CAGTC Executive Director Elaine Nessle said in a release. “During his confirmation hearing, Secretary Duffy shared the new Administration’s goal to invest in large, durable projects that connect the nation and commerce. CAGTC shares this goal and is eager to work with Secretary Duffy to ensure that nationally and regionally significant freight projects are advanced swiftly and funded robustly.”
A similar message came from the International Foodservice Distributors Association (IFDA). “A safe, efficient, and reliable transportation network is essential to our industry, enabling 33 million cases of food and related products to reach professional kitchens every day. We look forward to working with Secretary Duffy to strengthen America’s transportation infrastructure and workforce to support the safe and seamless movement of ingredients that make meals away from home possible,” IFDA President and CEO Mark S. Allen said in a release.
And the truck drivers’ group the Owner-Operator Independent Drivers Association (OOIDA) likewise called for continued investment in projects like creating new parking spaces for Class 8 trucks. “OOIDA and the 150,000 small business truckers we represent congratulate Secretary Sean Duffy on his confirmation to lead the U.S. Department of Transportation,” OOIDA President Todd Spencer said in a release. “We look forward to continue working with him in advancing the priorities of small business truckers across America, including expanding truck parking, fighting freight fraud, and rolling back burdensome, unnecessary regulations.”
With the new Trump Administration continuing to threaten steep tariffs on Mexico, Canada, and China as early as February 1, supply chain organizations preparing for that economic shock must be prepared to make strategic responses that go beyond either absorbing new costs or passing them on to customers, according to Gartner Inc.
But even as they face what would be the most significant tariff changes proposed in the past 50 years, some enterprises could use the potential market volatility to drive a competitive advantage against their rivals, the analyst group said.
Gartner experts said the risks of acting too early to proposed tariffs—and anticipated countermeasures by trading partners—are as acute as acting too late. Chief supply chain officers (CSCOs) should be projecting ahead to potential countermeasures, escalations and de-escalations as part of their current scenario planning activities.
“CSCOs who anticipate that current tariff volatility will persist for years, rather than months, should also recognize that their business operations will not emerge successful by remaining static or purely on the defensive,” Brian Whitlock, Senior Research Director in Gartner’s supply chain practice, said in a release.
“The long-term winners will reinvent or reinvigorate their business strategies, developing new capabilities that drive competitive advantage. In almost all cases, this will require material business investment and should be a focal point of current scenario planning,” Whitlock said.
Gartner listed five possible pathways for CSCOs and other leaders to consider when faced with new tariff policy changes:
Retire certain products: Tariff volatility will stress some specific products, or even organizations, to a breaking point, so some enterprises may have to accept that worsening geopolitical conditions should force the retirement of that product.
Renovate products to adjust: New tariffs could prompt renovations (adjustments) to products that were overdue, as businesses will need to take a hard look at the viability of raising or absorbing costs in a still price-sensitive environment.
Rebalance: Additional volatility should be factored into future demand planning, as early winners and losers from initial tariff policies must both be prepared for potential countermeasures, policy escalations and de-escalations, and competitor responses.
Reinvent: As tariff volatility persists, some companies should consider investing in new projects in markets that are not impacted or that align with new geopolitical incentives. Others may pivot and repurpose existing facilities to serve local markets.
Reinvigorate: Early winners of announced tariffs should seek opportunities to extend competitive advantages. For example, they could look to expand existing US-based or domestic manufacturing capacity or reposition themselves within the market by lowering their prices to take market share and drive business growth.