“The latest data continues to show some positive developments for the freight market. However, there remain sequential declines nationwide, and in most regions,” Bobby Holland, U.S. Bank director of freight business analytics, said in a release. “Over the last two quarters, volume and spend contractions have lessened, but we’re waiting for clear evidence that the market has reached the bottom.”
By the numbers, shipments were down 1.9% compared to the previous quarter while spending dropped 1.4%. This was the ninth consecutive quarterly decrease in volume, but the smallest drop in more than a year.
Truck freight conditions varied greatly by region in the third quarter. In the West, spending was up 4.4% over the previous quarter and volume increased 1.1%. Meanwhile, in the Southeast spending declined 3.3% and shipments were down 3.0%.
“It’s a positive sign that spending contracted less than shipments. With diesel fuel prices lower, the fact that pricing didn’t erode more tells me the market is getting healthier,” Bob Costello, senior vice president and chief economist at the American Trucking Associations (ATA), said in the release.
The U.S. Bank Freight Payment Index measures quantitative changes in freight shipments and spend activity based on data from transactions processed through U.S. Bank Freight Payment, which processes more than $42 billion in freight payments annually for shippers and carriers across the U.S. The Index insights are provided to U.S. Bank customers to help them make business decisions and discover new opportunities.
The port worker strike that began yesterday on Canada’s west coast could cost that country $765 million a day in lost trade, according to the ALPS Marine analysis by Russell Group, a British data and analytics company.
Specifically, the labor strike at the ports of Vancouver, Prince Rupert, and Fraser-Surrey will hurt the commodities of furniture, metal products, meat products, aluminum, and clothing. But since the strike action is focused on stopping containers and general cargo, it will not slow operations in grain vessels or cruise ships, the firm said.
“The Canadian port strike is a microcosm of many of the issues that are impacting Western economies today; protection against automation, better work-life balance, and a cost-of-living crisis,” Russell Group Managing Director Suki Basi said in a release. “Taken together, these pressures are creating a cocktail of connected risk for countries, business, individuals and entire sectors such as marine insurance, which help to mitigate cargo exposures.”
The strike is also sending ripples through neighboring U.S. ports, which are hustling to absorb the diverted cargo, according to David Kamran, assistant vice president for Moody’s Ratings.
“The recurrence of strikes at Canadian seaports is positive for U.S. ports that may gain cargo throughput, depending on the strike duration,” Kamran said in a statement. “The current dispute at Vancouver is another example of the resistance of port unions to automation and the social risk involved with implementing these technologies. Persistent disruption in Canadian port access would strengthen the competitive position of US West Coast ports over the medium-term, as shippers seek to diversify cargo away from unreliable gateways.”
The strike is also affected rail movements, according to ocean cargo carrier Maersk. CN has stopped all international intermodal shipments bound for the west coast ports of Prince Rupert, Robbank, Centerm, Vanterm, and Fraser Surrey Docks. And CPKC has stopped acceptance of all export loads and pre-billed empties destined for Vancouver ports.
Connected with the turmoil, Maersk has suspended its import and export carrier demurrage and detention clock for most affected operations. The ultimate duration of the strike is unknown, but the situation is “rapidly evolving” as talks continue between the Longshore Workers Union (ILWU 514) and the British Columbia Maritime Employers Association (BCMEA), Maersk said.
Five material handling companies have merged into a single entity, forming an Elgin, Illinois-based company called “Systems in Motion” that will function as a tier-one, turnkey material handling integrator, the members said.
The initiative is the culmination of the companies’ close working relationship for the past five years and represents their unified strength. “We recognized that going to market under a cadre of names was not helping our customers understand our complete turn-key services and approach,” Scott Lee, CEO of Systems in Motion, said in a release. “Operating as one voice, and one company, Systems in Motion will move forward to continue offering superior industrial automation.”
Systems in Motion provides material handling systems for warehousing, fulfillment, distribution, and manufacturing companies. The firm plans to complete a rebranded web site in January of 2025.
Regardless of the elected administration, the future likely holds significant changes for trade, taxes, and regulatory compliance. As a result, it’s crucial that U.S. businesses avoid making decisions contingent on election outcomes, and instead focus on resilience, agility, and growth, according to California-based Propel, which provides a product value management (PVM) platform for manufacturing, medical device, and consumer electronics industries.
“Now is not the time to wait for the dust to settle,” Ross Meyercord, CEO of Propel, said in a release. “Companies should approach this election cycle as an opportunity to thrive in the face of constant change by proactively investing in technology and talent that keeps them nimble. Businesses always need to be prepared for changing tariffs, taxes, or geopolitical tensions that lead to unexpected interruptions – that’s just the new normal.”
In Propel’s analysis, a Trump administration would bring a continuation of corporate tax cuts intended to bolster American manufacturing. However, Trump’s suggestion for spiraling tariffs may benefit certain industries, but would drive up costs for businesses reliant on global supply chains.
In contrast, a Harris administration would likely continue the current push for regulatory reforms that support sectors like AI, digital assets, and manufacturing while protecting consumer rights. Harris would also likely prioritize strategic investments in new technologies and provide tax incentives to promote growth in underserved areas.
And regardless of the new administration, the real challenge will come from a potentially divided Congress, which could impact everything from trade negotiations to tax policies, Propel said.
“The election outcome is less material for businesses,” Meyercord said. “What is important is quickly adapting to shifting policies or disruptions that address ‘what if’ scenarios and having the ability to pivot your strategy. A responsive manufacturing sector will have a significant impact on the broader economy, driving growth and favorably influencing GDP. One thing is clear: the only certainty is change.”
As I write these annual industry recaps, I am always surprised at how much volatility there is in the domestic parcel sector. While e-commerce sales continue to drive parcel volumes higher every year, there are also major changes taking place behind the scenes. Factors such as the battle for market share among the major carriers, the changing profile of the freight itself, and big volumes from new origins are all having a significant impact on the parcel market.
For years participants in the parcel sector have recognized that FedEx and UPS functioned as a duopoly with very few bona fide challengers. While the United States Postal Service (USPS) has been on the scene longer than either of the commercial carriers and continues to be the biggest deliverer of parcels around the country (see figure below), many shippers do not regard USPS as a service equal.
Pitney Bowes' Global Parcel Shipping Index, 2023-2024
Recently Amazon has also become a big player in the parcel market and in 2023 became the second largest provider in terms of volume. However, Amazon functions very differently than the three carriers mentioned above. The difference between Amazon and the others is that the latter are full-service providers; that is, they pick up parcels at origin, run them through their own systems, and then deliver to destinations around the country. Conversely, Amazon functions primarily as a shipper of products that are already housed inside its warehousing network. As a result, Amazon avoids all of the issues with picking up individual parcels from businesses or individual homes.
Any evaluation of the parcel sector must consider that Fedex and UPS built their businesses via industrial accounts, which typically ship multiple parcels between origin and destination. E-commerce is radically different, requiring a single package to move from origin to destination. This change caused operational and cost issues for the carriers, which responded by implementing dimensional weight pricing in 2015.
A new factor in parcels is the growth of Temu and Shein—Chinese e-commerce companies that ship directly from where product is manufactured in China to U.S. homes. The two companies have created a thriving business model by taking advantage of the de minimus trade rule that allows companies to import packages without paying duties and with less required documentation as long as they are valued under $800. A decade ago, the number of de minimus parcels coming into the U.S. was 140 million per year, it is now over one billion.
The Biden administration recently announced an increase in U.S. Customs scrutiny of parcels originating in China and stronger application of existing tariffs to slow and reduce these shipments. Although the U.S. has one of the highest de minimus thresholds in the world, there is now a lot of political pressure to revise the rule because of the great success that these two Chinese merchants are enjoying in the U.S. In fact, Amazon is responding by introducing a similar direct shipping program from Asia that bypasses its warehouse network; this is Amazon’s effort to avoid losing customers to Temu and Shein.
Given these general trends in the market, let’s take a closer look at each of the major players.
FedEx looks to restructuring
Fedex will be combining its express and ground operations.
Photo courtesy of FedEx
Earlier this summer, FedEx announced a major restructuring, which will combine its express and ground operations—something that founder and longtime CEO Fred Smith always avoided because of labor concerns and the desire to focus on individual business units. In spite of Smith’s resistance, there was longtime pressure on FedEx to combine the units because of the potential for annual cost reduction in the multiple billions of dollars.
FedEx is now doing a strategic analysis of its less-than-truckload (LTL) business, which is the largest in the North America. Currently FedEx’s LTL business is separate from its parcel business, and there is a strong possibility the company will go a step further and spin it off as a separate company. Interestingly, UPS already spun off its LTL business several years ago.
As a supply chain veteran, I do not think spinning off the business is the best move. I have long thought the combination of parcel and LTL was a powerful offering. LTL is a growing factor in e-commerce due to its freight composition (too large or too heavy for parcel). The ability to provide both services to a single account appears to me to have more value than ever.
UPS: Has Tomé lost the “Midas touch”?
UPS is still dealing with the ramifications of the contract it signed with the Teamsters Union in 2023.
Courtesy of UPS
And what about UPS? Since Carol Toméascended to the CEO slot in 2020, her performance has mirrored that of King Midas, whose touch turned everything to gold. As happy as UPS shareholders have been with Tomé, last year did give them reason to fret due to contract negotiations with the Teamsters.
In anticipation of potential labor trouble, a significant portion of UPS customers moved some or all of their business to other providers. And while there was no strike, the Teamster workers gained major concessions in pay and benefits, which UPS will have to make up through operational efficiency or rate increases.
As a result, UPS’s parcel volume declined and has not yet returned to precontract levels. A more urgent negative that popped up for UPS was its second quarter earnings for 2024, which were weak enough that their stock price dropped 12% within minutes of the earnings call.
On the call, Tomé explained that many UPS customers are downgrading from air express to ground service and from ground to the lower Sure Post service in which UPS moves parcels close to their destinations and then turns them over to USPS for final delivery. (FedEx has a comparable service that is branded as Smart Post.)
This transition to lower-cost services has apparently been driven by improvement in the service levels of the lower-cost programs. They have become so good that customers have moved away from higher priced options, which are only marginally better.
Amazon faces rising logistics costs
Amazon is now the second largest parcel shipper in terms of volume.
Photo courtesy of Amazon
While the three major commercial parcel carriers have all experienced degradation in parcel volume and in pricing during the past year, Amazon has seen big volume increases, as it takes on more control of its own business.
Amazon is an interesting business to watch as it continues to grow and speed up service, ramping up pressure on competitors. Amazon's e-commerce revenue is growing about 5% this year, compared to the U.S. economy, which is increasing about 3%.
However, as has been the case for years, Amazon’s logistics cost will go up even faster, at about 8%. These rising logistics costs are why I advise consulting clients not to try to match Amazon. They also are the main reason why I do not see Amazon wanting to go head-to-head with UPS and FedEx as a full-fledged parcel service provider to the general public.
Five to watch
So, what is the near-term outlook for parcel shippers?
Rate pressure from the big three commercial carriers—USPS, Fedex, and UPS—will continue, as they look to fund growth while satisfying investors and customers.
Smaller shippers that are not under contract will absorb the biggest percentage increases.
Inefficient shippers will also be under price pressure to offset the higher cost to service them.
Fedex and UPS will be scrutinizing holiday shipments more closely, so expect additional volume restrictions and pricing actions on individual shippers.
As the big three ramp up pricing, shippers will find it worthwhile to investigate service alternatives.
The bottom line is that shippers who work closely with their preferred carriers while communicating regularly and accurately will do better in cost and service than those that are more distant.
With that money, qualified ports intend to buy over 1,500 units of cargo handling equipment, 1,000 drayage trucks, 10 locomotives, and 20 vessels, as well as shore power systems, battery-electric and hydrogen vehicle charging and fueling infrastructure, and solar power generation.
For example, funds going to the Port of Los Angeles include a $412 million grant to support its goal of achieving 100% zero-emission (ZE) terminal operations by 2030. And following the award, the Port and its private sector partners will match the EPA grant with an additional $236 million, bringing the total new investment in ZE programs at the Port of Los Angeles to $644 million. According to the Port of Los Angeles, the combined new funding will go toward purchasing nearly 425 pieces of battery electric, human-operated ZE cargo-handling equipment, installing 300 new ZE charging ports and other related infrastructure, and deploying 250 ZE drayage trucks. The grant will also provide for $50 million for a community-led ZE grant program, workforce development, and related engagement activities.
And the Port of Oakland received $322 million through the grant, which will generate a total of nearly $500 million when combined with port and local partner contributions. Altogether, that total will be the largest-ever amount of federal funding for a Bay Area program aimed at cutting emissions from seaport cargo operations. The grant will finance 663 pieces of zero-emissions equipment which includes 475 drayage trucks and 188 pieces of cargo handling equipment.
Likewise, the Port of Virginia said its $380 million in new funding will help to reach its goal of eliminating all greenhouse gas emissions by 2040. The grant money will be used to buy and install electric assets and equipment while retiring legacy equipment powered by engines that burn gasoline or diesel fuel.
According to AAPA, those awards will demonstrate to Congress that the Clean Ports Program should become permanent with annual appropriations. Otherwise, they would soon cease to be funded as backing from the Inflation Reduction Act (IRA) comes to a close, AAPA said. “From the earliest stages of legislative development in Congress, America’s ports have been ecstatic about and committed to the vision of implementing a novel grant program for the port industry that will complement and strengthen existing plans to diversify how we power our ports,” Cary Davis, AAPA’s president and CEO, said in a release. “These grant funding awards will usher in a cleaner and more resilient future for our ports and national transportation system. We thank our champions in Congress and the Biden-Harris Administration for committing to us and we look forward to working closely with our Federal Government partners to get these funds quickly deployed and put to work.”