UPS Sees Potential for Growth in Continued Nearshoring Boom

As UPS looks for strategies to maximize revenues and efficiency in a persistently depressed parcel environment, the carrier is turning to the ongoing nearshoring boom as a new opportunity to bolster revenues. The carrier has recently seen significant growth in volumes in the Americas, and company leadership is reevaluating its strategy to prioritize cross-border operations.

Beyond UPS, the global supply chain is working to navigate a number of significant changes: the Biden administration is investing in supply chain climate resilience, and Postmaster General Louis DeJoy is working to reassure lawmakers that persistent delays at USPS will soon be a thing of the past. In the industry that’s always moving, here’s what you need to know:

UPS Sees Significant Potential in Nearshoring Boom

As nearshoring–the trend of U.S. companies moving manufacturing facilities to Mexico, often from locations in Asia–continues to grow, UPS is reinvesting in its ability to capitalize on the trend. In Q4 2023, the carrier saw volumes increase by 12% in the Americas region. In light of this growth, the carrier is making strategic decisions to optimize revenues in the Americas, as well as implementing fulfillment strategies to improve visibility and control over volumes in the region.

“The Mexico-U.S. border is one of two cross-border trade flows growing notably in the world as companies shift their manufacturing and distribution closer to the United States, the largest consumption market in the world,” Kate Gutmann, EVP and President of International, Healthcare and Supply Chain Solutions at UPS said during an investor conference on March 26. “Companies are taking advantage of tax savings and lower labor costs in Mexico for both manufacturing and distribution.”

USPS Proposes Price Hike on 1st Class Stamps

In an April 10 proposal, the United States Postal Service proposed increasing the price of first-class stamps. Currently, the stamps are priced at 68 cents. If the proposed price hike is approved by the Postal Regulatory Commission, the price of first-class stamps would increase to 73 cents

“While our pricing decisions are ultimately made under the authority of the Board of Governors, in the near term, I will most likely be advocating for these increases," DeJoy said during a meeting with the USPS Board of Governors in 2022, according to reporting from ABC News. "I believe we have been severely damaged by at least 10 years of a defective pricing model, which cannot be satisfied by one or two annual price increases, especially in this inflationary environment."

Biden Administration Makes $830M Investment in Supply Chain Climate Resilience

On April 11, the Biden administration announced approximately $830M in grant awards for projects focused on improving supply chain resilience in the face of growing impacts from climate change. The grants are the first of their kind, demonstrating the administration’s interest in building climate-resilient supply chains throughout the United States.

“From wildfires shutting down freight rail lines in California to mudslides closing down a highway in Colorado, from a drought causing the halt of barge traffic on the Mississippi River to subways being flooded in New York, extreme weather, made worse by climate change, is damaging America’s transportation infrastructure, cutting people off from getting to where they need to go, and threatening to raise the cost of goods by disrupting supply chains,” U.S. Transportation Secretary Pete Buttigieg said in an April 11 statement from the U.S. Department of Transportation. “Today, through a first-of-its-kind program created by President Biden’s Investing in America agenda, we are awarding nearly $830 million to make transportation infrastructure in 39 states and territories more resilient against climate change, so people and supply chains can continue to move safely.”

Meteorologists Warn of Impact of Impending Hurricane Season on Supply Chain Operations

As a La Nina weather pattern, exacerbated by the growing impact of climate change, establishes itself across the United States, industry experts are warning that an especially volatile hurricane season could have profound impacts on supply chain operations in 2024. The hurricane season, which runs from June to November in the Atlantic basin, could see unprecedented delays and disruptions.

“Researchers at Colorado State University have predicted an “extremely active” 2024 hurricane season caused by warm ocean surface temperatures,” reports The Drinks Business, an industry publication focused on the beverage industry. “On 4 April, they announced that at least 23 named storms were expected to strike, including five major hurricanes with winds above 178 km per hour.

Key Indicators Point to Slow Growth in Freight Demand

Despite recent improvements in the 2024 freight forecast, persistent capacity gluts and and slow gains in freight demand are hampering the benefits of the freight industry’s revival in 2024. The seasonally adjusted freight transportation index, or FTS, showed a 3.1% decline in January, which resulted in a 1.1% YoY decline in the February index.

“The consensus is that a stronger catalyst is needed to boost freight demand, and, potentially, freight rates,” said the Journal of Commerce. “That catalyst could be lower interest rates, stronger manufacturing, a boost in home construction and auto sales, or a combination of all of them.”

Despite Disruption, Rates Remain Steady in Wake of Baltimore Bridge Collapse

Despite the significant disruptions presented by the March 26 collapse of the Francis Scott Key Bridge in Baltimore, freight rates have remained relatively steady. According to reporting from FreightWaves, container rates have seen a minimal impact from the collapse:

  • Rates from the Far East to the East Coast have fallen by 1% to $5,421 per TEU.
  • Average spot rates from Europe to the East Coast have fallen by 8%, to $2,347 TEU.

“Spot rates have not reacted but that doesn’t mean shippers with cargo heading to Baltimore are not affected,” said Peter Sand, chief analyst at Xeneta, as reported by FreightWaves. “On the contrary, they are seeing containers arriving at ports they were not expecting.”

Postmaster General DeJoy Reassures Lawmakers Frustrated with Delays

In an April 16 senate hearing, Postmaster General Louis DeJoy assured lawmakers that the USPS would address persistent delivery delays in its 10-year plan, “Delivering for America”. The hearing comes in the wake of the USPS’ persistent struggles with reliability. Currently, First Class letters and postcards are meeting their delivery service standard 81% of the time in the current quarter, significantly below the 92% target set by the Postal Service.

“I understand that we are taking certain risks in these efforts,” DeJoy told the Senate Committee on Homeland Security and Governmental Affairs in his testimony, according to reporting from Supply Chain Dive. “In our situation, however, these are necessary risks, and there is simply no other option.”

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