As climate change turns once predictable weather patterns on their head, today’s supply chain professionals are tasked with operating in an environment plagued by unprecedented volatility. From the Panama Canal to the Mississippi River, a changing climate is forcing shippers to make difficult decisions. New data reveals that, by the middle of this century, the transportation industry could face as much as a $10 billion loss annually due to climate change-related disruptions.
Beyond the changing climate, conditions remain volatile throughout much of the logistics sector. The parcel power balance is changing quickly, with shippers well-positioned to make the most of low carrier volumes. Meanwhile, capacity growth continues in the trucking industry, though at a slower clip than previously seen. Here are news and trends making headlines in an industry that's always moving.
Facing continued droughts in major waterways, the effect of climate change on supply chains is on the minds of stakeholders throughout the supply chain. According to numbers verified by the Environmental Defense Fund, the impact of climate change on ports alone could rise to $10 billion annually by 2050, with that number increasing to $25 billion by 2100.
“We firmly believe that climate change poses a great threat to the shipping industry and the consumer overall. We are definitely seeing disruption, disruption happening all the time,” Maersk’s President for North America, Naris Phol, said in a recent conversation with CNBC. “Imagine that if the port has an impact, but that we are not able to unload the cargo here, there’s a downstream impact to the supply chain, and also towards the upstream. So, it’s all connected.”
As the Panama Canal Authority continues instituting new limits in the face of a worsening drought, competition for transit slots is ramping up. Canal authorities are further working to limit the number of slots available for transit through drought-stricken Gatun Lake, with reductions set to continue into 2024.
This pressure from the Canal Authority has resulted in skyrocketing transit slot auction prices. In 2022, the average booking fee for transit was $900,000. Last week, a slot was purchased by a southbound VLGC for a staggering $2.6M, according to TradeWinds. With no end to the drought in sight, the industry will likely see transit costs rise.
Legacy carriers are searching increasingly for innovative strategies to leverage artificial intelligence to meet dynamic customer demands. Last week, FedEx President and CEO Raj Subramaniam detailed FedEx’s latest forays into AI. By integrating recent advancements in machine learning into existing operations for maximum data visibility, FedEx plans to improve delivery efficiency, sustainability, and volume forecasting.
“When you see a FedEx truck on the street, you see a truck with FedEx packages. I see logistics intelligence on that truck,” Subramaniam recently said, according to reporting from Supply Chain Dive, “We need to have data platforms that these models can run on so that we can create insights.”
The balance of power has shifted in the parcel market, with carriers increasingly catering to the demands of shippers as they struggle to contend with persistently low volumes. According to the TD/Cowen/AFS Freight Index analysis, the ground parcel rate for Q3 2023 was 23.2% above January 2018 baselines, down from 26.9% in Q3 2022. Industry analysts say the drop in average rates is due to reductions in fuel surcharges and fees.
“After strict pricing discipline by carriers over the past two years, negotiating power is swinging back to shippers,” Micheal McDonagh, President of Parcel for AFS, said in an Oct. 17 statement. Carriers faced with falling demand “are pursuing volume from competitors, and the higher discounts we’re observing indicate the importance of negotiation strategy in this environment,” he added.
The Logistics Managers’ Index (LMI) revealed a continued growth of transportation capacity in October, signaling that carrier capacity still outweighs carrier demand. However, the capacity reading of 56.7 was 7.6 below the September reading, showing a slight slowdown in the growth of the current capacity imbalance. A reading over 50 shows capacity growth, whereas a reading below 50 reveals a lack of capacity.
“The freight recession is by no means over,” according to the report. “But with all three of our transportation metrics hitting their most encouraging readings in over a year, we may be taking steps in the right direction (something our respondents seem to reaffirm in their future predictions).”
Following the high-profile closure of Convoy's digital freight network, transportation solutions provider Flexport has acquired the company’s tech stack. Flexport plans to retain members from Convoy’s engineering and core product teams.
“In recent years, Convoy became the clear leader in technology for trucking, a vitally important aspect of Flexport’s mission of making global commerce so easy there will be more of it. Trucking is at least one leg of every international shipment Flexport manages,” Flexport CEO Ryan Petersen wrote in an Oct 31 press release. “With more than 400,000 truck drivers and 80,000 carriers in Convoy’s network, we will be able to tap into an incredible supply of trucking service providers for our customers. Convoy’s tech stack also includes sophisticated procurement technology that fully automates the supply side for 98% of loads booked. This will allow us to significantly lower our carrier costs on our truckload and eventually our drayage and cartage business.”
As a result of the low volumes plaguing the maritime environment, ocean carrier Maersk has announced plans to implement further job cuts to navigate the harsh volume environment. The carrier has decided to cut 3,500 jobs, with 2,500 set to happen before the end of the year and a further 1,000 layoffs in 2024. These layoffs come on top of 6,500 jobs already cut this year.
“Given the challenging times ahead, we accelerated several cost and cash containment measures,” Vincent Clerc, CEO of A.P. Moller-Maersk, said in a quote obtained by FreightWaves. “We are in a very uncertain trading environment with significant further downside risk potential — one that could stay with us for quite a while.”
As the shipping environment transforms due to a changing climate, shippers strive to build resilience to exceptions. With Intelligent Audit, shippers can craft effective processes to ensure that supply chains remain strong regardless of weather-related crises.
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