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.
UPS Inc. delivered fourth-quarter and full-year results today that appeared to beat investor and analyst expectations. Yet a $125 million fourth-quarter charge to cope with a surge of delivery orders early in the peak holiday period; higher-than-expected capital expenditures; and numbers that analysts, on second look, deemed a little light sent UPS' stock price down nearly $8 a share in one of its worst downdrafts in years.
The Atlanta-based transport and logistics giant posted an 11-percent year-over-year gain in fourth-quarter revenue and an 8-percent increase for the year to a record $65.9 billion. Its three operating units—domestic package, international package, and supply chain and freight—posted high single-digit or double-digit revenue increases in the quarter. The international unit was profitable on a "constant currency" basis, or excluding the impact of currency fluctuations. Domestic ground parcel volume rose 5.9 percent in the quarter, while next-day and second-day air traffic increased 4.9 and 2.2 percent, respectively.
David Abney, UPS' chairman and CEO, said in a statement announcing the results that the company's domestic air traffic is "expanding to record levels" as e-commerce demand puts more of a sense of urgency into the delivery step. The company will bring nine Boeing 747-8 and three 767 freighters converted from passenger configuration into the U.S. market before this year's peak, according to UPS spokesman Steve Gaut.
Abney's comments are instructive in that they may signal a renaissance in air commerce in the U.S., the market where air was king during the 1970s, 1980s, and 1990s, only to go into hibernation at the start of the century as cheaper surface transportation emerged as a viable alternative for cost-conscious businesses. After a tough six-year stretch, global air cargo traffic surged 9 percent in 2017, the International Air Transport Association (IATA) said earlier this week, as a synchronized worldwide recovery prompted more and faster inventory restocking. The global airline trade group expects cargo volumes to rise 4.5 percent in 2018.
UPS also announced today that it would boost 2018 capital expenditures to between $6.5 billion and $7 billion, or approximately 10 percent of projected 2018 revenue, thanks in large part to the new tax law that reduces the federal corporate rate and includes generous expensing provisions for capital investments. The company, which allocated $5.2 billion to capital expenditures in 2017, had originally forecast that 2018 capital expenditures would equal 5 to 6 percent of this year's revenue.
UPS estimated it will spend an additional $12 billion over three years as a result of the new law. Of that, $7 billion is earmarked for overall network improvements and the remaining $5 billion has been contributed to further fund the company's three pension plans.
PEAK PROBLEMS
The quarterly results were highly anticipated, as they included holiday-season activity during the first peak period in which UPS imposed a delivery surcharge. Industry experts said the surcharge did not result in the loss of business to any of its competitors. In fact, UPS ended up deferring or waiving the surcharge for customers that were sufficiently put off by it, according to Rob Martinez, CEO of Shipware LLC, a parcel consultancy.
On an analyst call today, Abney said the surcharges were effective in incentivizing customers to shift shipments that would normally have been delivered during the very busy last holiday week into the prior week, thus enabling UPS to manage its network more efficiently. UPS will again impose surcharges during the 2018 peak, though when they will be applied, and what service levels will be affected, has not been determined.
The company got behind the eight ball early in the cycle when it underestimated the deluge of orders on the day after Thanksgiving, known as Black Friday; the following Monday, known as Cyber Monday; and for the entire first full week of the period called Cyber Week. Myron Gray, head of UPS' U.S. operations, said the company recovered quickly after the initial hit. Others, though, were not so sure. Martinez of Shipware said UPS' on-time delivery performance trailed FedEx's for the entire six-week holiday cycle. In the 2016 peak, UPS started behind FedEx, but caught up and eventually surpassed its rival in the latter half of the peak period, according to Shipware data.
Nearly 15 percent of UPS ground shipments faced delays of some type during the peak period, based on the activity monitored by consultancy LateShipment.com, which helps shippers identify and get reimbursed for late parcel deliveries. That was worse than FedEx's performance, said LateShipment co-founder and CEO Sriram Sridhar.
Sridhar acknowledged that UPS confronted record peak volumes—about 750 million parcels in all. However, he added that the company had anticipated such a high level of activity, and that the problems it faced lay more with the infrastructure's ability to respond than with the magnitude of the traffic.
Martinez and Sridhar said that UPS and FedEx were largely successful in ensuring that all shipments were delivered by Dec. 23 or 24.
Separately, UPS said it ordered 18 Boeing freighters—14 747-8s and four 767s—that will be delivered in staggered intervals through the end of 2022. The aircraft will join the 14 747-8s the company ordered in 2016. The new planes will be used exclusively on international routes linking the company's "Worldport" global air hub in Louisville, Ky., with Asian markets through Anchorage, Alaska, according to Jim Mayer, a spokesman for the company's UPS Airlines unit. As more of the planes enter the fleet, they may be used in round-the-world services as well, Mayer said.
Mayer wouldn't comment on the order's price tag. Jim Smith, editor of U.K. publication Global Transport Finance, said the order was large enough to have qualified for a 50-percent discount off the planes' respective list prices. Smith added that it was likely that Airbus Industrie, the European aircraft-maker consortium and Boeing's fiercest rival for commercial business, was also keenly interested in getting the UPS order.
Smith estimated that a 747-8 freighter lists for $360 million, and a 767 freighter lists for approximately $185 million.
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.