North America makes strides in global sustainability performance
Globally, companies perform strongest within the labor and human rights category; 65% of companies still lack sustainable procurement commitments, according to EcoVadis study.
North America is gaining ground on Europe in corporate sustainability leadership, according to the fifth annual Business Sustainability Risk & Performance Index, published by business sustainability ratings company EcoVadis. While Europe is home to nearly half of the world’s most sustainable publicly listed companies, North American organizations are reducing the performance gap at an increasingly rapid pace, according to the report—establishing an EcoVadis sustainability rating score of 46.5, a new high for the region. Europe scored an average 52.1 rating this year.
The Index is based on the sustainability performance of more than 46,000 companies assessed by EcoVadis between 2016-2020. EcoVadis scores organizations on 21 sustainability criteria across four themes: environment, labor and human rights, ethics, and sustainable procurement. Scores range from zero to 100; below 25 represents high risk, 25-44 represents medium risk, above 45 represents good performance, and above 64 is advanced.
Globally, organizations improved most in the labor and human rights category, which includes areas such as employee health and safety, working conditions, child and forced labor, and diversity and discrimination. The average score for labor and human rights reached a record high of 50.7. Next in line was environment, with an average score of 48.2, followed by ethics, with an average score of 44.3.
Despite those advances, organizations worldwide are failing to make progress on sustainable procurement performance, a factor that suggests many companies are unprepared to meet upcoming supply chain due diligence regulations and may be at increased risk for supply chain challenges, according to the authors. Sustainable procurement continues to be the lowest-scoring area of the index, declining for a fifth straight year across all industries. This year, sustainable procurement performance fell 0.4 points from 2019 to an average 37.6.
“The use of sustainable procurement tools, including supplier [codes of conduct] and supplier assessments, has grown tremendously, to 26% and 33% of companies respectively in 2020, but key measures such as supply chain risk analysis remain underused,” according to the report.
The latter puts organizations at increased risk.
“Sustainability performance is increasing among rated companies across regions and industries as business leaders recognize that sustainable practices yield a tangible competitive advantage,” Pierre-Francois Thaler, co-founder and co-CEO of EcoVadis, said in a statement. “But more work needs to be done to improve sustainable procurement performance, especially since the supply chain generates greater social and environmental costs than a business’ internal operations.”
Regionally, Greater China fell behind others and remained the lowest-scoring area overall, at 36.9.
“China’s lacking sustainability management is concerning in light of upstream sustainability risks in Chinese supply chains,” according to the report. By industry, highly regulated sectors (such as chemicals, electronics, and food manufacturing) display better sustainability performance and year-over-year improvements. Finance, legal, and consulting services lead, with an average score of 51. Wholesale services and professionals, and transportation have the highest improvement potentials, with average scores of 45.8 and 44.8, respectively.
The EcoVadis index examines performance of both small and medium-sized businesses (companies with 26-999 employees) and large businesses (companies with 1,000 or more employees) across five geographic regions and nine industry sectors: light, heavy, and advanced manufacturing; food and beverage; construction; wholesale; services and professionals; transport; information and communications technology (ICT); finance; and legal and consulting.
The East and Gulf Coast Port strike as well as an increase in imports from offshore e-commerce retailers helped to boost demand for airfreight in the second half of 2024.
Like much of the transportation industry, the pace of change in the air cargo sector remains uncharacteristically high. Disruptions in other freight markets and emerging business models have added new demand for airfreight. The result for shippers has been more variability in rates, capacity availability, and service offerings than we saw last year.
Airfreight capacity levels have risen to historical highs this year in large part due to a growth in air passenger travel, which has opened up more belly-hold capacity for freight. As Boeing reports in its 2024 Commercial Market Outlook, air passenger demand has recovered from the pandemic and has returned to the long-term growth trend that Boeing had projected 20 years ago in 2004.
While airfreight rates have dropped significantly from a high in 2021, they are still volatile.
Freightos Air Freight Index, https://www.freightos.com/freightos-air-index/
Several trends are impacting the balance of supply and demand. One of the obvious benefits of air cargo service is its speed and reliability relative to ocean service. With the levels of disruption seen in the ocean market—drought, port strikes, and war being only a few—the case for airfreight has been made stronger. As shippers seek predictability for their operations and their customers, the demand for airfreight has risen.
Another large tailwind driving air cargo market is the continued success of offshore e-commerce platforms like Shein and Temu. Their model focuses on fulfilling orders in markets like the United States and Europe directly from East Asia, negating the need for holding inventory in destination countries. This model has large cost and cash benefits but depends on faster delivery of consumers’ orders than ocean shipping can provide, leaving air service as the only realistic option.
The subsequent growth in demand on lanes from China to the United States has resulted in higher rates and tighter capacity availability. Shippers have also reported difficulties in securing capacity on niche lanes because carriers have been pulling capacity from these lanes and using it to serve more lucrative opportunities on e-commerce lanes.
While disruptions in other modes and new sources of demand have served as tailwinds for the airfreight market, there are other factors that are working to dampen demand. One of the major headwinds for the air industry is a renewed focus on cost containment on the part of shippers. When demand for goods spiked during the pandemic, many shippers turned to airfreight to fulfill orders and keep products stocked. Four years later, many shippers still have more reliance on air services than they would prefer. As a result, they are looking to rebalance or reoptimize their air and ocean allocations, pushing service-sensitive cargo to air while moving less sensitive cargo back to ocean.
Given these countervailing trends in the market, it’s not surprising that rates are volatile. The Freightos Air Index (see chart above) shows a significant decline in rates from a high of $5.16 in 2021. Since mid-2023, rates have ranged between $2.20/kg to $2.80/kg. While shippers are happy to be well below pandemic rates, 30% month-to-month variations make financial projections difficult.
Stability on the horizon?
With major shifts underway in routes, demand, capacity, and rates, there’s never a dull moment for users of air services. Looking ahead, however, one can begin to see a more stable future.
Systemic capacity growth driven by passenger volumes can be expected to continue. On certain lanes, like Asia to the United States, growth in e-commerce volume will continue to drive capacity challenges and higher rates—at least as long as existing laws allow offshore platforms to enjoy tax and duty benefits that subsidize their business model. For the rest of the world, however, we can expect to see capacity growth outpace demand growth and a continued reduction in rates.
Route churn can be expected to continue as air carriers respond more quickly to passenger and cargo demand shifts. We expect to see carriers’ analytics capabilities continue to improve, and yield and margin gains to follow.
Additionally, we expect that carriers and freight forwarders will invest in technology tools that can enhance collaboration and improve efficiencies. These efforts will give them a stronger position to handle inevitable future disruptions.
On the shipper side, we expect to see more companies lock in longer contracts as a way to mitigate the effects of rate volatility. This shift is already beginning to occur. In the fourth quarter of 2023, 45% of new contracts were for longer than six months, up from 27% in 2022. Additionally, shippers should look to technologies such as market monitoring and digital compliance tools to help them can keep on top of market trends and opportunities. These steps can help companies navigate and thrive in the highly dynamic airfreight marketplace.
Buoyed by a return to consistent decreases in fuel prices, business conditions in the trucking sector improved slightly in August but remain negative overall, according to a measure from transportation analysis group FTR.
FTR’s Trucking Conditions Index improved in August to -1.39 from the reading of -5.59 in July. The Bloomington, Indiana-based firm forecasts that its TCI readings will remain mostly negative-to-neutral through the beginning of 2025.
“Trucking is en route to more favorable conditions next year, but the road remains bumpy as both freight volume and capacity utilization are still soft, keeping rates weak. Our forecasts continue to show the truck freight market starting to favor carriers modestly before the second quarter of next year,” Avery Vise, FTR’s vice president of trucking, said in a release.
The TCI tracks the changes representing five major conditions in the U.S. truck market: freight volumes, freight rates, fleet capacity, fuel prices, and financing costs. Combined into a single index, a positive score represents good, optimistic conditions, and a negative score shows the opposite.
“ExxonMobil is uniquely placed to understand the biggest opportunities in improving energy supply chains, from more accurate sales and operations planning, increased agility in field operations, effective management of enormous transportation networks and adapting quickly to complex regulatory environments,” John Sicard, Kinaxis CEO, said in a release.
Specifically, Kinaxis and ExxonMobil said they will focus on a supply and demand planning solution for the complicated fuel commodities market which has no industry-wide standard and which relies heavily on spreadsheets and other manual methods. The solution will enable integrated refinery-to-customer planning with timely data for the most accurate supply/demand planning, balancing and signaling.
The benefits of that approach could include automated data visibility, improved inventory management and terminal replenishment, and enhanced supply scenario planning that are expected to enable arbitrage opportunities and decrease supply costs.
And in the chemicals and lubricants space, the companies are developing an advanced planning solution that provides manufacturing and logistics constraints management coupled with scenario modeling and evaluation.
“Last year, we brought together all ExxonMobil supply chain activities and expertise into one centralized organization, creating one of the largest supply chain operations in the world, and through this identified critical solution gaps to enable our businesses to capture additional value,” said Staale Gjervik, supply chain president, ExxonMobil Global Services Company. “Collaborating with Kinaxis, a leading supply chain technology provider, is instrumental in providing solutions for a large and complex business like ours.”
However, that trend is counterbalanced by economic uncertainty driven by geopolitics, which is prompting many companies to diversity their supply chains, Dun & Bradstreet said in its “Q4 2024 Global Business Optimism Insights” report, which was based on research conducted during the third quarter.
“While overall global business optimism has increased and inflation has abated, it’s important to recognize that geopolitics contribute to economic uncertainty,” Neeraj Sahai, president of Dun & Bradstreet International, said in a release. “Industry-specific regulatory risks and more stringent data requirements have emerged as the top concerns among a third of respondents. To mitigate these risks, businesses are considering diversifying their supply chains and markets to manage regulatory risk.”
According to the report, nearly four in five businesses are expressing increased optimism in domestic and export orders, capital expenditures, and financial risk due to a combination of easing financial pressures, shifts in monetary policies, robust regulatory frameworks, and higher participation in sustainability initiatives.
U.S. businesses recorded a nearly 9% rise in optimism, aided by falling inflation and expectations of further rate cuts. Similarly, business optimism in the U.K. and Spain showed notable recoveries as their respective central banks initiated monetary easing, rising by 13% and 9%, respectively. Emerging economies, such as Argentina and India, saw jumps in optimism levels due to declining inflation and increased domestic demand respectively.
"Businesses are increasingly confident as borrowing costs decline, boosting optimism for higher sales, stronger exports, and reduced financial risks," Arun Singh, Global Chief Economist at Dun & Bradstreet, said. "This confidence is driving capital investments, with easing supply chain pressures supporting growth in the year's final quarter."
The firms’ “GEP Global Supply Chain Volatility Index” tracks demand conditions, shortages, transportation costs, inventories, and backlogs based on a monthly survey of 27,000 businesses.
The rise in underutilized vendor capacity was driven by a deterioration in global demand. Factory purchasing activity was at its weakest in the year-to-date, with procurement trends in all major continents worsening in September and signaling gloomier prospects for economies heading into Q4, the report said.
According to the report, the slowing economy was seen across the major regions:
North America factory purchasing activity deteriorates more quickly in September, with demand at its weakest year-to-date, signaling a quickly slowing U.S. economy
Factory procurement activity in China fell for a third straight month, and devastation from Typhoon Yagi hit vendors feeding Southeast Asian markets like Vietnam
Europe's industrial recession deepens, leading to an even larger increase in supplier spare capacity
"September is the fourth straight month of declining demand and the third month running that the world's supply chains have spare capacity, as manufacturing becomes an increasing drag on the major economies," Jagadish Turimella, president of GEP, said in a release. "With the potential of a widening war in the Middle East impacting oil, and the possibility of more tariffs and trade barriers in the new year, manufacturers should prioritize agility and resilience in their procurement and supply chains."