Today's logistics industry professionals are learning the hard way that there can be too much of a good thing. The constant capacity crunch of the COVID-19 Pandemic forced shippers to overhaul operations and adjust quickly, leaving them dreaming of more manageable volumes.
Now, with large-scale capacity crises a thing of the past, shippers are faced with plummeting demand. As a result, logistics providers are cutting routes and taking risks to stay competitive in a bloated logistics marketplace. In an industry that's always moving, here's what you need to know.
As shipping demand continues to wane, FedEx is taking steps to offset falling revenues. In late October, FedEx announced that it had as many as nine daily international flight frequencies and 23 domestic frequencies to achieve savings of as much as $2.7 billion.
Despite the recent capacity cuts, FedEx plans to continue reducing volumes, as FreightWaves reports: "The integrated express delivery provider plans to chop eight to nine more domestic frequencies this month and is temporarily parking aircraft because fewer are needed." Ultimately, FedEx hopes to lower costs by $4 billion beginning in the fiscal year 2025.
As freight volumes continue to fall and demand softens, ocean carriers are working to increase blank sailings.
In Q3 earnings reports, Matson, Maersk, and Zim have announced plans to lower capacity. Supply Chain Dive reports that Maersk has already reduced capacity by 15%, with other carriers preparing to follow suit for transpacific and Asia-Europe routes.
Hapag-Lloyd CEO Rolf Habben Jansen explained his company's rationale behind reducing routes during a Q3 earnings call: "We would never sail two ships with 50%, but would always sail one ship with 100% because we simply can take out a tremendous amount of cost."
Despite recent decreases in fuel prices, shippers using UPS Air International will soon see an increase in jet fuel surcharges. "Effective Dec. 5, UPS (NYSE: UPS) will increase fuel surcharges by 150 basis points, or 1.5%, on its U.S. air import and export services," writes Mark Solomon, reporting for FreightWaves.
UPS customers should expect surcharges between 21% and 24%. The surcharge depends on the latest Gulf Coast jet fuel prices, which are set by the U.S. Energy Information Administration (EIA).
The nation's largest rail union, SMART-TD, has rejected a tentative agreement with freight railroads. The 28,000 rank-and-file members of SMART-TD rejected the Biden-backed tentative agreement due to the agreement's failure to include guaranteed sick leave policies, which can leave workers vulnerable to harsh attendance policies. In a statement obtained by Supply Chain Dive, SMART-TD President Jeremy Ferguson said, "This can all be settled through negotiations and without a strike. A settlement would be in the best interests of the workers, the railroads, shippers, and the American people."
The nation's second-largest union, the Brotherhood of Locomotive Engineers and Trainmen (BLET), has announced that its members have approved their contract.
As companies continue to compete for laborers in a highly competitive hiring environment, UPS is touting an improved work-life balance to attract potential employees. In July, the company launched a "Total Service Plan," which aimed to reduce idle time by improving on-time departures for drivers. According to an Oct. 25 earnings call, the plan has had some success: dispatch timeliness improved by 13% in Q3 of 2022, resulting in an overtime drop of 1 million hours.
According to reporting from Supply Chain Dive, UPS has introduced other benefits to attract seasonal workers for the company's peak season rush, including improved scheduling and a streamlined hiring process.
In a blow to CEO of Patton Logistics Spencer Patton's months-long crusade against FedEx Ground, the Trade Association for Logistics Professionals, or TALP, disbanded on November 18th. An update on the organization's website states, "The Trade Association for Logistics Professionals (TALP) announces that all officers and committee members are resigning effective 11/18/2022, effectively terminating the organization," and notes that Spencer Patton resigned on Oct. 25.
While the update gave no specific reasons for disbanding, the organization took steps to push back against ongoing calls for work stoppages from FedEx Ground contractors. As the update states, the members of TALP "unequivocally denounce any calls for work stoppages that may have been associated with this organization or any individual member associated with this organization. Any such action is unproductive, self-destructive to our collective businesses, and contrary to our agreed-upon contracts."
The Stevanato Group, an Italian integrated healthcare solutions provider, is working to improve pharmaceutical manufacturing processes to streamline the pharmaceutical supply chain. By investing in production capabilities in-house, the Stevanato Group has made it possible to manufacture glassware, test containment systems, monitor syringe flow, and perform tests without undertaking complicated outsourcing processes.
"The Stevanato Group is working to develop new products and increase capacity for its patented EZ-Fill solutions — pre-sterilized and ready-to-use vials ... that help reduce complexity and shorten the supply chain," Riccardo Butta, President of the Americas for the Stevanato Group, told PharmaNewsIntel.
Bindiya Vakil, CEO of California-based supply chain consultancy Resilinc, warns pharmaceutical shippers that ongoing drug shortages are likely to persist.
"The drug industry is not really taking a proactive approach to understanding their supply chain dependencies. And they continue to be surprised time and time again," Vakil told Fierce Pharma, "We don't have independence in our drug supply at all."
Vindya predicts that the shortage of raw materials for drugs like Adderall could affect production for as much as a year.
Mexican President Luis Obrador is pushing to make good on his promise to ban imports of genetically modified corn as he pursues Mexican food sovereignty. However, Obrador's plan has some corn-belt U.S. Senators voicing their opposition.
Iowa Senators Chuck Grassley and Joni Ernst have petitioned the help of U.S. Trade Representative Katherine Tai in their fight to prevent Mexico from banning the crop. FreightWaves, reporting on the Senator's opposition, writes, "Mexico's plan to block imports of GM corn could be a violation of the United States-Mexico-Canada Agreement (USMCA) trade deal the three countries signed in 2020."
As the global logistics industry contends with falling freight demand, perishable supply chains look toward the return to pre-pandemic volumes with relief. As FreshPlaza, an online publication focusing on the fresh produce industry, reports, "Last summer, a "heavy pivot" from air freight back to sea freight occurred as ocean terminals became less congested and sailing schedules more reliable."
As freight volumes and ocean shipping rates continue to fall, perishable supply chain professionals will likely continue investing in pre-pandemic strategies for delivering fresh produce to consumers.
A recent survey from Coupa Software, a provider of cloud-based spend-optimization software, reflects the troubling state of U.S. retail as the holiday season approaches.
According to reporting from SupplyChainBrain, "Nearly all retailers (98%) surveyed said they expect supply chain disruptions to continue during the 2022 holiday season, while 88% predicted they will worsen. As a result, 95% said they believe they will not be able to fulfill consumers' holiday needs this holiday season."
While some retailers' anxiety is due to the unpredictable supply chain issues of recent years, many are concerned about their suppliers. In their study, Coupe Software found that a staggering 90% of companies surveyed were worried that one or more of their suppliers would cease operations.
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FedEx announced peak season surcharges that will take effect starting Sept. 5, 2022. Learn more now about peak season surcharges.
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