you may also enjoy
In today’s supply chain, nobody has it easy. Maritime shippers are seeing historic disruptions due to violence in the Red Sea, rail shippers are facing continued complexity at the U.S.-Mexico border, and truckers and regulators continue to duke it out over impending West Coast regulations. But for FedEx, the new year is accompanied by a particularly steep loss: in a recent earnings call, the carrier revealed to shareholders that they’ve seen an 18% decrease in volumes in 2023, with leadership casting blame toward the U.S. Postal Service, as well as a sluggish U.S. industrial sector. With volumes proving stubbornly low, the carrier faces a season of difficult decisions.
In this week’s newsletter, we’re diving into a supply chain on the brink. From the Red Sea to FedEx, here’s what’s happening in the industry that’s always moving.
Stubbornly low volumes at the United States Postal Service have led to significant fallout for the air division of parcel giant FedEx, FedEx Express. FedEx Express, a contractor for the USPS, saw an overall decline in global freight volumes of 18% year over year, according to a Dec. 19 FedEx earnings call.
“Our ability to drive margin improvement in the near term has been constrained by transitory factors, including the year-over-year decline in the U.S. Postal Service volume, combined with minimum required service obligations associated with our current USPS contract,” said FedEx CEO Raj Subramaniam. In addition to low volumes from the USPS, FedEx Executive Vice President and Chief Customer Officer Brie Carrere indicated that continued weakness in the industrial sector has contributed significantly to the low volumes seen at FedEx Express.
FedEx Express, the air division of parcel giant FedEx, is planning to cut the minimum number of hours guaranteed to pilots by 15%, according to reporting from FreightWaves. The decision comes as the carrier struggles with plummeting parcel volumes and significant overstaffing.
In an attempt to cut pilots, FedEx plans to offer early retirement incentives upon the tentative agreement of a new contract for the pilot’s union. The carrier hopes to cut between 350 and 450 pilots using these incentives.
Shippers are searching for alternative modes as disruptions in the Red Sea continue to force shipments around the Cape of Good Hope—a diversion that adds 7 to 14 days of travel time. Increasingly, shippers are looking to rail as a reliable means of avoiding the disruption in the Red Sea. According to reporting from The Loadstar, many shippers are considering utilizing rail services to move shipments from China to Europe, traveling via the Russian railway system. While the 18-19 day rail transit times compare unfavorably to pre-disruption ocean travel times, they are far better than the travel times of vessels forced to reroute around the Cape of Good Hope.
While significant rail volumes have yet to manifest as a result of the disruption in the Red Sea, industry experts indicate that it’s only a matter of time until the disruption leads to inflated rail container rates.0
In the wake of the shipping disruptions in the Red Sea, rates from Asia to the U.S. West Coast have increased significantly. Increasingly, shippers are choosing to route shipments through the U.S. West Coast, driving up container rates to levels not seen since the COVID-19 Pandemic.
At the time of publication, China–U.S. West Coast container rates are at $2,713, an increase of 95% from Pandemic-era rates in January 2020, according to FreightWaves.
The increase is even more significant on China–U.S. East Coast routes, which are directly exposed to disruptions in both the Red Sea and the Panama Canal. From Jan. 1–4, rates surged to $3,900, an increase of 51% over three days.
The U.S. Postal Service is facing significant roadblocks in its push toward electric vehicles, a new report from the Postal Service’s Office of Inspector General (OIG) indicates. The inspection showed substantial losses due to the theft of electric charging stations and office supplies, leading some to doubt the success of the Postal Service’s ongoing efforts toward electrification. In one instance, a series of thefts at a Topeka, Kansas, facility resulted in $59,700 in stolen office equipment and $7,700 in charging station equipment.
“We found that management controls over the storage of charging stations … were not effective,” the report states, critiquing security at USPS facilities. “Specifically, facility management did not employ necessary physical safety measures designed to protect and deter the theft of Postal Service assets.”
According to a new survey from Optoro and CBRE, consumers could return as much as $82.1B in holiday purchases. The survey estimates that returns have increased by as much as 50% since 2018, a value of $149B. This increase is due mainly to the rise of the booming e-commerce sector, which the National Retail Foundation estimates was responsible for $278.8B in sales during the 2023 holiday season. As businesses continue to compete on the ease of returns, the increase in total return value is expected to continue in future years, according to reporting from Supply Chain Dive.
Following a surge in demand for warehousing during the COVID-19 Pandemic, U.S. warehouses are beginning to see demand slacken following a historic warehouse construction boom. The fourth quarter of 2023 saw warehouse availability jump to 5.2%, up significantly from 3.1% in 2022. This increase marks the first time U.S. warehouse availability has passed 5% since the early days of the COVID-19 Pandemic in 2020.
“While the new development pipeline has exceeded demand, we are clearly seeing signs that construction is slowing in response to market conditions and tempered absorption totals,” said Jason Price, head of logistics and industrial research at Cushman & Wakefield, as quoted by the Wall Street Journal.
Whether it be the conflict in the Red Sea or disruptions at FedEx, logistics in 2024 is proving to be hazardous terrain for shippers, carriers, and consumers alike. As a result of these pressures, shippers are increasingly leveraging technology to build the resilience they need to operate effectively in a volatile supply chain. With over 25 years at the leading edge of supply chain innovation, Intelligent Audit offers shippers an invaluable suite of resources to build resilient supply chains.
Get started with Intelligent Audit, and see how 25 years of supply chain innovation can transform your business today.
Set up a call with one of our experts to discuss how Intelligent Audit can help your business uncover opportunities for cost reduction and supply chain improvements through automated freight audit and recovery, business intelligence and analytics, contract optimization, and more.
