Gary Frantz is a contributing editor for DC Velocity and its sister publication CSCMP's Supply Chain Quarterly, and a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He's served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He's a proud graduate of the Journalism program at California State University–Chico.
As peak season swings into full gear, the consensus among industry players for how shippers—and consumers expecting cheap, on-time deliveries—will fare in a struggling parcel express market can be summed up in one succinct phrase:
“It’s going to be gnarly.”
That prediction, as well as other more colorful versions along the same theme, is the consensus of shippers, carriers, and various industry analysts. All expect a record year—and record challenges—for parcel express carriers.
Logistics and warehouse managers are seeing their carefully crafted just-in-time supply chains and parcel shipping strategies snarled by a host of factors, many of which are beyond their direct control. And the volumes keep on coming. By one FedEx estimate, the industry benchmark of 100 million parcel packages per day, once expected in 2026, is already here. In its last quarterly report, UPS cited a 13% increase in average daily volume to some 20 million packages per day. Most of that increase came from e-commerce shipments and rising residential deliveries.
The continuing surge in e-commerce is a testament to how deeply, quickly—and permanently—consumer buying habits have changed, points out Dick Metzler, chief executive officer of Austin, Texas-based Lone Star Overnight (LSO), a regional parcel carrier serving Texas, Oklahoma, and parts of Arkansas. “I think Covid went on long enough to convince even the most ardent mall junkie that e-commerce and home delivery is a better way to spend your money and your time,” he says.
“It’s going to be more than the usual Black Friday mess,” says Rock Magnan, president of Silicon Valley-based RK Logistics Group, which handles e-commerce orders for clients shipping digital sound systems, home appliances, and other consumer goods, of the upcoming holiday season. Shippers and their 3PLs (third-party logistics service providers) will need to be more creative, agile, and flexible than ever before. “Plans and solutions needed to be in place a month ago” to have some relative assurance of parcel capacity, he notes.
One alternative strategy that avoids the parcel carrier for last mile, Magnan notes, is store-door pickup. In this instance, manufacturers are forward-stocking more products at retailers like The Home Depot, Walmart, Kohl’s, or Lowes. When a consumer orders a product online, instead of it going into the parcel carrier’s network for delivery, the buyer is given the option to pick it up at their local store. “So, if you are ordering your DeWalt miter saw for Christmas, you pick it up yourself locally,” he says. “That avoids potential service delays and costs from already-strapped parcel networks.”
BEING A “SHIPPER OF CHOICE”
One executive who can speak to the need for advance planning is John Janson, senior director of global logistics at Issaquah, Washington-based SanMar, a producer of logoed apparel, caps, and other merchandise. Janson directs an operation with 10 national distribution centers and over 5 million square feet of warehouse space—and tenders hundreds of thousands of parcel shipments annually.
“We started to plan for peak season months ago,” he notes. “If you haven’t already done [your planning] and secured capacity, you’re too late.”
He shares a comment made by a UPS executive at the recent CSCMP (Council of Supply Chain Management Professionals) conference, where the executive projected that during the height of this peak season, there will be 4.5 million packages per day that the parcel express industry will not have capacity to handle. “If you extrapolate that out, that is 100 million packages [that won’t get picked up] over the entire peak season,” Janson notes.
That projected capacity crunch aligns with what he’s hearing from regional parcel carriers, who are advising customers they’re not taking on any new business until 2022. “That’s a real sign of the pressure that’s on in the residential delivery world,” he notes.
Janson, who works with UPS as his primary carrier, has long championed the concept of being a “shipper of choice,” collaborating with carriers to make his freight as efficient as possible for them to handle. In tight times, that strategy pays off, he says. “We focus on being a good steward of their assets and their employees. If you have high pickup and delivery density, and [the parcel carrier] does not have to touch your product a ton, that makes you an attractive customer.”
PREPARING FOR THE PEAK
In the meantime, parcel carriers are working hard to step up to the challenge. FedEx, in its earnings call for the fiscal 2021 fourth quarter, said it “expects to substantially increase capacity for this peak by investing in FedEx Ground’s infrastructure,” adding 16 new automated facilities and implementing nearly 100 expansion projects at existing facilities. FedEx’s average daily volume grew across all of its customer segments, with U.S. small and medium-sized clients leading the way with 32% year-over-year growth.
Brie Carere, FedEx’s executive vice president, chief marketing and communications officer, described the U.S. domestic parcel market as “flourishing.” From a pricing perspective, Carere said, FedEx “continue[s] to evaluate changes that we need to make based on demand and capacity,” adding that “we believe that peak surcharges are kind of the new normal and that we have to align our pricing to our costs.”
Josh Dinneen, chief commercial officer for Vienna, Virginia-based regional parcel carrier LaserShip, notes that his company also has invested in expansion, last May adding service into Tennessee, Arkansas, and Mississippi, as well as five additional cities in the current network. That extended LaserShip’s service territory into 22 U.S. states and the District of Columbia, reaching as far west as Arkansas, south into Florida, and into New England.
Shippers started coming to him as early as March wanting to plan for peak season. “This is the first year I ever received a peak forecast in March. That’s never happened,” he notes.
Among the biggest challenges for carriers, says Dinneen, is hiring. “Everyone is battling the labor issue. It’s been tough this year with stimulus payments and Amazon offering higher wages. Everyone from restaurants to retail has struggled,” he says.
To help mitigate the need for more workers, LaserShip has invested heavily in automation, notably at its largest sort center in South Brunswick, New Jersey. That has not displaced any labor, but it has reduced the need for new hiring, according to Dinneen. Going into peak, LaserShip operated sort centers in Nashville, Tennessee; Columbus, Ohio; Charlotte, North Carolina; Orlando, Florida; and South Brunswick.
As peak season progresses and capacity tightens, Dinneen is redoubling communications with shippers to confirm capacity needs. “We have to know from our side if you are going to use [your capacity commitment],” he says. “If you can’t use it, you’re going to lose it.”
Like Dinneen, Jason Shaw, senior director of transportation procurement for Ryder System Inc., emphasizes the importance of keeping lines of communication open. “The most productive step [shippers can take] is providing transparency with [their] parcel provider portfolio, with rolling forecasts and soliciting input on where they expect bottlenecks,” he says. “Having flexibility … for providers to pick up product in off-peak hours or weekends is becoming increasingly valuable. Shippers should also evaluate their packaging to determine if it creates manual handling issues through a carrier’s network.”
Still, the big elephant in the room remains the nearly 100 containerships at anchor at ports on the U.S. West, Gulf, and East coasts. The equivalent of some 7 million parcels per day are sitting on the ocean, representing “back-ordered items and [goods for] inventory replenishment,” notes Scott Lord, president of parcel services for 3PL AFS Logistics, adding that inventory-to-sales ratios remain at historic lows.
Lord says that AFS’s $4 billion of freight spend under management helps it gain insights into trends and the true impact of parcel pricing policies and surcharges, what is changing in the market, and how that impacts shippers. “It can be difficult to understand what you are actually paying [in rates and fees] to FedEx and UPS, and we help them unpack that,” he says.
As carrier volumes shift from fewer business-to-business shipments to more (and more costly) business-to-consumer home deliveries, Lord suggests that shippers maintain an open dialogue with carriers, which can be the key to resolving problems when freight isn’t picked up or delivered according to service commitments. Relationships do matter, he says.
TECH TO THE RESCUE
In his experience, companies that do the best managing peak season have invested strategically in enabling technologies, such as dynamic rate shopping, multicarrier parcel management, and visibility platforms, notes Bart De Muynck, vice president, supply chain research at Gartner Inc. “Those companies have the tools to collaborate with other shippers, share available capacity, and ship or cross-dock together. These digital platforms can drive efficiencies and better optimization of parcel volumes, which helps both the shipper and carrier,” he notes.
The next area where technology will help influence shipper behavior: understanding the impact of shipping decisions on sustainability. He foresees a time in the near future where consumers can choose shipping options based on carbon impact.
“That is where technology really can help drive consumer behavior [to benefit sustainability] and deprogram the Amazon mindset that we can have it tomorrow and for free,” De Muynck emphasizes. “That only increases the cost of transportation and makes the sustainability situation worse.”
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."