Logistics This Week: FedEx’s New Normal, Amazon Leads, and Market Pressures Rise

This week’s roundup of the latest logistics news is big: FedEx braces for operational changes with the end of its USPS contract. At the same time, Amazon now surpasses UPS in parcel volume, rising delivery costs force carriers to adjust to market pressures, and Baltimore’s supply chain stays robust despite the Key Bridge collapse. Additionally, we cover surging air cargo volumes driven by geopolitics and more flexible market practices, how major automakers are setting new standards for Scope 3 emissions reporting, and finally, why a major industrial real estate player sees cooling demand. Let’s dig in.

FedEx Gears Up for Major Transition After USPS Contract Ends

As FedEx's long-standing contract with the U.S. Postal Service (USPS) ends on September 30, the logistics giant could undergo a major shake-up. Especially with the USPS selecting UPS as its new primary air cargo carrier. Here's what you need to know:

Imminent Changes to Daytime Flight Operations

Post-September, FedEx plans to slash its daytime flight operations, a direct response to losing one of its largest customers. With the U.S. Postal Service heavily utilizing these daytime slots, the cessation of this contract prompts FedEx to target a 50% reduction in these flights, aiming to achieve a substantial $1.5 billion in savings and optimize operations to align with new business realities.

Pilot Staffing Adjustments on the Horizon

The changes extend beyond flight schedules. FedEx's pilot workforce, crucial to its daytime operations, faces potential downsizing. The exact scale of this reduction will depend on the newly adjusted flight schedules. However, FedEx is clearly preparing for a leaner operational model as part of a broader strategy to streamline operations and enhance profitability in a fiercely competitive sector. As these plans unfold, staffing and operational efficiency impacts will become increasingly apparent, marking a new chapter for FedEx in managing its air cargo commitments.

The Changing Guard of Parcel Delivery: Amazon Surpasses UPS

The latest Pitney Bowes Parcel Shipping Index figures reveal a changing U.S. parcel industry, with Amazon surging past UPS in parcel volume. Let's explore the specifics of this evolution and what it suggests for the future.

Amazon Takes the Lead

U.S. parcel volume rose modestly by 0.5% to 21.65 billion packages handled in 2023. While those figures don't necessarily read like breaking news, the fact that Amazon overtook UPS in parcel volume for the first time ever is the real story. Amazon's robust focus on lightweight, business-to-consumer deliveries is a major reason it continues capturing more market share despite competitive pressures.

Economic Effects on Parcel Revenue

Despite the slight increase in parcel volumes, total U.S. parcel revenue dipped to $197.9 billion, a decrease of 0.3% from the previous year. The downturn in revenue, driven by reduced volumes from UPS and FedEx, highlights the challenges legacy carriers face in a transforming market. As economic factors continue to squeeze the industry, these legacy carriers must adapt to maintain profitability and relevance as alternative carriers gain ground.

Expect Rising Delivery Costs in Q2

As the second quarter unfolds, the logistics sector faces rising delivery costs, with major carriers like FedEx and UPS adjusting their pricing strategies. Shippers accustomed to these carriers' aggressive discounting tactics could be in for a rude awakening.  

Reduced Discounts and Increased Surcharges

FedEx and UPS are abandoning their previous discounting strategies and implementing higher fuel surcharges and other fees. According to the TD Cowen/AFS Freight Index, the ground parcel rate per package could climb to 29.3% above the January 2018 baseline in Q2, a slight increase from 28.9% the previous year. At the same time, it signals a move to bolster profitability amid softer demand for package delivery.

The Strategic Shift to Boost Revenue

In addition to reducing discounts, carriers are also utilizing accessorial charges more strategically to enhance their revenue streams. The express parcel service rates are set to rise, with projections showing an increase from 3.8% to 4.1% above the January 2018 baseline. This adjustment reflects a broader strategy by carriers to improve their financial performance by moving away from heavy discounting and focusing on more sustainable pricing models.

Adapting to Adversity: Baltimore's Supply Chain Shows Resilience Post-Bridge Collapse

Following the collapse of the Key Bridge in Baltimore, local supply chain actors have demonstrated remarkable adaptability in managing disruptions. Here's how various transportation sectors are keeping trade moving:

Quick Adjustments at the Port of Virginia

First, the Port of Virginia quickly accommodated an unexpected surge, managing an additional 18,000 to 20,000 containers in March alone. Such an effective response showcases the port's capacity to handle significant increases in cargo without a hitch so that the supply chain remains fluid and reliable even in the face of infrastructural setbacks.

Extended Efforts in Rail and Road Transport

Rail operators also ramped up services between Baltimore and New York to facilitate cargo movement. At the same time, truckers coped with increased congestion by adjusting their routes and schedules. Despite longer trip times, container imports, and chassis repositioning facing delays, these adjustments have helped maintain a steady flow of goods while keeping a threatened supply chain afloat. Only specific commodities like coal and pulp have faced significant disruptions, rather than retail goods as a whole.

March Air Cargo Trends: Rising with New Market Realities

The air cargo market demonstrated notable flexibility in March, adjusting to external pressures and evolving shipper preferences.  

Embracing Spot Market Volumes for Greater Flexibility

In the face of ongoing Red Sea disruptions and an upcoming summer capacity boost, forwarders increased their reliance on spot market volumes to adjust more fluidly to immediate market conditions. This strategic choice reflects a shift towards shorter-term commitments, with shippers prioritizing adaptability. In Q1, short-term contracts comprised 41% of all new agreements, marking an 18% increase from the previous quarter.

Sustained Growth Amidst Challenges

Despite external pressures, the air cargo sector saw an 11% year-over-year increase in demand in March. What’s also driving the sector's resilience is strong e-commerce activity and the continuing need to circumvent regional disruptions. With an average spot rate of $2.43 per kilogram in March—a 7% rise from February—the industry's capacity to manage challenges while maintaining service efficiency is evident.

Tackling Scope 3 Emissions: Automakers Lead with New Reporting Initiative

Automotive giants like Ford, GM, and Honda are pioneering efforts to standardize reporting on Scope 3 emissions. By focusing on the indirect emissions from their expansive supply chains, this initiative could transform how the industry tracks and manages its environmental impact.

Streamlining Emissions Data with a Unified Approach

The newly introduced Automotive Climate Action Questionnaire, developed under the Manufacture 2030 program, provides a uniform template for suppliers to report their annual environmental impact. Such standardization simplifies the complex task of measuring emissions outside a company's direct operations, helps automakers gain more precise insights, and fosters accountability across their supply networks.

Enhancing Supplier Engagement and Transparency

Suppliers can consistently report on key metrics such as energy and water use, waste generation, and other environmental impacts by utilizing this questionnaire. With 38% of companies previously tracking these indirect emissions, this tool not only broadens the scope of reporting but also eases the reporting process for suppliers. It’s a significant step towards comprehensive environmental governance in an automotive industry that desperately needs it.

Prologis Adjusts Expectations Amid Cooling Industrial Real Estate

Lastly, Prologis, a leader in industrial real estate, recently exceeded revenue expectations yet revised its 2024 forecast downward, signaling a cautious outlook on the warehousing market. Despite positive economic indicators, the demand for new leases is missing expectations due to several influencing factors.

Cautious Leasing Amid Economic Uncertainty

Companies are currently hesitant to commit to new warehouse spaces because of still-high interest rates, an unpredictable retail environment, and geopolitical concerns, which add another layer of complexity to leasing decisions. Although GDP, retail sales, and e-commerce continue to show robust growth, this has yet to translate into a proportional increase in leased warehouse space.

A Mixed Response from Major Players

While the overall market shows signs of hesitation, major corporations like Amazon and Home Depot are expanding their logistical footprints. Amazon plans to double its same-day delivery sites, and Home Depot intends to increase its warehouse facilities to better serve professional contractors. So, while there’s a broader trend of market cooling, the sector is still diverse and nuanced enough, with some expanding aggressively. No matter what happens, somebody will always need space to help things get from Point A to Point B.

Adapt and Innovate with Intelligent Audit

From FedEx adjusting to life after USPS to Prologis’s dim outlook on industrial real estate, logistics is a sector continuously adapting to new challenges. But with a little thinking outside the box and transformative technologies, it’s possible to prepare for anything that comes your way. That’s where Intelligent Audit and its solutions come into play as one of the industry’s best freight audit companies:

Get started with Intelligent Audit, and learn how 25 years of supply chain innovation can transform your operations today.

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