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.
In the spring of 2014, FedEx Corp. and UPS Inc. announced plans to price deliveries of ground parcels measuring less than three cubic feet by their dimensions instead of their weight. At the same time, they said the respective changes would not be implemented until after the 2014 holiday season. That way, the carriers reasoned, businesses would have time to adjust to what was expected to be major changes to their shipping patterns. It would also avoid any unnecessary headaches during the hectic peak shipping period.
The start of the 2015 peak cycle is less than three months away, and shippers have been through nearly a year under the new pricing regimes. While no crystal balls were available for comment, it seems logical to postulate that, for shippers, the upcoming holiday experience will resemble that of the first 10 months: namely, those who've not felt much of an impact, for whatever reason, will skate through the holidays unscathed. Those whose budgets have been hit will continue to feel the pain, amplified by the increased holiday volumes and the year-round increase in shipping complexity brought about by the digital commerce and fulfillment tsunami.
When the changes were announced, several parcel consultants who work with shippers every day warned they would result in massive price increases for shippers tendering lightweight, bulky packages, which account for a large chunk of digital commerce. Dividing a three-cubic-foot package that measures 5,184 cubic inches by 166, the divisor set by the carriers in 2011 to calculate dimensional weight (or dim weight), would result in a rate equal to a 36-pound shipment, even though the parcel's actual weight would be much less. Shippers generally pay the greater of the actual or dimensional weight rate. Until this year, ground shipments measuring less than three cubic feet had been exempt from dimensional pricing.
Rob Martinez, president and CEO of consultancy Shipware, LLC, who forecast huge rate increases at the time the changes were made public, said prices have indeed risen significantly throughout the year and will cause economic turbulence for shippers through the holiday period as volumes accelerate. "Just because the impact of the increases has already been felt doesn't mean it will stop being felt," he said.
Based on Shipware data, the 2015 billed weight for parcels moving via FedEx Ground, the company's ground-delivery unit, was 28.7 percent higher than the parcels' actual weight. At FedEx Home Delivery, which delivers business-to-consumer (B2C) shipments to residences, the discrepancy was even wider; in 2015, the billed weight was 45.1 percent higher than the actual weight, according to Shipware data. In 2014, the gap was 11.6 percent.
At UPS, the 2015 billed weight for all its ground services was 16.4 percent higher than the actual weight, according to Shipware data; in 2014, the discrepancy was 12.8 percent. Martinez believes the UPS differential is not as extreme because the pricing change fell more heavily on B2C transactions and UPS handles more commercial packages than residential shipments.
Martinez said only a handful of the very largest shippers have been granted waivers or deferrals from the pricing changes. Virtually the entire shipping population lost the exemption, though some of the larger shippers were given a higher divisor to work with, thus effectively mitigating some of the increases, he said.
FedEx will likely decrease the benefits of the higher divisor over the life of the contract, which is typically three years, Martinez said. By contrast, UPS generally ties any divisor-related concessions to the length of the contract without any phase-outs, he added.
A DIFFERENT VIEW
Martinez's comments stand in sharp contrast with those of Paul Steiner, vice president of strategic analysis at consultancy Spend Management Experts. Steiner said the vast majority of large shippers his firm consults for have received either full waivers for the length of their contracts or, in the worst case, deferrals that run for most of the contractual period. He added that few customers have felt the need to ask how to reduce box sizes and empty packing space, steps that would help cut dimensional shipping costs.
Steiner said the 2011 reductions in the carriers' dim-weight divisors to 166 from 194, which applied to all shipments except ground parcels of under three cubic feet, had more of a profound change on the market than the most recent adjustments.
That said, Steiner, who spent 17 years at UPS in various executive roles including global pricing, said both carriers will find ways to offset foregone revenue associated with waivers and that their compensation will likely come from the budgets of small to mid-sized shippers that lack the volume and negotiating leverage of bigger companies.
Paula Heikell, chief marketing officer for consultancy Advanced Distribution Solutions Inc. (ADSI), concurred with Steiner's assessment of a bifurcated market with large and small shippers experiencing different outcomes. Heikell said all shippers stand to benefit from the development of mobile handheld dimensioning devices that provide upstream visibility of package dimensions so orders then don't have to be pulled and repacked to comply with the carriers' guidelines. The equipment, which is not cheap but stands to gain critical mass as prices come down, will also be invaluable in helping companies manage dimensioning in the complex but increasingly important area of returns management.
Michael Lambert, vice president of strategic solutions for consultancy Green Mountain Technology (formerly Green Mountain Consulting), falls somewhere in between Martinez's views and those of Steiner and Heikell. Lambert said the company and its customer base, whose core is large retailers, have spent a lot of time over the past 16 months preparing for the changes. Through negotiations with the carriers, Lambert said, Green Mountain has helped shippers mitigate a portion of the increases. "There has been some impact, but it's not as bad as it could have been," he said.
Lambert said the most revealing part of the past year's process was discovering that many shippers had no data-collection tools to capture dimensions or to determine whether their package sizes met the carriers' revised criteria. Before the changes, shippers were "not really thinking about what they were giving" the carriers, he said, adding that the new regimen sparked a behavioral change on the part of shippers.
Lambert said Green Mountain has followed a three-step plan to deal with the changes: understanding its impact, collaborating with carriers in rate negotiations, and implementing data-collection practices. The first two have largely been completed; the third is a work in progress that will take some time, he added. All of this will come as retailers move from having two to four distribution centers for fulfillment, to managing hundreds if not thousands of nontraditional locales like retail stores that are now beginning to serve as DCs.
ALTERNATIVE ACTIONS
FedEx and UPS originally made the moves in an effort to better align package pricing with the amount of space the parcels occupied on a truck. They also believed that customers could gain by streamlining their packaging to remove unneeded "empty air" surrounding the product. Spokeswomen for the carriers said they've made a concerted effort to work with customers to make their packaging more efficient, in some cases connecting shippers with packaging and technology companies to help them remove "filler" and shrink shipment dimensions.
There are also alternatives. Shippers can use regional parcel carriers and the U.S. Postal Service (USPS), both of which offer higher dim-weight divisors and thresholds. They could shift packages to services like FedEx "SmartPost," managed in conjunction with USPS and which does not use dimensional pricing. Apparel shippers in particular could migrate to polybags for lighter, smaller shipments. Martinez suggested that merchants offer online shippers free shipping only to retail stores rather than to the consumer's residence. That way, multiple orders can be consolidated into one commercial shipment, 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."