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Tom Nightingale is the CEO of AFS Logistics. Additionally, he serves as the 2023 Chairman of the Board of the Council of Supply Chain Management Professionals (CSCMP). Prior to working at AFS, Nightingale served as president and CEO of International Package Shipping and its operating companies. He has also held senior leadership roles at Genco (now FedEx Supply Chain), ModusLink, Con-way Inc. (now XPO), and Schneider National.
Nightingale has an MBA from Syracuse University and a bachelor’s in marketing and management from Siena College and serves on the boards and advisory boards of several organizations, including Convoy, WattEV, Oakes & Terry, Syracuse University’s Franklin Supply Chain Advisory Board, and formerly, SimpliShip, MP Objects, NextShift Robotics, The Warehouse Education Research Council, and Women In Trucking. Nightingale lives in Atlanta and enjoys spending time with his wife and three daughters.
David Maloney, Editorial Director, DC Velocity 00:01
A labor settlement at UPS. Warehouse construction will see a brighter future. And extending the life of material handling robots.
Pull up a chair and join us as the editors of DC Velocity discuss these stories, as well as news and supply chain trends, on this week's Logistics Matters podcast.
Hi, I'm Dave Maloney. I'm the group editorial director at DC Velocity. Welcome.
Logistics Matters is sponsored by Travero Logistics. Travero Logistics is an experienced, Midwest-based freight brokerage firm. They have a national network of trusted carriers ready to meet your freight transportation needs. Visit Travero.com and let their experts find you a solution. That's T-R-A-V-E-R-O dot com.
As usual, our DC Velocity editors Ben Ames and Victoria Kickham will be along to provide their insights into the top stories of this week. But to begin today: It appears that a settlement has been reached this week between UPS and the 340,000 members of the Teamsters union with the parcel-carrier employees. Final approval won't happen until sometime next month, but things look really good right now. Wages will go up and products will continue to flow, so it looks like a good deal from both sides. To find out some more about the details of that deal, we welcome our good friend Tom Nightingale, the CEO of AFS Logistics.
Welcome back to Logistics Matters, Tom.
Tom Nightingale, CEO, AFS Logistics 01:32
Thanks. It's great to be here. I appreciate you having me.
David Maloney, Editorial Director, DC Velocity 01:35
Thank you. For those who may not be familiar with AFS Logistics, Tom, can you take a brief moment to share who you are and what role you play in the industry?
Tom Nightingale, CEO, AFS Logistics 01:45
Absolutely. So AFS is a 41-year-old, privately held non-asset-based and non-asset-biased 3PL. We focus on four areas; they are parcel, LTL, transportation management, and freight audit and payment.
David Maloney, Editorial Director, DC Velocity 02:02
So, of course, we're talking about the UPS settlement, and if a labor settlement had not been reached at UPS, it could have caused some huge disruptions to supply chains and, really, the worldwide economy, right?
Tom Nightingale, CEO, AFS Logistics 02:15
Absolutely. UPS is such a major force in the industry and carries such a disproportionate amount of market share within parcel, it would have been an absolute disrupter to the overall economy, particularly in the U.S., but worldwide as well.
David Maloney, Editorial Director, DC Velocity 02:32
And of course, I know you've been tracking this negotiation process for the last few months. What do you think are some of the most important aspects that you've seen of the settlement?
Tom Nightingale, CEO, AFS Logistics 02:43
Yeah, we've tracked it very closely, because our customers clearly had concerns. With over $4 billion worth of parcel that flows through our system, they clearly were keenly attuned to this outcome. What we saw as a result of this contract is a material wage increase. Now, UPS is a very efficient company, but this is the largest wage increase that we've seen coming as a result of a contract in this industry, and we expect some changes as a result of it.
David Maloney, Editorial Director, DC Velocity 03:16
Are there particular things that the amount of wages or the fact that we're putting air conditioning in some, in the newer vehicles, some of these kinds of things — do you think will be a trend that other carriers will have to respond to?
Tom Nightingale, CEO, AFS Logistics 03:30
Really, of the things that were decided, at least what appears to be emerging in the media at this stage, the most material issue is the wages. While the air conditioning is certainly something that grabs the public's eye, the thing that will drive shipper and carrier behavior will be the wages. That's the real deciding factor here.
David Maloney, Editorial Director, DC Velocity 03:52
So overall, what will this mean for shippers? Can they expect their parcel rates to rise?
Tom Nightingale, CEO, AFS Logistics 03:58
I think it will. We're looking at an increase in this case that we really have not seen before ever in the industry. Typically, in the transportation industry, you'll see wages rise 1 to 3% overall on any given year. We're talking about wages that may be going up as much as 9% in a single year here, and UPS already runs a very efficient operation. So, while this is good in that it avoids disruption, it's going to ultimately result in some changes in behavior, and those changes really have to manifest themselves in either operational efficiencies, which is unlikely to get this much of an increase, or price increases. And that's the thing that has our customers most concerned,
David Maloney, Editorial Director, DC Velocity 04:43
Right. And this is at a time where everyone's trying to already battle rising inflation. We've kind of cooled that off a little bit and some rates have gone down, but there's still a lot of pressure within the market. Overall, how do you think this will affect transportation?
Tom Nightingale, CEO, AFS Logistics 04:57
Well, I think it's gonna affect it in two ways. In the short term, we're gonna see the shipper rates increase, and I would expect to see a general rate increase in the fall timeframe that, while the headline number might be in the high single digits, the reality number, the number behind the number, the way it actually affects a shipper is probably more in the low double digits. And the second way that it will increase or it will affect the industry is really by inviting competition in. So, it will enable and embolden other carriers, whether it's FedEx or a regional carrier, to come in and cherry pick the volumes that they find most desirable, because they will have cost advantages. And then longer term, it may get really interesting because the Teamsters have scored a significant win here, and they're now playing from a position of strength for the first time in a long time, and I think that will invite a different labor climate going forward.
David Maloney, Editorial Director, DC Velocity 05:57
And speaking of that, we have seen this to be somewhat of a summer of labor strife. We of course, had settlements, in the West Coast port workers, the dock workers, the longshoremen. We've seen strikes very quickly, but then, because of legal reasons, they had to be settled at the ports in Canada. We're seeing problems at Yellow Freight — we'll talk about that in a moment. Some potential strikes that also with airlines, and the possible ramifications that might have on air cargo. This does seem to be a trend we're seeing with organized labor, where they seem to have more leverage than before.
Tom Nightingale, CEO, AFS Logistics 06:33
Well, it's interesting, because certainly the headlines would point you in that direction, and I would say that, as we look across the industry, and if you look at the last decade, union membership within the transportation industry has actually fallen, in 10 years, from 16.1% of the total employment in the industry to 15.5% of the total industry. And the Teamsters, which are obviously the most dominant force, within that, over the same 10 years, have fallen from 1.45 million members down to 1.18 million members as of last year. So, those are significant decreases. When — 2023 is a little bit different, and you are seeing a lot of noise, I think some of that is just the confluence of events coming together, more so than necessarily a trend. You would think that a Democratic administration would embolden the Teamsters. In this case, I think it's really just things coming together. And they did score a very legitimate victory here with UPS, and I think that may cause a further trend that may start to reverse some of those data points that I just cited.
David Maloney, Editorial Director, DC Velocity 07:45
Where do we go from here with labor? Does this encourage more automation as labor costs will continue to rise and be hard to find because of the shortage of workers?
Tom Nightingale, CEO, AFS Logistics 07:58
I think it will. Having spent some time in the autonomous warehouse robotic space, I am a believer in that side of the industry and its ability to offset some of the labor cost challenges. However, unions do clearly fight against that, and I think they've been pretty staunch in their desire to minimize the impact of that. But with unemployment being still at exceptionally low levels, I don't see any reason or any way that we wouldn't see an increase in automation as a means to try to offset some of those rising labor costs that will undoubtedly occur across not only UPS' network, but other networks as well.
David Maloney, Editorial Director, DC Velocity 08:42
Let's shift a moment to Yellow Freight, because they are under tremendous pressure, like a lot of carriers are, with rates dropping and costs rising. It — as we record this on Friday, July 28, it looks like they're going to be filing bankruptcy fairly soon. What do you think that will mean for the trucking sector and for freight prices and the general mood of what's going on in the industry?
Tom Nightingale, CEO, AFS Logistics 09:07
I think for the LTL sector specifically, it's going to tighten up capacity. There is enough capacity to absorb the 9 to 10% that Yellow currently fills in the market, and it would be unfortunate, because I think Yellow provides a good value-add service for certain shippers at certain price points with certain levels of service expectations. But the reality is that freight will still move. Now, it will probably move at a higher price, at least in the next probably one to three months, until the system renormalizes. But assuming that the economy continues to cool a little bit — and I do see us engineering a nice soft landing here; at least all indications are that so far — that demand ultimately will level out, and I don't think that you'll see the LTL carriers as a whole continuing to take advantage of this situation. They will in the near term; there's no doubt that customers will need somebody on their side to help them through this period of time, but over the long haul, I think that this industry still has the capacity to absorb that, that shock, and we'll be fine from a price standpoint over time.
David Maloney, Editorial Director, DC Velocity 10:23
As we begin to enter our peak season for shipping, with the holidays coming up, what do you anticipate for peak this year?
Tom Nightingale, CEO, AFS Logistics 10:33
I think peak will be varied by mode. Ocean, you'll see a muted-to-no peak. Truckload, you'll see similar — muted to no peak. LTL, I think will still be down, as the manufacturing economy in particular cools off, and I think parcel you'll see a flattish peak. You're certainly not gonna see what you saw in the pandemic years, but the reality is that online shopping has not gone away post-pandemic, and we'll start to see that uptick probably by September, and certainly October.
David Maloney, Editorial Director, DC Velocity 11:11
Some very good insights, Tom. We have been talking to Tom Nightingale, the CEO of AFS Logistics. Thanks very much for sharing your knowledge with us in the industry, and for being our guest today on Logistics Matters.
Tom Nightingale, CEO, AFS Logistics 11:24
My pleasure. Thanks for having me.
David Maloney, Editorial Director, DC Velocity 11:26
Thanks, Tom. Now let's take a look at some of the other supply chain news from the week. And, Victoria, spending has slowed in new warehouses and automation this year, but like a lot of things with the economy, you wrote this week that the future seems a lot brighter. What can you tell us you found?
Victoria Kickham, Senior Editor, DC Velocity 11:43
Yes, absolutely, Dave, happy to. There's been a slowdown, as you say, in warehouse construction over the past year, following the post-Covid boom we experienced, when accelerating e-commerce and unprecedented demand for logistics services contributed to a surge in the need for warehousing space. The recent slowdown is due to declining e-commerce activity and rising interest rates over the past year, but, as you say, it looks like we may have hit bottom, and we might see growth heading into 2024, in both warehouse construction and related warehouse automation projects. This is all according to a report from research firm Interact Analysis, which released a midyear update to its annual warehouse automation report earlier this month. The global report forecasts a 25% year-over-year decrease in warehouse construction this year, but predicts the return to growth next year. Demand for warehouse automation projects will follow suit and is actually expected to reach double-digit growth in 2025.
David Maloney, Editorial Director, DC Velocity 12:43
Victoria, are there any other factors driving or underlying the trend you're talking about?
Victoria Kickham, Senior Editor, DC Velocity 12:49
Yes. Well, many experts have said the extremely high e-commerce growth we saw during the pandemic and immediately afterwards was in many ways unsustainable, so it's not surprising that there was a slowdown or decline in that. But now it looks like that decline is, you know, may have been a correction and that the market may be stabilizing. This report notes that e-commerce activity dipped to prepandemic levels and is now picking up again as a percentage of total retail sales, for example. That will help drive demand for space and automation. Inventory is another factor. There's a move away from just-in-time inventory and toward just-in-case inventory as companies plan for ways to deal with supply chain uncertainties and disruptions. That's a result of the lessons learned over the past few years, of course. And given that trend, the report actually expects demand for automation to increase as early as the end of this year, continuing into next year and, as I said earlier, hitting that double-digit growth mark, hopefully in 2025. The report also pointed to some of the companies that are driving demand for warehouse automation. Not surprisingly, retail giants Amazon, Walmart, and Target are at the top of that list. Others include European brands Aldi, Adidas, Carrefour, and John Lewis as well as you bet U.S.-based Albertsons. The report says Germany's Aldi, which is a discount supermarket chain, for those who aren't familiar, has become one of the largest global investors in warehouse automation, having kind of been late to the game, according to this report.
David Maloney, Editorial Director, DC Velocity 14:21
I was just at Aldi's this week, so I'm glad to know that they're keeping up with things. Thanks, Victoria.
Victoria Kickham, Senior Editor, DC Velocity 14:26
You're welcome.
David Maloney, Editorial Director, DC Velocity 14:28
And Ben, while we're talking about warehouse automation, you wrote this week about how the life of warehouse robotics is being extended with new technology upgrades. Can you share some of those details?
Ben Ames, Senior News Editor, DC Velocity 14:41
Yeah, I'm glad to, Dave. This came from one of the events that I covered this week; it was a groundbreaking ceremony for Locus Robotics. You've probably seen some pictures of their technology. These are sort of square-based rolling robots that move around the distribution center. They have a sort have tower on them, about shoulder-high to a worker, that holds bins in them. They move themselves around to the next picking location, and then the human worker interacts and picks things into them or, or takes things out of them and slots them. So, what they're doing is building a new headquarters just outside of Boston, where they're located. That's going to consolidate their current campus of five buildings into a single one, about 200,000 square feet, and they have space in there for engineering, manufacturing, and their operations. Also, it will have a technology showcase and a demonstration center to show off their technology. To be honest, all that stuff is pretty standard when you cover these tech-firm groundbreakings, but I thought it was really neat that they'll also use the new space as a refurbishing center for those robots, and that's a really important part of the Locus business model, which is known as Robots-as-a-Service, or RaaS. It means that they don't sell their robots outright to their users; the company still actually owns them, but the customers pay subscription fees for the amount of goods the robots move or the amount of time they operate — there are different ways to measure. To be clear. Locus is not the only robot vendor with a RaaS model — that's fairly common nowadays — but they're definitely among the bigger players in the field. In May, actually, we covered this earlier the — DHL Supply Chain, the contract logistics provider, expanded its fleet of Locus AMRs to 5,000 robots across its global warehouse network, and Locus says that that's the industry's largest AMR deal to date, so, pretty big numbers.
David Maloney, Editorial Director, DC Velocity 16:38
Yeah, they certainly are. Did Locus explain how they refurbish their robots?
Ben Ames, Senior News Editor, DC Velocity 16:43
Yes, and this is pretty cool. Like I said, the refurbishing part was what kind of caught my attention. To begin with, to build each robot, Locus uses a contract manufacturing firm that produces the component parts. Then they do the final assembly and the testing in Massachusetts there, before, of course, shipping them out to various DCs around the world. And I asked Locus CEO Rick Faulk how the refurbishing part works. So, first of all, they often do refurbishing through software upgrades, just like your smartphone gets a new version of its operating system sometimes, or the apps on it, but these robots get upgrades, as well, to their artificial intelligence, and that's how they navigate the building. They communicate with each other. They figure out where to go next. They do predictive analytics. They try to minimize their travel paths, all the stuff that really makes them more efficient. Less often, Locus actually brings them physically back to the factory for upgrades, maybe to replace parts that could have worn out. But it turns out that that's not that frequent. So, Rick Faulk —again, the CEO — said that typically their robots are in the field for three years or so, but they've had some robots operating right now for over seven years, and he thinks that they can go over 10 years. It's — we're starting to get into pretty big numbers, especially because the field of AMRs, you know that a lot of the vendors, are not even quite 10 years old themselves, so. But you know, it really shows how Locus is serious about keeping these robots running a long time. In fact, Faulk told me, as he said, "In the RaaS world, we don't like to throw robots away. I can count on one hand, the number of robots that we've scrapped." And, like I said a little bit higher up, they have a single client with 5,000 of them, so, in general, these robots just keep running and running.
David Maloney, Editorial Director, DC Velocity 18:31
Certainly good to hear, and good news for the industry in justifying that kind of investment into robotics. Thanks, Ben.
Ben Ames, Senior News Editor, DC Velocity 18:39
Exactly.
David Maloney, Editorial Director, DC Velocity 18:40
Yep. We encourage listeners to go to DCVelocity.com for more on these and other supply chain stories, and check out the podcast Notes section for some direct links on the topics that we discussed today.
And again, our thanks to Tom Nightingale of AFS Logistics for being our guest. We welcome your comments on this topic and our other stories. You can email us at podcast@dcvelocity.com.
We also encourage you to subscribe to Logistics Matters at your favorite podcast platform. Our new episodes are uploaded each Friday.
Speaking of subscribing, check out our sister podcast series Supply Chain in the Fast Lane, coproduced by the Council of Supply Chain Management Professionals and Supply Chain Quarterly. The current series is on transportation tech. Check out Supply Chain in the Fast Lane wherever you get your podcasts.
And a reminder that Logistics Matters is sponsored by Travero Logistics. Travero Logistics is an experienced, Midwest-based freight-brokerage firm. They have a national network of trusted carriers ready to meet your freight transportation needs. Visit Travero.com and let their experts find you a solution. That's T-R-A-V-E-R-O dot com.
We'll be back again next week with another edition of Logistics Matters. Be sure to join us. Until then, have a great week.
Articles and resources mentioned in this episode:
- AFS Logistics
- Warehouse construction and automation spending to rise in 2024
- Locus Robotics breaks ground on new Massachusetts HQ
- Visit Supply Chain Quarterly
- Listen to CSCMP and Supply Chain Quarterly's Supply Chain in the Fast Lane podcast
- Listen to Supply Chain Quarterly's Top 10 Supply Chain Threats podcast
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