In this episode of In Transit, host Vishnu Rajamanickam from The Logistics Report speaks with Chuck Fuerst, Chief Commercial Officer at ReverseLogix, about why the industry’s mindset around returns must fundamentally change. Fuerst argues that returns should be treated with the same rigor and investment as forward fulfillment — and that companies that do so stand to gain a competitive advantage rather than suffer operational pain.

The discussion goes deeper into organizational barriers. Returns touch multiple functions, such as e-commerce, warehouse operations, customer service, and finance — yet no one truly owns the end-to-end process. Fuerst makes the case for an executive-level leader (a “chief returns officer” in practice if not in title) who unifies strategy, technology, and accountability across the reverse flow.

If you’re struggling with rising return volumes, facing operational bottlenecks due to returns, or looking for ways to improve customer experience and profitability simultaneously, this conversation is for you.

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In this episode of the In Transit podcast, host Vishnu Rajamanickam from The Logistics Report sits down with Colby Potter, Lead Analytical Content Manager at Sayari, to unpack how businesses can uncover hidden risks and strengthen their sourcing strategies using public records and trade data.

Potter walks us through how Sayari’s “outside-in” approach — leveraging data from over 250 jurisdictions — helps shine a light on murky supplier networks, especially in high-risk regions like Xinjiang. He explains how public corporate and customs records can expose concealed ownership chains, forced labor risks, and tariff vulnerabilities, arming compliance teams with the tools they need to act fast and decisively.

The discussion highlights real-world examples, including a North American energy company unknowingly linked to a Chinese state-owned firm flagged for forced labor. Potter also shares how sourcing teams can turn risk intelligence into an opportunity by finding better suppliers, optimizing for tariff exposure, and staying ahead of regulatory shifts.

Whether you're navigating UFLPA, managing geopolitical risk, or simply looking to make smarter sourcing decisions, this episode delivers a wealth of insight on how to turn transparency into a competitive advantage.

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This episode of the In Transit podcast features an insightful conversation between host Vishnu Rajamanickam from The Logistics Report and Jono Liu, VP of Global Sales & Marketing at Dimerco Express Group, where they discuss the complexities of evolving global trade dynamics in light of shifting US trade policies.

Liu shares how recent tariff strategies aimed at boosting domestic manufacturing are driving businesses to rethink their supply chains. He explains how the "China+1" strategy has gained momentum as businesses hedge against geopolitical risks and production disruptions. The conversation also meanders around current challenges, such as the Chinese New Year slowdown and the controversy surrounding the de minimis ruling that allows Chinese e-commerce giants to sidestep US customs.

The episode concludes with observations on the future of trade under a protectionist administration, pondering which nations might benefit from these shifts and how shippers can remain resilient amid constant change. Whether you’re a business leader, policymaker, or logistics enthusiast, this episode provides a comprehensive overview of the forces shaping global trade today. Listen in now.

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Yikes, if there ever was a dull moment in the logistics ecosystem. Where do we start? The silhouette of a labor strike across the US East and Gulf Coast ports seems to strengthen with every passing day, as the ILA flatly refuses to budge from its position of zero automation in the port premises. As talks have fallen through with the USMX, this would most likely result in a strike on Jan. 15, five days before President-Elect Trump takes over the US administration.

While the strike would probably be short-lived, the ripples of its impact would last longer. Container liners are itching to see disruptions, as it would give them the pretext to increase spot rates — which, even after the recent GRIs, are still lower than their September highs across all major trade lanes. That said, nothing would be as consequential to the US consumer as much as the proposed trade tariffs could.

From the POV of the importers and retailers, such tariffs are nothing new as they have lived through it during Trump’s first term in the White House. Importers had to address the Section 301 tariffs when they were implemented, which made them familiar with what is currently included under the 301 tariff list, both by product and HTS code.

Plus, ‘Tariffs 2.0’ has been in the reckoning ever since Trump was chosen to run as the Republican candidate. In the past month since being elected, Trump has issued a myriad of tariff threats against different trade partners, so much so as calling ‘tariff’ the most beautiful word in the dictionary.

The questions today are about what additional products might be added to that list and its ramifications — be it the retaliatory measures, protectionist actions, or even expansion of free trade agreements. “There are a lot of known unknowns today,” said Kevin Shoemaker, the VP of Sales and Customer Success at KlearNow. “We know there’ll be developments in tariffs and trade policies, but we don’t yet know the extent, scale, or implications of these changes.”

“For instance, if you’re a manufacturer making surgical needles, you just had your tariffs raised to 100%. Cases like this highlight the critical need for importers to first understand what’s currently on the list and assess what products they are sourcing from impacted markets,” he pointed out. And considering some of the biggest US importers are also some of the country’s largest exporters, trade tariffs will be a blanket weighing down on trade at large.

To this extent, it has become essential to explore alternative sourcing options. Companies like fashion accessory major Steve Madden and kitchen appliances firm Breville have announced shifting their supply chains wholly or partially away from China. Regardless, such decisions cannot be taken in haste. With the Trump administration anticipated to throw trade tariffs around fairly regularly, importers must have visibility into their trade data, allowing them to gain a complete picture of their present-day operations.

This would include details about the markets they do business, their sourcing locations, the products involved, the raw materials that impact the sourced products, the applicable HTS codes, and the duties they currently pay, amongst others. For a long time, visibility in logistics has been viewed from the lens of freight movement and seldom from the angle of supply chain strategy. A better understanding of such trade data will allow companies to instantly react to freshly announced tariffs, meandering their supply chains around potential disruptions, cost increases, and compliance challenges.

“By consolidating data across all trade lanes and shipments, companies are in a much better position to assess the potential impact of changes to trade policy. For example, if Product X is added to the Section 301 tariff list on Jan. 20, businesses privy to trade data can instantly analyze the new duty rate impacting total duty spend,” mentioned Shoemaker. “This clarity enables them to decide whether to absorb the added costs, pass them on to consumers, or move sourcing away from the market — a key issue that could significantly impact consumer prices.”

This is where much of the concern lies. Companies are preparing for potential changes by exploring alternative sourcing markets like Mexico, Vietnam, or Taiwan. The issue goes beyond just the tariffs — it’s also about the broader implications for relationships with other trading blocs, like Europe, where there was significant back-and-forth during Trump’s first term.

However, it is easier said than done to gain perspective into macro-economic trade challenges, layering it on existing trade data, and relaying insights down to the operational level. One of the primary challenges for SMBs is the lack of internal resources to keep up with the rapidly changing trade environment. This puts them at a significant disadvantage, forcing them to rely heavily on third parties like customs brokers or freight forwarders for critical information.

While larger organizations do have in-house trade teams, they are often relatively small. Trade compliance has historically not been an area where companies allocate substantial resources or build out large departments, leaving them somewhat constrained despite the company’s greater overall capabilities. Companies going through rounds of layoffs due to unsustainable operations are increasingly looking to automate processes as existing resources are stretched thin.

Multinational firms operating in dozens of markets have significantly more trade complexities to monitor and manage, from varying trade policies to compliance requirements across different jurisdictions. The overarching issue for many companies is the need to ‘do more with less,’ with this pressure driving top management to conversations around automation.

“Another issue plaguing operations is the lack of trade data. While companies largely understand the need for trade data, they lack a comprehensive system in place to capture it consistently,” said Shoemaker. “When people think of trade data, they typically think of supply chain visibility platforms. However, these platforms almost never track end-to-end freight flows as such data is either siloed, not captured, or scattered across multiple stakeholder systems.”

Besides this, there’s also the hassle of learning to use technology and adapt to new workflows, which can get challenging for an organization set in its ways. “The key is to run technology that is sophisticated in its workings, but easy to use without complex IT integrations. A solution like KlearNow, with its no-touch implementation, can come in handy here,” contended Shoemaker.

“At KlearNow, we capture all kinds of unstructured trade data across every single shipment. All that’s needed is for the company to email us the shipping documentation, which we digitize and structure, creating a centralized repository. This is something that GTM platforms, ERPs, and visibility platforms can’t fully deliver on. With all trade and shipment data consolidated, the company would know exactly how much they’re spending on import duties, including specific details on what is being shipped and from which market.”

Understanding trade at the level of HTS codes, quantity, and duties, allows companies to report and analyze trade flows easily. This information enables them to run ‘what-if’ scenarios, helping simulate different outcomes and assess various strategies. Ultimately, the name of the game is speed. For companies caught in the crosswires of trade tariffs and disruptions, the ability to quickly adapt and make informed decisions can mean the difference between thriving and surviving.

The Week in Snippets

Major ocean carriers are gearing up for potential turmoil on the North Europe-US trade lane. MSC will implement a $2,000-per-FEU "Emergency Operational Surcharge" from Jan. 18, citing network restructuring as it transitions out of the 2M Alliance with Maersk. Meanwhile, February brings new liner alliances, including MSC’s standalone operations and the Premier Alliance rollout. Maersk and other carriers are preparing contingency plans for potential disruptions.

With President-elect Trump poised to impose hefty tariffs on imports, the National Retail Federation predicts a surge in shipping activity through spring as businesses race to secure inventory. US manufacturers are stockpiling critical parts and materials like fiber-optic splitters, emulsifiers, and electrical components, prioritizing essential purchases to stay ahead of rising costs and ensure competitive pricing. While China remains a key supplier despite past tariffs, importers are diversifying their supply chains to reduce risk.

Container spot rates on trans-Pacific routes rose this week, with rates from Shanghai to Los Angeles jumping 26% to $4,499 per 40ft, driven by mid-December GRIs and preemptive front-loading ahead of a potential January ILA port strike. Rates to New York followed suit, rising 17% to $6,074 per 40ft. Asia-Europe trades saw quieter activity, with slight rate declines as annual contract negotiations shift into early 2025.

Platforms like Temu, Shein, TikTok Shop, and Amazon are competing fiercely for price-sensitive consumers this holiday season. While Temu and Shein attract shoppers with ultra-low prices, trust remains a hurdle — 86% of Americans trust Amazon, compared to just 6% trusting Temu. That said, this trend of cheap, mass-produced goods highlights a growing challenge for small businesses, which struggle to match the pricing and variety offered by these e-commerce giants.

Quotable

“If your package is delayed during the holidays, you can blame Amazon’s insatiable greed. We gave Amazon a clear deadline to come to the table and do right by our members. They ignored it.”

- Teamsters General President Sean O’Brien, while commenting on the strike by unionized Amazon workers in several states across the US.

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As Lekshminarayanan explains, service supply chains play a vital role in maintaining brand reputation and driving profitability. They’re responsible for ensuring customers remain satisfied with a product long after they’ve made a purchase, handling everything from repairs to managing spare parts. The service supply chain, although lucrative, brings a unique set of challenges that many companies overlook until it’s too late.

One of the key differences between service and production supply chains is the unpredictable nature of demand. While production supply chains can often rely on historical data to predict future needs, service supply chains must grapple with the unknown. How do you anticipate which part will fail, when, and where? Such uncertainty makes demand planning a significant challenge for companies, especially in industries where products have long lifecycles.

Beyond discussing challenges, the conversation revolves around the future of service supply chains and the role of technology. Lekshminarayanan believes the next big breakthrough will come from causal AI, which helps predict future disruptions by understanding the cause-and-effect relationships between various events. While generative AI gets most of the hype these days, he argues that causal AI is what will really transform the way companies navigate black swan events like product recalls or sudden supply disruptions.

The episode wraps up with a discussion on how companies can implement these new technologies into their operations, and why many businesses may need to rethink their approach to supply chain management altogether. Lekshminarayanan offers practical insights into how businesses can stay ahead of the curve, making this podcast a must-listen for anyone looking to future-proof their service supply chain. 

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It’s been over four years since the pandemic was upon us, but the US containerized import market continues to buck trends and create conditions that would render most forecasting models wrong — both with assessing available capacity and determining cost per TEU (be it contract or FAK). 

In all earnestness, Q1 ‘24 acted quite as expected, even with the then-recent Red Sea crisis and the persisting Panama Canal drought. The fresh vessel capacity added into the market by container liners was offset in part by the circumvention around the Horn of Africa, helping steady freight rates even as capacity was relatively easy to come by. Imports remained strong in January, which can be explained by retailer orders looking to restock their drawn-down inventories from the holiday season, just before the Chinese New Year in early February. 

Import volumes predictably fell in February, but not by the same margin they used to fall every year. While this should have raised some suspicion, freight forwarders and BCOs believed that prices would still drop due to the increase in global vessel capacity, thanks to the record number of vessels ordered by cash-rich liners at the height of the pandemic. 

This expectation led forwarders and BCOs to delay signing their long-term contracts with the liners during Q1 ‘24. The word on the street was to extend negotiations as much as possible, anticipating a continued fall in freight rates. But as April went by and May arrived, shippers realized with growing apprehension that freight rates were in fact not falling but climbing. Consistently high imports into the US sent trans-Pacific and trans-Atlantic rates soaring, with stakeholders believing this to be an early onset of the ‘peak shipping season.’

After a couple of $1,000 GRIs in May and the peak season surcharge kicking in in July, carriers are firmly on top of the market. That said, the actual reasoning behind the unusually tight H1 ‘24 market is still unclear — is this arising supply-side or demand-side? 

On the surface, the demand-side tightness makes a good case, as H1 ‘24 containerized volumes inbound to the US have remained well higher than H1 ‘23 and H1 ‘19. The years ‘21 and ‘22 were largely anomalies to usual trends and were a clear demand-side problem with businesses shipping record volumes to meet explosive demand. 

However, if we look a bit closer, H1 ‘23 import volumes were stymied by existing bloated inventories, which businesses were struggling to sell off. With that context, the year-over-year volume growth shown in H1 ‘24 is the market moving towards the regression line, and not a spike in demand per se. 

This brings us to the supply-side issues. As witnessed during the height of the pandemic, logistics snarls start to happen when freight volumes increase above a certain threshold. In the case of the US, anything over 2.1 million import TEUs a month has been a cause for concern, straining port apparatus and downstream operations. This is manifested through increased vessels on anchor, longer berth times, and lengthening yard dwell times. 

While this was the primary issue plaguing ports a couple of years ago, the issues have compounded today, with ports of origin (i.e. China and SEA) facing the brunt of the problem. Vessel backups across the ports of Singapore, Shanghai, Shenzhen, and the likes, have been at record highs over the last few months, creating a ripple effect across all major freight corridors. 

This situation is exacerbated by vessels getting progressively larger, which naturally results in longer berth times, more empty containers being discharged, and a greater difficulty with repositioning those empties. 

“Over the last few months, shippers are frustrated with their freight not being picked up at the port of calls, as vessel operators blanked sails. While this feels like liners taking advantage of high rates, it actually is a result of carriers wanting to salvage their schedule reliability that went for a toss due to excessive queuing across most major ports in Asia Pacific,” said Ram Radhakrishnan, the CEO of Silq, a digital freight forwarder. 

Vessel operators were likely forced to skip certain ports due to several reasons. One, they could not afford to stomach delays due to port congestion, two, their vessels were getting full at the origin port due to demand, or three, they could not reposition empties at the right time at the right place.

“Our discussions with vessel operators and brokers tell us that vessels leaving China are not always leaving full,” said Radhakrishnan. “While liners spoke of the empty repositioning problem back during the pandemic, they are choosing not to talk about it today. This makes it seem like there is no space on deck, when in reality, that isn’t always the case.”

The bigger question is — why wouldn’t the container liners divulge this information? The answer lies in shipper-owned containers (SOCs). During the pandemic, when the empties problem came to light, it opened space for leasing operators and shipper-owned containers to come into the market, which meant liners lost their pricing power on carrier-owned containers. 

“Silq used to get SOC options that were cheaper than the asking rate of carrier-owned containers at the height of the capacity crisis in ‘21,” contended Radhakrishnan. “This time around, carriers do not want to reveal there’s a problem with empties, as they don’t want SOCs to reach the market and reduce the margins they make. Plus, entertaining SOCs would mean added liability issues. By saying there’s no space available rather than saying there are no empties available, liners can play it safe and keep the market tight.” 

The peak shipping season inching earlier every year and the alarmingly tight market has created a clear case of FOMO among shippers. This prompts them to buy space a few weeks in advance, making redundant bookings to protect themselves from sailing delays and liners ditching their bookings at the last minute. 

Ultimately, these redundant bookings mean that vessels end up realizing they have unfilled space, which they fill at a premium on the spot. “With rates being so high, carriers are not asking their BCOs or freight forwarders to fulfill their quota,” said Aditya Ravi, VP Operations & Procurement for Silq. “This gray area is now being exploited by extra loaders in the market that carriers don’t advertise, who are selling space 1-2 weeks before schedule — in a way that can only be termed as auctioneering.”

These loaders call the space that falls through the cracks as ‘dead freight’ — essentially space that will go unfilled due to shippers dropping out as they have already reserved space elsewhere. “I’ve seen loads from Nhava Sheva, India to New York being quoted for $4k, $6k, and $8k — all for vessels departing one week from each other,” said Ravi. “There is no consensus and it’s a highly competitive environment at the moment. If freight forwarders are facing such issues, shippers would have a bigger nightmare navigating this situation.”

However, there could be some relief on the horizon. Thanks to fresh capacity being deployed, the China to US West Coast lane is seeing spot rates drop, which will likely bring down the two-week fixed FAK rates as well. The US East Coast rates could steady or witness a slight increase as they continue to be plagued by longer turnaround times around the Cape of Good Hope and congestion at transshipment ports.  

That said, the market is still extremely volatile going into Q3 ‘24. Considering all that has transpired in the first half of this year, no conjecture can be backed with absolute certainty. Only time will tell if rates stabilizing (or going down) is wishful thinking.

The Week in Snippets

Global air cargo spot rates surged 17% year over year in June to $2.62 per kilogram, driven by e-commerce demand and ocean disruptions, according to Xeneta. Despite anticipated strong growth through July and August, rates are expected to escalate in Q4 2024, prompting shippers to favor longer-term contracts to mitigate costs.

The National Retail Federation (NRF) has upgraded its containerized imports forecast for the sixth consecutive month, driven by strong consumer spending and early peak season sales, resulting in the highest freight volumes in two years. Despite increased shipping costs and supply chain challenges, the NRF projects retail sales growth between 2.5% and 3.5% in 2024, with significant import growth expected through the summer.

Shein's plans to sell proprietary supply-chain tech have raised cybersecurity concerns among U.S. experts, who warn of potential espionage risks due to the company's ties to China. Despite relocating its headquarters to Singapore, Shein's extensive supply chain connections and legal obligations in China pose significant threats to U.S. supply chain integrity and data security. The complexity and reach of Shein's supply chain, involving over 50,000 entities, further amplify these vulnerabilities.

Independent container shipping services on major east-west trades are rebounding to pandemic-era levels, with nearly 30% of transpacific capacity expected outside vessel-sharing agreements, according to Sea-Intelligence Consulting. Rising spot rates are driving this shift, notably with MSC's new Britannia service. The end of the Maersk-MSC 2M partnership will further transform the market landscape.

Quotable 

“One of the key points to looking at electric vehicles is that there’s this tendency to immediately gravitate towards all trucks are long haul, and they’re all operating at 80,000 pounds. The reality is, that is less than 10% of the marketplace. There are a lot of vehicles that operate at duty cycles less than 100 miles, less than 200 miles, less than 300 miles, of different classes.”

- Rick Mihelic, director of emerging technologies at NACFE, while commenting on the potential of electric trucks in the short- and mid-range freight market. 

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The last few months have been absolute cinema within the logistics industry, with stakeholders finding themselves amidst contrasting fortunes based on the freight modality they look to navigate. While the Red Sea crisis helped siphon off ‘excess capacity’ brought into the maritime market over the last couple of years, the US trucking market hasn’t seen such reprieve. 

A hot maritime market has meant higher trans-Atlantic and trans-Pacific costs for importers — a chunk of which are retailers sourcing from China and SE Asia to fill up inventories in preparation for the approaching consumer peak season. Being a high-volume, low-margin business, the retail industry has much to lose with the volatility in the freight market, as it gets harder to anticipate rates and plan annual freight budgets. 

That said, logistics is not the only challenge facing retailers. They also have to contend with the demand problem. Forecasting consumer demand is notoriously tricky, especially since the advent of social commerce. People are increasingly buying based on social trends, which spikes demand for certain product verticals — leaving retailers unprepared. 

“If forecasts were entirely accurate, there would be no variability to address in production and supply to meet that forecast. Unfortunately, forecasts are rarely precise,” said Jason Tham, the co-founder and CEO of Nulogy, a supply chain collaboration platform. “Forecast accuracy has traditionally been off, but demand driven by social media influencers can sway inaccuracies even further.”

Machine learning solutions have helped bridge the gap by incorporating not just seasonality and patterns, but also ambient or environmental data factors into forecasting models. Besides forecasting demand, AI tools can help with outbound operations, suggesting buffer stock, or identifying risks in the supply chain. Using this data, shippers can meet on-time, in-full (OTIF) deadlines, and retailers can ensure they stay in stock when the orders pour in. 

Regardless, Tham pointed out forecasting could only take companies so far. “Agility in supply chains often trumps forecasting. For instance, the cosmetic industry could see dramatic demand spikes due to fashion influencers, leading to unpredictability. The key is building agility into the supply chain to respond to such demand quickly,” he said. 

“The opposite of agile is fragile. A fragile system is unpredictable and non-standardized, making it difficult to forecast or collaborate effectively. Companies must partner and synchronize data to build agility, reducing entropy within their supply network. High entropy leads to fragility, while reducing entropy through standardization and collaboration drives agility.”

In here, synchronizing data could be a major roadblock. While forecasting models and attempts at collaboration bank on external factors, companies suffer internally from ‘too much’ sophistication in the context of technology adoption. SMEs and larger organizations are especially prone to such complexity, as they invest in several tech solutions that bloat up their tech stack. For instance, it is not uncommon to see companies run dozens of ERPs across various departments, functions, and business units, leading to data silos and integration challenges. 

“Companies also have numerous other systems aside from ERPs — like TMS, WMS, planning systems, forecasting systems, and witness even more heterogeneity when working with external supply chain partners like manufacturers, 3PLs, and contract packagers,” said Tham. “Companies increasingly outsource and specialize, focusing only on what they do best and relying on external solution providers for other segments of the supply chain.”

While technology is supposed to help, the data streams are not interoperable. Piecemeal solutions from different providers mean data streams do not adhere to the same standards, measuring and collating data across different formats. This is frustrating to companies as they are left with different pieces to the puzzle, but lack the wherewithal to put them together for consolidated insights. 

“Despite all the technology, there’s still a lot of manual work, guessing, and latent work involving emails and spreadsheets when working with partners,” contended Tham. “Automated processes and common data models for interacting, transacting, and collaborating are infrequent. Without standardized data formats, it’s challenging to drive intelligence, make better decisions, and use AI or ML effectively with cleaner, high-fidelity, and timely data.”

In this context, data streams involve a mix of spreadsheets, ERPs, and homegrown systems — both internal and external. This ‘many-to-many’ network creates complexity. Tham explained that Nulogy was founded to solve this problem, by focusing on simplifying this complexity by driving standardization and synchronization across the heterogeneous network, to usher homogeneity to it. 

For instance, think of a large retailer with hundreds of contract suppliers managing packaging, production, and shipment. This would require them to oversee inventory, production schedules, and plan capacity based on data coming in from different systems and manual processes, making end-to-end consolidated visibility the weakest link. Nulogy brings in this visibility, enabling companies to see and manage their external supply chain as if it were their own. 

“There’s a saying in supply chain management that companies don’t compete, but their supply chains do. This means that even if a company has its data in order, it cannot effectively compete if it lacks visibility into its partners’ demands and supply signals,” said Tham. “Moving from this manual reactive state to a more automated ecosystem involves enrolling and activating suppliers and working closely with them.”

Think of supply chain operations and partner collaboration akin to a LinkedIn network. Besides direct connections on the platform, people are also privy to intersecting communities that are one or two steps removed from their primary network. Similarly, the ‘social supply chain’ extends beyond a retailer’s direct partners to the ones in the second or third tier, alongside potential partners-to-be. The broader visibility builds agility, resilience, and reduces risk. 

“Sharing information freely with supply chain partners, including forecasts and downstream requirements, and having a common data model allows for an end-to-end view of the supply chain, enabling better prediction and response to changes. This reduces the bullwhip effect, where delayed or inaccurate information leads to inefficiencies,” said Tham. “High-fidelity, granular data is crucial. Successful supply chains win together, not as individual companies.”

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The Week in Snippets

Tighter regulations on US e-commerce imports from China could significantly impact the global air freight sector, warns IATA. Increased scrutiny on de minimis rules might dampen demand, especially on the Asia-North America trade lane. With e-retail sales projected to reach $6.3 trillion this year, any regulatory changes could challenge the robust growth experienced by air cargo, fueled by booming e-commerce and capacity constraints in container shipping.

Vessel backups similar to those seen during the COVID pandemic are making a return as Red Sea diversions are causing gridlock and soaring costs. Ports in Asia and Europe face growing congestion, with circumvention around Africa extending voyage times. Rates from Asia to the U.S. East Coast have reached $7,000, significantly higher than the normal $3,500, complicating logistics for importers and exporters.

Canadian National and Canadian Pacific Kansas City Southern workers, represented by the Teamsters Canada Rail Conference, have voted overwhelmingly in favor of striking unless a new labor deal is reached. Over 9,200 workers voted, with 98.6% supporting the strike. The union seeks better wages, improved working conditions, and flexibility in fatigue management. Talks with the railroads began in November, but no agreement seems to be on the horizon.

MSC now holds a record 20% share of the global container shipping market, driven by fleet growth through new building, second-hand acquisitions, and chartering. MSC's capacity surpassed 5 million TEU last year. THE Alliance carriers have an 11.6% market share, Gemini Cooperation (Maersk and Hapag-Lloyd) 22%, and Ocean Alliance nearly 29%. With the 2M Alliance with Maersk ending, MSC will operate independently but may enter selective vessel-sharing agreements.

Quotable 

“If you come to us in October and ask for extra capacity, our answer to you will probably be no.”

- Tim Scharwath, chief executive of DHL Global Forwarding, while commenting on the need for shippers to sign air freight contracts as soon as possible, amidst rising prices. 

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Kfuri dives into the nuances of executing nearshoring effectively, exploring the challenges of decoupling from established vendors and regions, and the steps vital for maintaining resilience during this critical transition. Kfuri calls for companies to have a deeply rooted product-to-product approach, emphasizing the importance of a thorough cost-benefit analysis for procurement teams.

The discussion also touches upon the challenges SMEs face in navigating local regulations and compliance requirements, underscoring the significance of thorough research and third-party expertise. Kfuri’s insights extend to the impact of positive and negative trade policies on supply chain decisions, highlighting that disruptions often serve as the primary catalyst for change. 

The conversation concludes with a deep dive into quality control measures and strategies for navigating unpredictable events like the current credit challenge, emphasizing the importance of being prepared yet adaptable. Tune in to the episode to gain a deeper understanding of the strategic considerations and challenges in this industry-wide shift towards nearshoring and reshoring.

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Freight operations have received a lot of flak over the years for the lack of propensity to accept change in their midst. This resistance is largely rooted in the industry’s skepticism to adopting technology, thanks to the ‘why fix it if it ain’t broke’ mentality that stakeholders have cultivated over the years in the business. 

While cracks appeared across such hardened stances by the mid 2010s, the pandemic was a catalyst that upended previously held notions of operational inflexibility, pushing companies to invest in technology en masse as their customers demanded visibility into their often-delayed freight. Real-time visibility and transparency became a household term, and regurgitated across boardrooms to the point of cliché.

However, as companies bought and integrated different freight-tech solutions, they quickly realized their problems were far from over. To start with, data recorded across various solution providers were not interoperable, as there was no ‘one standard’ that governed how data was measured or stored. 

Then came the issue with ‘real-time’ data — which is seldom that, as data was rarely ever measured, stored, and transmitted the instant an event happened. And even if data streams could be streamlined and relayed in near time, there was always the challenge of weeding out noise in the data. 

Data quality, or the lack of it, is a real problem that does not get discussed enough. Data noise is a frustrating problem, as it could creep into systems and damage a company’s ability to glean insights. The freight-tech solutions could be stellar, but if it’s garbage in, it’s garbage out. 

First off, companies must understand what constitutes good data and what does not. “Good data is useful data. Is good data always entirely 100% correct? No, it doesn’t have to be. Because you can have consistently incorrect data and still use it to find patterns. On the flip side, you can have entirely correct data, but it could be completely useless,” said Genevieve Shattow, the head of analytics at ThroughPut.ai. 

Taking this a step further, good data is not just defined by how accurately it gets measured or stored, but also by its relevance in the context of the problem that needs solving. A data set can be considered suitable in some situations and bad in others. “One of the reasons to always press for more data is because more data allows us to figure out the noise and the signal. More data will also allow us to pick and choose the data relevant to the current context,” said Shattow. 

For instance, consider a business where product pricing is crucial, but the captured data is all about manufacturing. While the data could be very detailed and accurate, it will not be helpful for the management to understand market rates or their associated customer demand. This does not mean the manufacturing data has no importance — it is just not relevant enough until there is access to more crucial pricing data. 

“The importance of data is tied to its situation,” contended Shattow. “We often have situations where data logging relies on someone needing to push a button to input it. In one case, we witnessed a person who always delayed it by two hours. We had no clear idea how long it actually took. But because it was so consistently late, we could either ignore the time it took to input that data, or consider the guy an outlier and look at other parallel and reliable data. And so, just because there is inaccurate data in a dataset, it does not mean it cannot be used.”

This reflects two realities — one, which shows that even great datasets can have noise, and two, data that relies on human interference can lend itself to inconsistencies. In the end, companies are run primarily by humans. But considering we are so used to being surrounded by robots and automated processes, it is natural to overlook and expect a robotic level of perfection that sets business processes up for failure.

This mentality becomes an issue when it infiltrates the top management, complicating matters. “They rely on the company to be almost robot-like because they’re not making the mistakes themselves,” pointed out Shattow. “They’re not on the ground, picking packages or pushing buttons. They might see a column that says ‘rate of mistakes,’ but there’s an inability to understand that data comes from humans. Even sensors have issues. But this idea that people, en masse, perform to certain standards is clearly an issue that needs to be overcome.”

The instant gratification part of our everyday life — right from expecting same-day delivery to scrolling through social media, is resulting in a yearning for updates that come in real-time and on-demand. Then again, companies rarely need updates in real-time; they only need them on-demand. 

“You need data at the cadence at which you will take action. For example, we have clients who check the dashboard once every morning. They say they need it in real-time, but they only check it once a day at 8 AM. As long as I have the data in by 6 AM, it should be fine. People think Amazon updates orders in real-time, but they don’t. And if data isn’t coming in real-time, it’s not going out in real-time either. The upper limit of how often you should update is based on how often and when they check it.”

Even in the case where data does flow in real time, companies are not equipped to handle data at such high frequency. Take the case of a pharma company that wants to measure and control conditions of the environment their drug is stored in — for instance, a refrigerator. Asking for alerts during exceptions would be ideal, but if the company demands alerts at every instance of the refrigerator door being opened, it could result in alert fatigue. 

“If the product you’re building is not useful, it isn’t a good product. It’s the same with data; if it’s not useful, it’s not good data,” argued Shattow. “It’s important to update things at a cadence that makes sense, not just for the user, but also for the data. If it takes an hour to clean up the data as it comes in, then updating it every hour isn’t going to work. Maybe every two hours, if the company checks it regularly. People often go to a website and find it hasn’t updated yet, and that’s fine. This likely wouldn’t collapse the system.”

The key to getting good data and making it useful inevitably lies in how companies treat the people they have hired to deal with it. “People need to understand that bad data is not the reflection of the data scientists who run it, or the people who generate it,” explained Shattow. “There seems to be an inherent distrust in the people below, or an expectation that they will just fix everything and make it perfect. But mathematically speaking, errors propagate. If you have uncertainty at the beginning, the only way to decrease that uncertainty is with lots of data. You need someone who understands how to combine data and how to propagate it through to its best intent.”

That said, companies need to be mindful to differentiate between the people who design the data systems versus the people who actually end up looking at the data. While data engineers could build great pipelines to capture data, they often never actually look at the data. They rarely ask, “What does this data look like? Does the data coming out resemble the data going in, minus the noise?” A good data engineering team is life-changing for an organization, but the ones who really understand the data are usually ones with domain-specific expertise — and they need support and collaboration. 

A good team is where a data scientist looks at how the data came in and came out, and works with someone who understands the data collection process and what data is expected at the other end. Together, they can build a good pipeline based on domain know-how, which can help feed credible data intelligence into operations. 

However, putting this together takes time and effort. Companies are often pushing buzzwords due to market pressure, which dilutes the real essence of what makes data truly valuable and impactful for their specific operational needs. For instance, it would have taken compelling intelligence and strong internal backing for operations or supply chain people to raise their hands and resist top management’s attempts to scale up based on pandemic demand. This was obviously not the case across most companies, as reflected by the bullwhip effect that has left businesses struggling with bloated inventories post-pandemic. 

“There’s a famous saying that ‘all models are wrong.’ The quality of the model can vary greatly, but it’s going to rely on the data, and more importantly, the way the data gets handled,” said Shattow. “It’s not just about the data itself, but about how you manage and interpret it that ultimately determines its effectiveness and accuracy in decision-making processes.”

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Stuff I’m Involved In 

I wrote a report for Holocene on the impact global trade policy changes and evolving socio-political scenarios have on supply chain health and freight movement. The report discusses complexities that companies face with understanding such changes, and the challenges with finding and leveraging localized data that can give them global supply chain context. Check this link to download the report. 

I had an interesting conversation with Paul Travers, the President and CEO of Vuzix, on the In Transit podcast, where we discussed the value that augmented reality (AR) glasses brings to the warehousing segment. Travers explained how AR glasses can help quicken daily warehousing tasks like picking and sorting, enhancing operational efficiency and reducing the time it takes to train employees on the job. Check this link for the episode. 

The Week in Snippets

Rising interest rates are halting warehouse construction in the US, a shift from the building boom driven by e-commerce growth during the pandemic. This downturn, marked by a significant drop in construction starts and industrial real estate sales, is influenced by higher debt costs and a slowdown in leasing demand, though the sector remains robust with low vacancies and continued e-commerce activity.

The Biden administration's target of achieving 30 GW of offshore wind energy by 2030 faces significant challenges due to rising costs, supply chain issues, and slow permitting processes. Additional hurdles include local content requirements and construction barriers, leading experts to predict a substantial downward revision in offshore wind capacity expectations.

As US warships head to the Gulf of Aden, major shipping lines like OOCL and Maersk are halting or rerouting Red Sea transits due to security concerns, significantly impacting global shipping routes. This strategic shift, influenced by recent maritime security incidents and the involvement of international navies, underscores the escalating tensions in the region and their ripple effect on global trade and maritime operations.

Union Pacific and BNSF railroads are urging U.S. Customs and Border Protection to reopen key rail bridge crossings in Texas, closed due to increased immigration activity. The closures are significantly disrupting cross-border trade, affecting a substantial portion of Union Pacific's business and causing widespread supply chain impacts, including congestion and delays in the movement of critical goods.

Quotable 

“My sense is that the next bull market pricing cycle—which will happen sometime—will be much more gradual than the prior two cycles that started in Q3 2017 and June/July 2020. As such, don’t expect the market to change overnight and, instead, plan for market dynamics to evolve more slowly as we head further into 2024.”

- Jason Miller, professor of supply chain at Michigan State University, commenting on where the dry van truckload market is heading towards next year 

Like what you read? Do consider subscribing! Have something you’d like me to cover? Reach out at vishnu@storskip.com

This episode of In Transit delves into the world of augmented reality (AR) and its transformative impact on the warehousing segment. Augmented Reality technology has emerged as a game-changer, offering innovative solutions to traditional challenges. This episode explores how AR is not just a futuristic concept but a present-day tool driving efficiency and revolutionizing picking and sorting operations, employee training, and even customer experience.

Host Vishnu Rajamanickam is joined by Paul Travers, President and CEO of Vuzix, a company at the forefront of AR technology and smart glasses innovation. Travers, with his wealth of knowledge and experience, sheds light on how Vuzix's smart glasses are redefining the warehousing sector.

Travers explains the role of AR glasses in enhancing operational efficiency and tackling the high turnover challenge in warehouses. He also touches on the integration of AR with other technologies, demonstrating how such solutions can streamline processes and facilitate rapid employee onboarding. Tune in to this episode for a glimpse into the innovative world of AR technology and its transformative potential in reshaping the supply chain and its daily experiences.

Link to the report referenced in the podcast - https://www.vuzix.com/pages/thank-you-white-paper-ar-wearables-in-logistics-and-warehousing

In this episode of In Transit, Greg Braun, the co-founder and Chief Revenue Officer of C3 Solutions, joined host Vishnu Rajamanickam for a conversation on innovative solutions that grocery retailers can leverage to stay ahead in this competitive market. Braun emphasized the significance of efficient warehouse operations, the criticality of accurate inventory control, and the growing need for omni-channel strategies in enhancing customer satisfaction.

Braun underlined the importance of retailers adapting to a landscape marked by a surge in online grocery orders and the challenges associated with fulfilling these demands. Not long ago, such concerns were primarily addressed in isolated business units. Today, however, they demand a holistic, cross-functional approach, reflecting a shift towards more strategic, integrated operations in grocery retail.

In this era, grocery retailers must navigate a path that intertwines astute strategic planning, technological innovation, and a deep understanding of consumer behavior. This episode delves into how these elements converge to define the success of a grocery retailer in today's market. Join us as we explore the future of grocery retail, unraveling the complexities and opportunities that lie ahead in this dynamic sector.

As we inch closer to the end of this year, there is a feeling of dejection writ large across supply chain stakeholders, albeit for different reasons. Shippers complain of weak consumer demand signals as we near the peak retail season, trucking firms are unhappy with falling freight rates and demand, and liners are trying their best to mask their fresh supply of container ships with blank sailings (knowing full well that rates will not climb as long as consumer demand — the root cause for this all — continues to plateau). 

Much like the container liners’ headache with excess capacity, the trucking industry contends with its own surplus of idle equipment — the disjointed, out-of-balance, unutilized, abandoned (however you call it) trailers. Tens of hundreds of trailers lie scattered across overflow yards and warehouses, as sorry remnants of a historically hot freight market that saw a large portion of carriers chasing spot loads. 

To understand the disjointedness, getting in the shoes of a trucking carrier would be a good place to start. The goal for any carrier is to run routes and lanes that are most profitable. An ideal relay would be a port-to-port round trip that involves one driver with a truck and trailer to reach the origin of freight, pick it up, drop it off at the destination, and return (or reach the subsequent pickup).

However, it isn’t always the case, and certainly wasn’t during the pandemic. A power unit carrying a trailer was, more often than not, forced to queue and wait for drop-off. Detention times lengthened from a few hours to days (or even weeks). And since most shippers and brokerages refused to pay for detention time due to budget constraints, truck drivers dropped off their trailers with the freight, only to coordinate with the yard to pick it up later. While drop-and-hook would have been ideal under such circumstances, carriers weren’t always that lucky, with trucks ending up bobtailing and incurring empty miles in the process. 

While detention times can suck and trailer drop-offs were relatively common, the situation exacerbated heavily during the pandemic. This was a time when there was more freight than assets, as carriers, especially the owner-ops and SMEs, who had never run certain lanes, were tempted by the lucrative spot market to move away from dedicated services that were more reliable.

This consequently resulted in trailers scattering across the country, courtesy of carriers chasing high-dollar spot market loads. But the pandemic did wane, and so did consumer retail spending. As the tide of freight demand receded, it caught many carriers with their pants down, as they suddenly found themselves with trailers stuck in locations with no business to justify moving them. 

“The industry realized it had made a lot of money during the pandemic, but was now out of balance,” said JD Redmon, the chief revenue officer of vHub, a trailer repositioning marketplace. “My conversations with major trucking companies showed the overwhelming cost inefficiencies they faced, sometimes spending thousands to reposition trailers.”

While trailer repositioning is an issue that persists across the length and breadth of the trucking sector, the impact of the problem invariably is based on the size of the authority in question. 

“Think of an owner-operator. He has one truck and a trailer, and he’s possessive of his trailer. He’s not going to let any shipper gobble it up. He doesn’t care if the shipper screams at him to get off the lot; he waits till his trailer gets unloaded before driving off,” said Redmon. “This scenario doesn’t change much as the owner-operator adds another trailer or two. But when the assets grow to 5-10 trailers, and trucks run one to two or one to three, the disjointedness starts to rear its head.”

This disjointness continues to spread as the number of tractor assets increases within the firm, making operations quite sloppy in the process. And when numbers swell to, for instance, 500 tractors and a one-to-three tractor-trailer ratio, the risk of losing trailers can be a very real possibility due to them being scattered across the country. 

“Till around 1,500 tractors, companies don’t really care about the disjointedness as they’re growing relationships and hauling more freight. They do realize they’re leaving out trailers across the place, but keep up with them and plan on reaching them eventually,” said Redmon. “Because profits are good, this isn’t the first thing on their mind.”

But disjointedness hits differently if you’re the JB Hunts and Schneiders of the world. “You’ll hear the mega carriers say it’s nothing for them to ride with 15% or 25% empty, because they have assets everywhere. They have drivers everywhere. They focus on leveraging their massive size and scale, rather than spotting lost or abandoned trailers.”

This brings us to the crux of the conversation — the rather large number of trailers that lie gathering dust in yards today. At the height of the pandemic, OEMs and trailer leasing companies saw trailer utilization skyrocket (due to reasons discussed so many times before). Orders for new trailers came pouring in as carriers struggled to get hold of scarce assets in the wake of mounting demand. 

Everything changed when the market flipped. “There’s a lot of talk about orders going up the roof. But very few talk about the plight of OEMs today as they try to get new trailers to the asset owners,” pointed out Redmon. “OEMs are struggling to get carriers to come and get their trailers or even reposition because, technically, the carrier doesn’t really need that asset in this loose market. When you’re seeing the spot market bottoming out now, it’s not just due to less freight demand, but also since there are too many assets in the network. There’s an oversaturation of trailers.”

That said, trailer disjointedness, although quite aggravated by the pandemic, has always been a thorn in carrier operations. “I fly to and from the Dallas Fort Worth airport very frequently over the past seven years. I see the FedEx overflow yard with dry vans and trailers of various colors every time. And guess what? They’ve all been in the exact same spot for seven years. They never moved,” said Redmon.  

The question is, why do the mega carriers continue to order new trailers when they apparently are overflowing with them anyway? The answer might have a lot to do with them needing to face their shareholders. As public companies, mega carriers are beholden to their shareholders, and so, they seldom cut down asset orders — even if it means they go straight to the overflow yard or end up being part of an aggressive firesale to dealerships just to get rid of them. 

“I see the disjointedness of getting them to the trailer networks where they need to be. That’s the issue,” said Redmon. “Eventually, we’d have to look up and wonder why we are building almost a million trailers a year when we’re clearly not utilizing a million trailers a year.”

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The Week in Snippets

In September 2023, trans-Pacific shipping services experienced improved on-time performance despite record imports from Asia, with on-schedule arrivals to the US West Coast reaching 47.8%. This improvement was attributed to increased capacity and fewer canceled sailings, although draft restrictions on the Panama Canal may impact reliability to the US East Coast.

The freight transport sector is at a potential "tipping point" due to rising fuel costs and a challenging economic landscape. With shipper volumes down and carrier rates depressed, carriers are becoming more selective in accepting bids, focusing on profitability, while shippers prioritize stable and reliable carriers. Amid these challenges, the World Bank warns of potential record-high oil prices due to geopolitical risks, further complicating outlook.

Ocean carriers are grappling with a shrinking gap between long-term contract rates and volatile spot cargo rates, as evidenced by a 2.6% decrease in the Xeneta long-term freight rate XSI index in October and a significant 62.2% decline over the past year. The situation is expected to worsen, with a forecast of a more severe downturn in early 2024, although some improvement may be seen by May.

Flexport has acquired the technology of the now-defunct digital freight business Convoy, with plans to restore Convoy’s trucking services for its customers in the coming weeks. This move aims to extend Flexport’s US trucking operations, as the digital freight forwarder works towards regaining profitability. The financial details of the deal were undisclosed, and a few dozen product and engineering employees from Convoy will be joining Flexport.

Quotable 

“Container shipping is the archetype business-to-business industry. Pricing decisions are typically driven by pure economic logic and with little consideration for the price considerations in the business-to-consumer industries where it is possible to create more emotionally based buying decisions.”

- Jesper Præstensgaard, the managing partner in Humanostics, while commenting on the container liners’ drive to negotiate prices based on economic and competitive realities.

Like what you read? Do consider subscribing! Have something you’d like me to cover? Reach out at vishnu@storskip.com

In this episode, Bill Catania, the CEO and founder of OneRail, joined In Transit host Vishnu Rajamanickam to discuss potential solutions and strategies for retailers to win (and retain) customers. Catania delved into the importance of final mile fulfillment, the necessity for retailers to enhance their demand forecasting capacities, and the crucial role of omnichannel strategies in providing an excellent customer experience. 

Catania called out for companies to solve challenges with cross-functional interdependencies, which he reckoned were some of the low-hanging fruits that would create maximum impact on operations. A mere decade ago, weighty decisions like offering same-day delivery rested predominantly with transportation departments. Now, with the emergence of roles such as EVP and VP of omnichannel, the decision-making paradigm has shifted, suggesting a move towards a more integrated, strategic approach to retail operations.

The retail world of today demands a blend of strategic thinking, technological adaptation, and consumer-centric approaches. The interplay of these elements defines whether a business is merely surviving or truly thriving in the omnichannel realm. Join us in our latest episode as we dig deeper into these intricacies, exploring the future trajectory of retail in a post-pandemic world.

The United Automobile Workers (UAW) strike continues in full swing against its Big Three manufacturers, as workers push back against EV projects, which they see as an increasing onslaught on their existing jobs. This has set off several ripple effects across auto supply chains, as production stalls and the need for freight services — both upstream and downstream — get impacted. 

Regardless of the resulting chaos, the UAW puts forth a genuine concern. Electric vehicles, with fewer moving parts, would require a smaller workforce for production compared to traditional ICE vehicles. Workers fear that a climate-conscious government and regulatory policies pushing for curtailing ICE production at the expense of EVs would ultimately result in them losing jobs during the transition. 

While the circumstances surrounding the International Longshore and Warehousing Union's (ILWU) unwillingness to sign a work contract with the Pacific Maritime Association (PMA) for over a year is quite different from the current UAW strike, the fear of being laid off is a common denominator.

Incredibly enough, the ILWU and the UAW stand on either end of a common touchpoint — automation. While the ILWU seems to reject any semblance of automation creeping into its midst, the UAW seems to favor automation. In fact, automation has become a stepping stone to UAW’s demands for a ‘32-hour work week for 40 hours of pay.’

While reducing work hours and demanding better pay is no surprise coming from a labor union, the idea of shorter work weeks for the same pay was an untenable demand before automation made a visible impact on supply chains. Automation ensures worker efficiencies can continue improving, giving the UAW demand legs to stand on. 

Shawn Fain, the new UAW boss, spoke to auto workers in August on the importance of time, and how there is more to life than just work. 

“It’s not enough to just survive, we should all have a right to thrive,” said Fain. “I believe all of us have a right to look back on our life and not regret spending so much of our time making hundreds of billions of dollars for greedy companies rather than spending time with our families and friends.”

Such sentiments resonate deeply in our contemporary context, especially in the wake of the 'Great Resignation,' a recent phenomenon that saw millennials and Gen Z workers leaving their jobs during the pandemic, reevaluating priorities, and expressing disillusionment with traditional workplace norms and values.

Keeping emotions aside and sticking to hard facts, it’s clear automation is here to stay. For instance, the number of employees in US auto manufacturing is roughly 20% lower today than in 2000, but industrial production increased by 25% in the same period. While this could be attributed to increased workforce efficiency, this period also coincides with explosive growth in industrial robotics exports — going from below 10,000 units annually in 2000 to over 120,000 in 2020. 

This isn’t just a story of automotive supply chains. Manufacturing, at large, is undergoing a transition where automation of non-value-added repetitive tasks is becoming cheap enough to replace humans in the equation. The same is true of warehousing and fulfillment operations, as is evident with the ILWU's skepticism over allowing automation in their yards. 

Integrating automation into supply chains without appearing predatory to the workforce is a challenge. How do we deal with workforce inertia that occurs from supply chains transitioning?

“It is important that workers realize they are integral to supply chains despite all the automation and process transition,” said Nick Pellegrino, the chief operating officer of order fulfillment company Boxzooka, with extensive experience running agile fulfillment facilities. 

“We had a customer who added jewelry to their product line. One Friday, we received 5,000 different jewelry items. Based on SKU velocity assumptions and demand forecast, we slotted the new inventory over the weekend. When it went to market on Tuesday, it sold out immediately,” said Pellegrino. 

“Had we been in a highly automated environment, it would have been challenging to adapt so quickly. Instead, we were able to adjust because of our human workforce, creating a pick line to get every order out within 24 to 48 hours, far exceeding our service-level agreements.”

This flexibility, Pellegrino argued, was due to a strategy that prioritized operational agility, which entailed a healthy mix of human workforce and automation. 

For instance, consider an AutoStore servicing a massive 30,000 sqft warehouse. Cubes would be built 100 feet long and 30 feet tall, with robots operating on top of the cube. Inventory gets inducted into totes placed in a grid within the cube. When the order arrives, the robot brings the tote to an operator who picks the SKU. While this is incredibly optimized for consistent demand, dynamic changes in SKUs and product lines — like the above scenario — would need more malleable fulfillment options with humans as the lynchpin. 

So, how do we ensure workers feel comfortable and at ease? “By giving them a full-time employee status,” pointed out Pellegrino. “It’s common to see companies have a 50% full-time and 50% temporary labor mix, which isn’t great. I’d call for at least 90% of the workforce to be full-time, even if it means handling seasonal peaks in demand.”

Incidentally, an important demand in the UAW strike runs parallel — the call to end the tiered employment system that engages workers on a ‘temporary’ basis, extracting comparable work from them as full-timers, but at lower pay scales and worse benefits. 

“The key to retaining employees in today’s labor market is to focus on being an employee-centered operation,” said Pellegrino. “It is about actively upskilling the workforce.” 

“At Boxzooka, we have associates who started with basic tasks and have gradually moved up to become leads or even supervisors. We even have client success managers who started at an hourly rate and moved through the ranks to a position where they directly interact with our clients. This offers team members a career path, not just a job. Whether advancing to a forklift driver position, becoming a lead, or moving up to a supervisor role, it’s important to provide opportunities.”

This is congruent with what Biden, one of the more worker-friendly presidents in recent times, has promised — better-paying blue-collar jobs. Pellegrino contended that a dynamic of shared prosperity takes root by fostering an environment where blue-collar workers can have career mobility and seek growth opportunities. 

Such an ecosystem will also lower employee churn rates, helping companies scale operations sustainably. “This is significant considering some poorly managed operations in the industry can see turnover rates exceeding 100%, where you’re replacing your entire workforce every month,” said Pellegrino. He suggested that making internal promotions a part of the retention strategy will signal to the team that upward mobility is attainable, keeping them motivated and engaged. 

“Employee engagement is another critical aspect, which builds organizational culture. Creating a sense of community and encouragement within the team while supporting individual well-being and a work-life balance translates into dedication from the team. This way, when a client issue requires immediate attention, I would never have trouble finding volunteers willing to step in. Automation can’t replicate human commitment.”

To that effect, building a sense of community in manufacturing or warehousing operations would require mid-level managers and frontline leaders with solid people skills. “My first job right out of college was as an industrial engineer for Coca-Cola. I remember asking the VP of Manufacturing why they hired me, and he said while they looked for engineers who were analytical and process-driven, they specifically took me for my people skills,” said Pellegrino. “Strong leaders make it easier to implement processes and engage with the workforce.”

Ultimately, while automation does warrant change in regular operations, the primary concern for those on the frontline isn't the technology itself, but job security. It’s essential to remember the very human faces behind these jobs. To many households, these jobs are lifelines, providing a steady income and the promise of climbing the economic ladder. 

“If employees are treated well, given a good salary, and offered opportunities for growth within the company, employee turnover decreases. People become more committed and are less inclined to leave their positions,” he said. “In an employee-centric environment, companies can be confident integrating automation into operations without sacrificing workforce morale.”

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The Week in Snippets

Europe's feeder fleet faces an impending shortage as the majority of ships have aged over two decades with minimal new-build orders in the pipeline. Alphaliner warns of the potential extinction of smaller vessels, further complicating the scenario as carriers show reluctance towards long-term charter commitments for eco-friendly, methanol-powered replacements.

The International Longshore and Warehouse Union (ILWU) has filed for bankruptcy due to a lawsuit over illegal slowdowns at Oregon’s Port of Portland. This raises concerns as the union, controlling operations at 29 West Coast ports, plays a pivotal role in US seaborne trade. It is an interesting development, considering the impact it could have on labor negotiations and tactics in the future.

In the face of post-pandemic demand fluctuations, technology is revolutionizing the truckload market with rapid, data-driven pricing decisions. Experts underscore the vital role of these platforms in navigating volatile conditions and stress the importance of proactive freight procurement. They also emphasize the need for a balanced carrier portfolio to build network resilience.

Economic analysts anticipate that the freight market may experience weakness until late 2025, influenced by factors like saturated retail inventories and rising interest rates. Despite some positive trends in consumer spending, the overall demand for shipping remains subdued. However, there's optimism as the U.S. is predicted to avoid a full recession. In the near term, the 2023 peak season is expected to align with historical trends.

Quotable 

“The world is becoming more complex because now you see more trade barriers and geopolitical risks. Moving to a more resilient supply chain system adds complexity. But once the move is done, I think it will simplify the situation.”

- Marie-Christine Lombard, the CEO of Geodis, while commenting on the need for companies to navigate neo-age risks to build a resilient supply chain

Like what you read? Do consider subscribing! Have something you’d like me to cover? Reach out at vishnu@storskip.com

It has been less than a week since the drama surrounding its change of guard, but Flexport's Ryan Petersen is already looking to put that behind him with the launch of the company’s new product on Tuesday. Targeted at SME e-retailers, Flexport+ — as it’s called — will help sellers manage freight movement from the factory to the customer’s doorstep. Regardless, the company’s carefully sculpted pressers and explainers on Flexport+ do not reflect anything substantial nor something that could become Flexport’s USP.

But before discussing that, we’ll have a closer look at the recent turn of events. A bit of perspective first. In Feb ‘22, Flexport hit the news for raising an eye-popping $935 million in funding at a valuation of $8 billion in an investment round led by Andreessen Horowitz, Michael Dell’s MSD Partners, and e-commerce firm Shopify. 

Beyond its investment, Shopify had additional strategic plans for Flexport. In May ‘23, Shopify divested its logistics and order fulfillment operations to Flexport. This included Deliverr, a last-mile delivery startup that Shopify bought for $2.1 billion, taking a significant write-down in the process. 

Shopify divested its logistics and order fulfillment operations to Flexport.

In return, Shopify charged Flexport with creating a comprehensive, end-to-end freight solution. This new system aims to benefit Shopify merchants who, until now, had only used the platform for marketing, sales, and payment processing. The goal is to enable these merchants to seamlessly manage their supply chain, leading to cost efficiencies.

This collaboration with Flexport was Shopify’s attempt to rival Amazon’s highly successful ‘Buy with Prime’ offering with its own ‘Shop Promise’ solution, wherein any merchant selling products on Shopify could leverage Flexport to import, store, and fulfill consumer orders. 

In June ‘22, just a month after the Shopify-Flexport partnership was made public, Flexport made another headline-grabbing move by bringing on Dave Clark as co-CEO alongside Petersen. Clark, known for masterminding Amazon's fulfillment operations, announced his decision to join Flexport days after stepping down as CEO of Amazon's worldwide consumer business.

Clark's departure from Amazon to join a freight-tech startup certainly piqued interest, though not always for the most favorable reasons. Firstly, although Clark had established a strong reputation for scaling operations within a well-established enterprise like Amazon, he was relatively new to the more agile and uncertain world of startups. Secondly, while Clark brought with him a wealth of experience in fulfillment, questions arose about his expertise in managing Flexport's core competency — freight movement, a sector characterized as a commodity business.

Being a commodity, freight is inherently subject to market cycles. As an executive with virtually limitless capital and part of a company with a robust outlook for expansion, Clark played a different ball game at Amazon. And even among established companies, Amazon stands apart — its unique ability to secure funding while sustaining substantial losses due to aggressive pricing and market expansion is rare (it certainly doesn't hurt to have a highly profitable AWS segment to pay for the retail excesses).

As an executive with virtually limitless capital and part of a company with a robust outlook for expansion, Clark played a different ball game at Amazon.

When Clark took over in Sep ‘22, Flexport’s vision for the future was connecting freight movement and fulfillment, building a technology layer encompassing the entire freight linehaul. 

“The whole plan put in place was that when Dave Clark took over as co-CEO, he would take the resources available to build the ‘Shop Promise’ offering in record time to help Shopify level up in their fight against Amazon,” said a person familiar with the matter who asked not to be identified. “The plan flopped big time. It ended up costing a lot more than anticipated, given the very expensive executive hires and acquisitions under Dave’s leadership.”

The escalating operational costs and delays in rolling out 'Shop Promise' led Amazon to outmaneuver Flexport by persuading Shopify to enter into a direct partnership. This move enabled Shopify merchants to integrate with Amazon’s ‘Buy with Prime’ program. As a result, Shopify vendors now have the option to store their inventory in Amazon warehouses and leverage Amazon's robust international and domestic shipping networks for both bulk and last-mile fulfillment, among other services.

The escalating operational costs and delays in rolling out 'Shop Promise' led Amazon to outmaneuver Flexport by persuading Shopify to enter into a direct partnership.

“Perhaps more significantly, inventory stored in Amazon's warehouses can now support a merchant's operations on both Amazon's marketplace and their Shopify storefront. It's a somewhat ironic twist for Shopify; it's like letting a fox into the henhouse. Amazon gains unprecedented access to Shopify's customer base, and Flexport's offerings simply can't compete with the logistical prowess of Amazon — something that's widely understood,” said the source.

In early September 2023, just a week after Shopify announced its direct partnership with Amazon, Clark took to Twitter to announce his immediate resignation from Flexport. His departure was punctuated by Petersen’s pointed "I am back" tweet, complete with a few thinly veiled jabs aimed at the departing CEO.

Although the abruptness of Clark's exit startled many, the writing had been on the wall. The Shopify fiasco was one of many things going wrong for Flexport, besides the general fall in fortunes due to a limp freight market.

"While Flexport had somewhat cracked the code on customer acquisition and exhibited rapid growth in the forwarding sector, they grappled with spiraling operational expenses,” observed the source. “Numerous strategies were deployed to rein them in — such as widening margins and bolstering attach rates on ancillary services like trade finance, customs advice, and warehousing — but none proved sufficiently effective."

For a brief while, Flexport had a product called Flow, which was envisioned as a ‘conveyor belt’ for the world. The idea was that a shipper could drop off freight at designated locations on one end of the world, and the freight would show up on the other side at specified locations for a flat rate. 

“Flexport signed up a lot of fulfillment players for Flow. They said they’d give them a commission if they sent their customers their way,” said the source. “It all stopped when Flexport went ahead and acquired Deliverr. The move was quickly seen as predatory by Flexport’s fulfillment partners, who had given a big chunk of their customer list to the company.”

So…was Dave Clark the fall guy for the Deliverr and ‘Shop Promise’ debacle?

It’s anyone’s guess. 

For starters, Clark has gone on to delete his experience at Flexport from his LinkedIn page. Such a reaction from a seasoned executive shows the departure was not amicable enough, at least not from Clark’s POV. 

And then, there’s a lot of discussion around Petersen’s flurry of tweets, one of which was about rescinding the offer letters of 75 people who were about to join the company the week after. A chunk of executives who joined Flexport over the last year from companies like Amazon and Microsoft have also been fired. 

Petersen argued that he was unaware of the hiring decisions made during his absence from the CEO role since March, expressing surprise at the more than 200 open positions listed on Flexport's careers page. It’s doubtful that this is true, considering he has always been part of the board, and the board would have approved all the expensive hires during Clark’s stint as CEO. Plus, it is preposterous that Petersen failed to look at his own company's ‘Careers’ section listing hundreds of job openings all through this year. 

Petersen went on to say Flexport failed to focus on customer relationships during Clark’s tenure, which he felt was one of the reasons why the company wasn’t doing as well as it should. While Clark concentrated on building the Flexport+ product (which launched a few days after Clark’s exit on Sep 12), Petersen now mentions wanting to grow the core freight business (again). 

Regardless, common sense tells us that things were already looking south for Flexport when Clark arrived at the scene last year. A commodity business like freight ebbs and flows, and Flexport was guaranteed to do less business this year than the one before due to unflattering market conditions. Acquiring Deliverr and delays with ‘Shop Promise’ exacerbated the company’s slide. While it is possible Clark wasn't brought in to be a scapegoat, he certainly became a convenient explanation for Flexport's declining performance.

While it is possible Clark wasn't brought in to be a scapegoat, he certainly became a convenient explanation for Flexport's declining performance.

The recently launched Flexport+ appears to be a membership-based program offering community access and trade financing options — seemingly more sizzle than steak. Given that this new product was developed under the stewardship of executives who have since been terminated, questions are likely to arise regarding the sustainability and robustness of the product's operations.

Concluding this by pointing out Petersen’s evident fondness for PR maneuvering. Flexport chose to launch its Flexport+ product in Seattle, a city where the company does not have a substantial footprint. A deliberate jab at Amazon, perhaps?

Amazon's response was swift and unequivocal. They rolled out a strikingly similar product, 'Supply Chain by Amazon,' with a PR that nearly matched word-for-word in context — on the very same day. And it just so happens that Amazon is much larger, knows what it is doing, and has a higher chance of following through with its promises. 

Harder times are yet to come for Flexport.

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North American railroads are taking proactive steps to regain market share lost to long-haul trucking by addressing longstanding issues such as unreliable service and uncompetitive pricing. The stakes are high, as the decline in intermodal's share of domestic transportation from 2016 to 2023 has reportedly cost the rail sector up to $4 billion in annual revenue.

The newly ratified labor contract between UPS and the International Brotherhood of Teamsters is setting a new bar for workers' wages and benefits in the logistics sector. As UPS employees see significant pay boosts, competitors like FedEx may be pressured to follow suit, particularly in a tight labor market where workers are increasingly advocating for better compensation.

West Coast ports, despite securing a new six-year labor contract, struggle to reclaim their trade share as US importers diversify their supply chains. The share of containerized import cargo at these ports dropped to 35% in June 2023, down from 37% the previous year. Meanwhile, ports like Savannah and Charleston are seeing less significant declines, benefiting from their closeness to emerging manufacturing hubs in the Southeast.

Trans-Atlantic westbound shipping rates have plummeted, falling 57% compared to pre-pandemic levels in 2019, due to excess capacity and weak US import demand. Despite some carriers reducing services, the decline in demand continues to outpace capacity withdrawals, leaving the industry grappling with significant challenges.

Quotable 

“In our survey, a substantial 64% of senior executives in supply chain highlighted that their primary challenge in the recruitment process for supply chain leadership roles lies in finding candidates who possess the appropriate skillset.”

- Radu Palamariu, the managing director of executive search firm Alcott Global, commenting on the issues companies face with finding supply chain talent 

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Uncertainty hangs over freight markets like stubborn mist as industry stakeholders witness considerable erosion of fortunes from the pandemic years. Both capacity demand and freight rates have stayed low for the better part of ‘23. Regardless, not all parts of the logistics ecosystem feel this freight downturn equally, as it may be the case with the warehousing segment.

While vacancy rates for US industrial real estate have inched up to 4.1% in Q2 ‘23, it is still well below the pre-pandemic rate of 5%. Even with rising vacancy rates and the emergence of new warehousing capacity, lease prices are notably higher than in the spring of ‘20. Contrary to the freight market, where there's abundant capacity, companies often compete for warehousing space today, despite reduced consumer demand at the backdrop.

Several factors contribute to this situation. To start with, adding warehousing capacity takes a lot of work. Constructing new warehouses demands time and capital, aside from the necessity to meet renters' specific expectations regarding design and location.

The steady growth of e-commerce is another factor driving the urgent need for warehouses, especially for commercial space closer to dense consumer markets. E-commerce has become an experience centered around consumers, inevitably spiking expectations from when consumers place their orders to product handoff. A primary measure of consumer expectations is the delivery speed, which has crept up from around a week in the early 2000s to same- or next-day delivery today. 

To keep pace with accelerated delivery expectations, shippers and retailers are compelled to maintain more extensive inventories, considering their supply lead times have not fallen as quickly as last-mile delivery times. This trend significantly benefits the warehousing sector, which foresees a steady rise in capacity demand, especially as e-commerce commands a larger slice of the overall retail pie.

Then, there’s the difference in distribution nuances between traditional storefront retail and e-commerce that further strains warehouse capacities. While the former primarily used pallet-based operations, e-commerce shifts focus to piece-picking and individualized packaging. Aside from heightening warehouse labor needs, this shift also increases the demand for space due to the expanded volume of individually packaged items, even for equivalent inventory levels. This disparity will become even more pronounced as our reliance on e-commerce intensifies in the future.

“Increasing product variety as a result of advanced manufacturing processes has pushed retailers to stock more SKUs,” said Akash Gupta, the co-founder and CEO of warehousing automation company GreyOrange. “For instance, Apple, which once had only six to eight product variants, offers around 600 now.”

The SKU numbers have ballooned in sectors where mass manufacturing is cheap and efficient — like apparel and general merchandise. “For any given product, you might find 20 different variants in this sector. Companies like Amazon have elevated the customer experience, impacting warehousing operations that have had to rapidly adapt to serve evolving needs.”

All these factors put together, it is increasingly clear to retailers that the need of the hour is optimizing available space — to run tight warehousing operations that maximize efficiency, streamline inventory management, and ensure rapid order fulfillment. 

This is where warehousing automation comes into prominence. “Automation can be categorized into two main types,” pointed out Gupta. “The first is mechanical automation, which involves the use of machinery to streamline processes. The second is decision-making automation.” 

Automating decisions is an essential part of running warehousing at a time when inventories are expected to move off the shelves quicker, and demand comes across a variety of mediums. “Current operations are mostly omnichannel to prevent duplicating inventories. This leads to noticeable peaks and troughs not just annually, but monthly and even weekly,” contended Gupta. “Given such complexity, there’s a need for real-time adjustments in today’s environment that require automation.”

Merging the two types of automation gets us AI-powered automation orchestration, which GreyOrange specializes in. “AI-powered orchestration is about evaluating the total work required and organizing it across various processes. This is about allocating tasks to different agents — be they robotic or human — in real-time. By employing predictive models and neural networks, it anticipates the workload across the day and reacts in real-time to meet these demands,” said Gupta. 

While considering orchestration, there are two metrics to look at — streamlining workflows between different processes and the distribution of agents across these processes. “For example, if you utilize logistics bots for pallet movements or roll case movements, it's essential to strike a balance in their deployment between inbound and outbound tasks. Ensure an appropriate number of agents are dedicated to deep storage for replenishment, while others focus on inbound and outbound operations.”

Striking a balance is crucial as it is about allocating resources efficiently across different processes given the year-around fluctuating demand. Automating such decisions rather than relying on manual decision-making helps companies reduce overhead costs and remain agile to market dynamics. 

"In an omni-channel warehouse, when there's a surge in retail orders over e-commerce, you'll need fewer packers since retail orders generally have more items. This reduces the bots needed for transport between picking and packing. These bots can then shift to tasks like value-added services,” said Gupta. “Efficient adaptation to such changes requires a centralized system to orchestrate all bot types. Siloed operations and bots that aren’t interconnected cannot adapt to changing demands.”

To that effect, the role of human labor in warehousing will continue to evolve into more specialized roles. Gupta contended that warehouses face headwinds with recruiting labor, as the younger demographic is not too keen on working punishing schedules. As more warehousing facilities get built, labor demand will continue to climb amidst constrained labor availability, leading companies to look at automation and robotics to bridge the gap.

“Change management will be crucial as warehouses undergo transformation. Introducing a new way of thinking and operating requires a strategic approach. It's vital to ensure a good user experience with the systems being adopted,” said Gupta. He explained that there is a distinction between robotic outcomes and fulfillment outcomes. The former centers on robot efficiency, while the latter expands the scope, leveraging robotic capabilities and integrating human expertise to achieve optimal order fulfillment. With the right training and an intuitive interface, the transition becomes seamless, preparing workers for this evolved operational paradigm.

That said, automation in the industry still has a long way to go. “While there’s vast range in automation, perhaps 30-40% of warehouses have delved into it. The shift we’re seeing is from isolated automation of specific tasks to conceptualizing an ‘automation-friendly’ or ‘automation-enabled’ warehouse,” said Gupta. 

“Focusing solely on automating individual processes might improve a specific area, but broader fulfillment challenges will persist as it’s akin to simply shifting a bottleneck from one point to another. When considering automation, the goal should be more holistic. It's about leveraging the right software and robotic technology to ensure the entire process is optimized for ROI, rather than just relocating inefficiencies.”

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Despite the US economy expanding faster than anticipated amidst declining inflation, US freight demand remains subdued and is expected to continue its downturn through late 2023, possibly extending into Q2 2024 for the trucking sector. Lower manufacturing output, overstocked inventories, and excess capacity in trucking are contributing factors, with nationwide truck shipment levels decreasing for five consecutive quarters, marking a 9% YoY drop in Q2.

Shipping costs from Asia to the US have surged recently, with the average spot rate for a 40-foot container from China to the U.S. West Coast jumping 61% in just six weeks. Industry experts anticipate the rate uptick to be temporary, expecting an influx of new containerships to increase capacity and potentially drive down rates again by the fall.

Following Yellow's exit, LTL providers like ABF Freight and TForce Freight are experiencing increased volume, potentially due to their unionized status. Old Dominion Freight Line, however, is focusing on service quality over volume. Regardless, Yellow's departure has disrupted the capacity for freight consolidations, posing challenges for shippers.

Blanked sailings on key east-west container routes have become the new norm, with Alphaliner data revealing that 10.8% of Central China-Europe loops were voided in June and July. While analysts highlight these aggressive capacity withdrawals, understanding the underlying numbers will show only a 2.4% drop in effective deployed capacity compared to last year.

Quotable 

“The exchange should guide businesses to use futures to manage risks. We hope liner operators, freight forwarders and cargo owners will make use of futures as a hedging tool.”

- Fang Xinghai, vice-chairman of the China Securities Regulatory Commission, commenting on the new container shipping futures established by the Chinese government to hedge risks in container shipping

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It is always a good time to talk about the trucking industry. While the trucking market has been seeing a few green shoots of demand in the recent weeks leading up to the peak season, trends are neither strong nor convincing enough. But the same can’t be said of trucking employment. FRED data on truck transportation employment numbers has shown a steady increase to 1.62 million in July — touching its all-time high from Oct ‘22. 

While transportation jobs month-over-month growth in July was underwhelming compared to the month before, it still does not discount the size of the industry workforce today. And considering freight volumes and profit margins have dipped significantly since the last headcount peak in Oct ‘22, it is quite interesting to see trucking firms continuing to recruit and retain labor. This, despite clear data on the reduced workload for trucking employees. Bureau of Labor Statistics data on employment hours of all trucking employees has continued to fall all through ‘23 since peaking in Q3 ‘22.

A lot can be gleaned by putting this together. For one, it is quite possible that trucking firms are beginning to sense the dawning of a better freight market situation as volumes tick up and freight rates bounce off their floor.

Conversely, the fervent recruiting of trucking labor can also signify carriers’ issues with finding good truck drivers to join their fleet. The pandemic-driven retail boom generated an explosive surge in trucking needs, spiking driver demand. As truck driving (specifically long-haul) isn’t very glamorous, a chunk of these drivers moved out to less-taxing last-mile operations or to other verticals in the supply chain. Some of these drivers departed large trucking firms they were working with, building their own trucking establishments during the historically tight market to run in the spot, looking to make hay while the sun shone. 

This fashioned up as an ugly situation for large trucking carriers — a higher-than-usual driver churn rate during a period when they could make money hand over fist. Then again, the cyclical market has turned fortunes, driving trucking establishments (especially owner-operators and small firms) out in droves as low freight rates and high operational costs have forced them to shutter doors.

As the industry sobers up from the pandemic freight peak, trucking carriers that weathered the storm are now better positioned to attract returning drivers. While it is still hazy about how the peak retail season will turn out this year, peaking trucking industry recruitment numbers coupled with falling industry-wide work hours make it seem like carriers are backing themselves into a corner. 

Another argument is that the truckload sector is unwilling to give up on its workforce, as it is hard to build a good driver base. “There’s also the fact that the median age in the industry tends to be higher in the late 40s,” said Matt Muenster, chief economist at Breakthrough. “I imagine firms retaining drivers with that in mind — recognizing and maintaining talent is difficult. Despite headwinds in the market, I believe we’ve seen through the worst of it in the first half of ‘23.”

The economy has been robust at large, with the unemployment rate falling by 0.1% month-over-month to 3.5% in July — further underscoring the persistent labor market pressure. 

“Notably, both the household and establishment surveys have trends that align. This contrasts the previous month, where there was a marked divergence between these two key indicators,” said Muenster. “The fact that these numbers are moving in the same direction reinforces the notion that labor market tightness remains unchanged and is not showing signs of easing.”

To keep this story in balance, it makes sense to check consumer retail demand. While record-low unemployment rates have meant consumers have largely continued to spend liberally, the avenues to where they channel their money have seen a gradual, but expected, shift. Consumers now spend more on services than on retail, with the services sector making a return after being heavily repressed during the pandemic. Considering every dollar spent on services generates less freight volume than every dollar spent on retail, a growing GDP masks the real plight of the freight economy. 

Regardless, retail demand has remained fairly strong considering the pre-pandemic yardstick. Yet, a lot of this ‘demand’ did not translate into trucking activity as a significant part of it was inventories retailers were downsizing from their saturated warehouses and overstocked stores, rather than fresh orders from manufacturers and suppliers. This existing inventory glut meant that even as consumers purchased goods, trucks weren't as active in moving new stock, leading to a mismatch between retail sales and trucking demand.

Strictly speaking, retail demand is regressing to its mean from the pre-pandemic years. Nonetheless, the steep fall in demand from the ‘22 peak is taking some time to get used to. “Inflation is slowly getting under control, but we’ll have other factors like elevated interest rates that will influence how consumers spend on housing. The student loan repayment restarts will also impact retail demand,” pointed out Muenster.

While a loose freight market, low freight rates, and a strong retail market are reasons to cheer for the retail businesses, the producers’ price index (PPI) for freight trucking continues to remain well above pre-pandemic levels. 

With freight prices not expected to fall further, Muenster contended that a bulk of this increase is tied to the high labor costs. “The cost of equipment isn’t increasing as it did during the pandemic, freight rates are down, capacity is easy to come by, but labor continues to drive price pressure across the industry.”

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US truckload carriers are grappling with a continued slump in demand, leading to reduced rates and revenues, with major players like Landstar and Covenant Logistics experiencing significant drops in revenue year over year. Despite the optimism earlier in 2023, high inventory levels and flattening spot rates paint a bleak outlook. However, some industry leaders, like Knight-Swift's CEO Dave Jackson, anticipate a potential uptick in demand by the year-end holiday season.

Amazon's drone delivery initiative, Prime Air, has faced a major setback with the departure of two key executives, Jim Mullin and Robert Dreer. This comes amidst already existing challenges for the program, including regulatory restrictions and operational hurdles, which have considerably delayed its rollout since Jeff Bezos's 2013 predictions. Additionally, a recent major layoff by CEO Andy Jassy further impacted Prime Air's development and objectives.

Due to drought-induced water conservation measures, the Panama Canal is facing significant congestion, with a current wait time of around 21 days and 154 vessels queued. As the U.S. represents 73% of the canal's traffic, these delays could heavily impact trade, especially since the booking slots for large Panamax vessels have been notably reduced. The disruption poses substantial risks to global supply chains and U.S. trade activities.

Hapag-Lloyd reported a 77% decrease in Q2 net profit to $1.1 billion, attributing the decline to weaker demand and unsustainable freight rates. CEO Rolf Habben Jansen mentioned that returning to pre-pandemic freight rates would mean operating at a loss due to increased operating costs on certain routes. Despite these challenges, the company, which recently acquired Chilean firm SAAM Ports & Logistics, is looking to further expand its terminal business.

Quotable 

“SoCal is the canary in the coal mine for the U.S. industrial market to some extent.”

- Mark Russo, head of industrial research at real-estate services firm Savills, commenting on the cooling warehousing market in Southern California over the first half of ‘23.

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For a sector considered the lynchpin of the economy, the trucking industry does get a lot of flak — for its issues with operational visibility, excessive market fragmentation, and its insufferable lack of economies of scale. The concern isn’t misplaced though; the trucking sector is one of those few verticals where the more you scale your operations, the harder it gets to maintain your operational efficiency. Add to it that trucking is a cyclical market, the industry quite clearly isn’t for the faint-hearted.

Yet, the economy will come to a grinding halt if the trucking industry somehow magically disappears overnight. Nearly everything everyone owns has been on the back of a truck at one point in time. And unlike most jobs, truck driving is a round-the-clock affair and is a physically and mentally demanding job with very few parallels in the supply chain. It isn't unusual to see interstate truckers stay away from their families for weeks, eat highly processed food at gas stations, and sleep in their trucks when done for the day. 

So, it's no surprise that drivers quit the industry en masse. On average, over 90% of truck drivers leave the firm they work for within a year — these are churn rates that would seem catastrophic in any other industry vertical. But, aside from the commonly debated factors of what leads to these eye-popping quitting figures, one aspect seems to get lost in the weeds — the lack of 'proper' sleep. 

The lives of drivers revolve around a monitoring clock called the Electronic Logging Device (ELD), which allows them 11 hours of driving within a 14-hour time window, followed by 10 hours of mandated rest. However, the caveat to ELD is that once the timer starts for the day, it cannot be paused for intervals. This creates a situation where drivers are forced to stay on the road, even if they are fighting fatigue or feeling drowsy. 

"Lack of proper sleep can cause accidents, and in some cases, death," said Dean Croke, the principal analyst at DAT Freight & Analytics, and a sleep science expert with over 20 years of experience teaching drivers how to sleep correctly when they're off the clock. Croke was in the trucking business in Australia, starting as a driver and rising the ranks to being a fleet manager. It was at this time that he lost two drivers on his watch, who fell asleep at the wheel and died in the resulting crash. 

"Both drivers were 100% compliant with their logs and had a great driving record. They just fell asleep due to exhaustion and killed themselves," rued Croke. "I had to go and deliver the bad news to their families. That's when I stopped being in trucking operations and got out of it for good." 

Sleep apnea can be a silent killer 

Being passionate about the industry, Croke advocated the need for proper sleep and the disconnect between what the industry regulators deemed as 'compliance' and actual truck safety. "People might say if you're compliant, you're safe. But drivers know that you can be 100% compliant with your ELD and be sound asleep at the wheel at the same time," he said. 

This led Croke to study the science of sleep. While he was vice president of transport operations at Circadian Technologies, the team's research on sleep disorders within the trucking population showed close to 40% of drivers suffered from obstructive sleep apnea (OSA) symptoms. In contrast, only around 4% of the general population show OSA symptoms. Sleep apnea dramatically increases the risk of coronary artery disease, heart attacks, and strokes, aside from spiking the risk of accidents while on the road. 

Sleep apnea sets in when muscles supporting the throat temporarily relax, obstructing the airway and cutting off air to the lungs. This disrupts sleep, with patients struggling to get adequate REM and deep sleep — two critical phases of the sleep cycle required to keep people healthy. Diminishing quality of sleep results in exhaustion and increased fatigue throughout the day, leading to depression, obesity, blood pressure, and cardiac complexities. 

Croke started giving sleep classes in the early 2000s, conducting over 600 such sessions in the last two decades and educating thousands of drivers on restful sleep. Around this time, Croke's father — a seasoned truck driver himself — passed away due to cardiac arrest after years of struggling with high blood pressure, diabetes, and obesity. 

Treating symptoms and not the cause 

It took Croke several months to realize that his dad had died of undiagnosed sleep apnea — a case of cruel irony considering Croke was researching the very same condition for years by that time. "He had all the symptoms. In the emergency room, the doctors picked up on him having those mini-strokes and heart attacks, but no one noticed that he was gasping for air. Including myself, even though I was teaching sleep classes and researching about the very sleep apnea he suffered from."

This, in essence, is the bulk of the problem that patients and medical practitioners face with treating sleep apnea — the symptoms can be very misleading considering they have a lot in common with more widespread ailments like breathing or cardiac issues. 

Croke mentioned that the lack of sleep results in mounting headaches. "The pain is unbelievable. You feel like you're losing your mind. You forget where you need to go to collect the load and where to deliver it. This is why so many truckers quit their job. They are sleep deprived and unhealthy. Helping them sleep better is crucial to reduce high driver churn rates."

That would mean starting the day and ending it at roughly the same time every day. The human brain needs only about six hours of uninterrupted sleep every 24 hours and one restful night's sleep to dispense any sleep debt from previous days. With proper planning, truckers can afford decent sleep during the weekdays and get their restful night's sleep at home if they can be back during the weekends. 

Building an industry narrative around sleep apnea 

Croke explained that sleep apnea was not big on the Department of Transportation (DOT) radar in the early 2000s. "Back then, the only question during the commercial driver's license (CDL) exam was if you snore. That was the litmus test to check if you had sleep apnea. And, of course, everyone said no," said Croke. 

Now, the DOT physical tests have gotten stricter. They calculate the driver's body mass index, measure their neck size, and record diastolic blood pressure to check for irregularities. For instance, if blood pressure is abnormal, the driver will be given a three-month card that records their blood pressure levels. If the levels aren't controlled, they will lose their license. 

"Doctors are cautious about who they approve to drive a big truck due to the litigation angle. Plaintiff attorneys are looking at companies with big pockets to prosecute trucking accidents," said Croke. 

Regardless, a significant chunk of the trucking community continues to experience undiagnosed sleep apnea, struggling to comprehend the anxiety and depression hitting them every day. "A lot of them don't realize what causes it. They're making bad choices at restaurants and truck stops, putting on weight. They don't know how to break that cycle and get off that treadmill. We all need to talk about it to help these drivers understand what they're going through. That's the first step to getting them on the long road to recovery."

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US trucking giant Yellow has finally ceased operations after its accumulated debt and clashes with the Teamsters union drove it to bankruptcy. Despite absorbing rivals, seeking concessions, and receiving a significant government bailout, Yellow struggled to sustain service quality or financial viability. The shutdown risks jeopardizing nearly 30,000 jobs and casts doubts on a $700 million Covid rescue loan granted by the Trump administration in 2020.

Starting in five months, the European Union will extend its emissions trading system (ETS) to include shipping, imposing a carbon tax that will influence shipping costs globally. While aimed at reducing emissions from ships, the tax will impact carriers and shippers even beyond the EU, as vessels making part of their journey through EU ports will face penalties. This move could lead to increased pricing and potential shifts in shipping routes as companies navigate the new carbon tax landscape.

The stricken Panama-flagged car carrier, Fremantle Highway, which is currently under tow while still burning, has revealed a higher number of electric cars on board than initially reported. With an electric vehicle (EV) count of 498, significantly more than the previously stated 25, the vessel's increased battery cargo has raised concerns similar to those seen in the incident involving the sinking of the Felicity Ace last year. The challenge of extinguishing lithium-ion battery fires within EVs continues to pose safety and salvage concerns for the maritime industry.

A gradual shift in supply chains since the pandemic saw Mexico surpass China as the leading US exporter for three months in a row, prompting crucial adjustments with far-reaching implications for logistics infrastructure and workforce dynamics. While US imports from Asia declined notably, imports from Mexico and Canada surged, underscoring a strategic reconfiguration. This move toward reshoring and nearshoring might demand a overhaul of supply chain strategies, emphasizing labor shifts, heightened collaboration, and a meticulous recalibration of return logistics arrangements.

Quotable 

“There is a labor shortage. There are about 650,000 workers missing from the construction industry, and construction backlogs are now at a four-year high.” 

- Maria Davidson, CEO and Founder of Kojo, a materials management company, commenting on the construction industry that is facing an extreme labor crunch.


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It's the end of July, and if the market sticks to historical precedent, then we're looking at the start of the year's peak freight season. While the freight market today understandably isn't as 'exciting' as the preceding pandemic years, the first half of '23 has by no means been uneventful. 

The last few weeks have been a wild ride — the ILWU reached a tentative deal with the PMA, the Canadian ILWU came to an agreement and later reneged to continue the strike, LTL-major Yellow fiddling with liquidation, and UPS staring at a potential Teamsters strike that could send tremors down the US delivery ecosystem.

…looks like there's never a dull day at the supply chain office. 

On that note, it makes sense to check J.B. Hunt's guidance on what the firm thinks the health of the LTL segment would look like for the rest of the year (and considering LTL is a bellwether for the freight economy, this is interesting to the industry at-large). Darren Field, president of J.B. Hunt's intermodal division, was hesitant to be enthusiastic about the improved freight volume numbers in June (there's been a decline in the rate of y-o-y fall in LTL freight volumes) — "While we are hesitant to suggest the presence of any green shoots, we saw evidence from customers in June that the destocking trend has moderated."

J.B. Hunt's forecast can offer key signals on the trajectory of retail, manufacturing and industrial activity. Field's skepticism comes from the fact that even if volumes seem to hold on, rates are not seeing any significant, decisive uptick. This was reflected in J.B. Hunt's idling fleet strength, with the company keeping roughly 18% of its container fleet out of action in the first half of '23.  

The story carries over to the maritime market as well. Descartes reported that US container imports for June '23 were down 16.1% from June '22. However, TEU volumes in June '23 are 6% higher than in June '19. Considering the US retail economy is regressing to a pre-pandemic growth trajectory, the import TEUs handled this year are of no cause for alarm. 

That said, inventories are still a tad more stocked than not, which can result in a weaker-than-usual peak season. "Retailers have tried working their inventory levels down, right from last year," said Chris Jones, executive vice president of Industry and Services at Descartes. "Some of it was seasonal, which meant you put it away for another 9-12 months and bring it back out. This could also lead to a bit less demand for imports."

Another reason for a potentially dull peak season has to do with the shipping bottlenecks from the last two years that have largely dissipated. Firstly, with much freight stuck atop vessels and buried in yards during the pandemic, shippers had to order much more inventory than required due to lengthening lead times. As delays shrunk, so did the need for shippers to order in excess. This will have a role to play this year, reducing TEU volumes making it to the US. 

Secondly, the lack of bottlenecks would mean loosening logistics capacity as more vessel space and yard infrastructure became available, as they weren't bogged down by excessive freight. Unwinding freight capacity and reducing lead times led to the bullwhip effect, essentially curtailing order volumes this year, irrespective of the economy's strength.

"Retailers are buying in a more controlled fashion as they can gauge demand better than before and react accordingly. One of the key things companies are looking at this year is not to make big bets that could weigh them down in the future," said Jones. "They want to ensure they sell everything they stock, which again is harder to predict today than ever."

While there is not much to cheer for in the context of freight volumes, freight rates have continued to keep service providers on the edge. Though spot rates have increased over June on eastbound trans-Pacific rates, they are over 80% down from the peaks seen in '21, and about even with '19 rates. While these are not incendiary rates that kill service providers, when inflation and increased operational costs are factored in, current prices are hard to justify.

"Container lines are still doing blank sailings, but there's nothing out there that says the rates are not going to stay down," said Jones. Another challenge is that most carriers will have several vessels delivered this year and the next, thanks to them ordering fresh capacity on the back of the extravagant profits companies made during the pandemic. Many of these ships are ULCVs (ultra-large container vessels), making it harder for container lines to balance this increasing capacity with a not-so-strong demand. 

In the US maritime sector, the ILWU (International Longshore and Warehouse Union) getting its contract sorted out has meant significant progress for the West Coast ports, relieving shippers from the angst of having their freight stuck at the port in the event of a labor strike. Jones contended that while shippers and BCOs had reservations while signing freight contracts earlier this year, the question now is if the TEUs that switched to the East and the Gulf Coast ports would return to the West Coast. 

"We saw a million TEUs leaving the WC for other ports, and I doubt if all those transitioned freight will make their way back," said Jones. "Ports like Savannah and Charleston have also put a lot of effort into modernizing and automating their inland operations, and so the argument now extends to moving freight into the country and not just about reaching the port."

But the fact that the trans-Pacific route to the West Coast is shorter in distance puts the WC ports at a significant advantage. "Shippers can afford to wait longer to make decisions as the supply chain is shorter. Reaching the WC ports took five days of steaming time out of the equation," said Jones. "Regardless, shippers might trade speed for having a cheaper overall cost structure, like moving freight via Savannah. I think transitioning the TEUs back to WC would probably play out in the long run and won't be a quick flip like people anticipated."

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The Week in Snippets

The Teamsters union withdrew its threat of a strike at trucker Yellow, saving the financially-ailing company from liquidation. The agreement with the Central States Health and Welfare Fund allowed the extension of health benefits to unionized workers and granted Yellow an additional 30 days to make a missed payment, providing a temporary lifeline for the company.

The rank-and-file members of the International Longshoremen and Warehouse Union (ILWU) Canada will vote on a tentative deal with port ownership today, which includes a compounded 19.2% wage increase over four years. The decision will determine the fate of operations at West Coast ports in Canada after a week of confusion and work stoppages, which followed the rejection of the initial deal by the union caucus.

Trans-Pacific carriers have successfully raised spot rates higher than contract rates after multiple rate increases and rising imports from Asia. Despite uncertainties surrounding the peak shipping season and potential capacity influx, carriers aim to keep spot rates above fixed rates by blanking sailings if needed, according to industry experts and non-vessel-operating common carriers (NVOs).

Knight-Swift Transportation, the largest North American truckload carrier, experienced a significant decline in profit during the second quarter as revenue dropped sharply across its trucking units due to diminished U.S. freight demand. The company's net profit fell to $63.3 million, compared to $219.5 million in the same period the previous year, leading to a lowered full-year earnings guidance.

Quotable 

“The last mile of e-comm is expensive. So having that curbside capability, where the vast majority of our orders get shipped from store or get fulfilled from store, that last-mile cost has come down significantly compared to where 2019 used to be.” 

- Navdeep Gupta, CFO of Dick’s Sporting Goods, commenting on the continued relevance of buy online, pick-up at store (BOPIS) beyond the pandemic, which is helping reduce last-mile e-commerce delivery costs

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