While all transportation sectors have had to deal with huge volume upticks related either directly or indirectly to e-commerce expansion, parcel has probably faced the biggest challenge. UPS and Fedex—which control the lion’s share of the domestic parcel business—continue to adjust and fine-tune their operations to handle the growth while trying to increase profit margins.
A two-part challenge
The basic issue for all parcel carriers is that their companies were built on serving business-to-business (B2B) customers. Usually this meant delivering numerous parcels from one origin to one destination, such as repair parts from a national supply depot to a limited number of industrial destinations. Typically, these destinations were constructed for receiving many packages every day and located in population centers.
Business-to-consumer (B2C) e-commerce shipments, on the other hand, require deliveries of single parcels to many destinations—usually someone’s residence, often located in a suburb. The rise in e-commerce shipments led to a decline in delivery density for parcel carriers, which radically altered their cost structures. Carriers’ costs rose because their trucks were having to travel greater distances.
Additionally, parcel carriers historically based their pricing on shipment weight, and there was no incentive for shippers to be efficient in packaging. E-commerce increased the number of lightweight shipments that were being packaged in overly large boxes using excess packaging material. The rise in e-commerce made it more difficult for parcel carriers to pack their trucks efficiently and reduce their asset utilization. This served to give the carriers a twofold blow in terms of cost control, as weight per shipment declined at the same time that their trucks were driving longer distances for delivery.
Parcel carriers responded to the packaging issue by introducing dimensional weight to ground parcels in 2015. With dimensional weight pricing, parcel carriers set a density target, and any parcel that falls below that threshold will be charged more than its actual weight to make up the deficit. Since then, carriers have continually changed the formula that they use to calculate dimensional weight, so that shippers have had to pay more for lightweight packages.
UPS and FedEx responded to the distance issue by partnering with the United States Postal Service (USPS) to handle the final delivery segment for them. UPS named their service “SurePost,” while FedEx branded their offering as “SmartPost.”
Stress at the USPS
These changes seem to have helped UPS and FedEx to successfully navigate the increase in e-commerce business. In the first quarter of 2021, UPS reported a much improved margin with revenue up 10.2% from last year while cost increased only 2.2%. In its last financial reporting, FedEx posted year-to-year sales growth of 20% while operating margin improved from 19.2% to 24.8%.
The Post Office, however, continues to struggle with the increase in parcel shipping. A recent U.S. Government Accountability Office analysis reported that the USPS had lost $69 billion over the past 11 fiscal years. For 2020, the Post Office posted a loss of $9.2 billion, while revenues increased by $2 billion to a record $73 billion. As one would expect, package delivery ramped up sharply for the year, growing 19%, while traditional mainstays first-class mail (-4%) and advertising mail (-15%) both declined.
The reality is that the Post Office was built for mail, not parcels. All of its internal sorting equipment and conveyors were designed for letters. Earlier this year, USPS did announce a $100 surcharge on any oversized parcel with a length and girth exceeding 130 inches. This indicates that while USPS isn’t as aggressive in pricing as the big parcel carriers, it is aware of the extra cost associated with freight that doesn’t suit its internal handling system.
Nevertheless, USPS still needs to spend a lot of money to really gear up for parcels. But it is unlikely that Congress will approve the needed cash infusion to make things better, given that the Post Office’s annual losses are in the billions of dollars. So do not look for any improvement soon. Instead, the sorry state of the Post Office is that the more parcel business it does, the more money it loses. And as the Postmaster General told Congress, there is no end in sight for USPS fiscal woes.
The quest for efficiency
Improvements and changes are continuing to happen at UPS and FedEx, however. In late January—about six months after Carol Tomé took over as the first woman and first non-UPS employee to lead the company—UPS announced the sale of its less-than-truckload (LTL) unit. Many shippers shrugged off this move with the observation that since they used UPS only for parcel freight, the sale made no difference to them. To the contrary, the impact of this move on the parcel sector is just becoming evident.
Tomé announced that the company’s objective was to be better … not necessarily larger. In other words, after the sale, the company planned to be laser focused on the parcel sector. As I see it, for parcel shippers, this means higher prices, and for UPS, increased profitability.
One example of that focus is that UPS has begun to emphasize services for small companies, including the creation of a small shipper solutions team. These types of shippers no doubt appreciate the shipment tracking, expert advice, and financial services now offered through a partnership with Chase Bank. But the new offering is also beneficial for UPS because it means the company is dealing with shippers that have less negotiating strength than large companies, thus delivering better pricing to UPS.
At the same time, many large shippers have been given significant rate hikes with the accompanying message of either pay up or find another parcel carrier. The largest shippers have also learned that they will be hit with higher UPS shipping costs for the 2021 holiday season. Like it did in 2020, UPS has announced it would impose big surcharges for the peak shipping period between October 31 and January 15. This year’s surcharges will be applied to companies that tendered more than 25,000 packages during any week following February 2020, the last month of normal business before the COVID-19 pandemic. At the extreme, the surcharge could be as high as $6.15 per package if shipments exceed 500% of the established threshold. The parcel threshold is based on combined volume of all residential air and ground shipments, as well as parcels moving via SurePost. It is worthwhile noting that the key designation is “residential” which clearly indicates how sensitive UPS is to the impact of e-commerce.
Further, parcels requiring “additional handling” are already bearing a fee of $3.50 per package—a 16% increase above normal pricing. For peak shipping (October 3 through January 15) that fee will jump to $6 per package. Surcharges on oversize parcels just increased 27% to $40 per package and will leap to $60 per package for the October 3 through January 15 time period.
The real pain for shippers will come from parcels exceeding the UPS size limit, meaning they cannot be conveyed and must be handled manually through the system. On October 3, the oversize parcels will absorb a $250 surcharge on top of the normal $920 charge. The added cost will send the message that if a shipper is foolish enough to give UPS parcels it doesn’t want to handle, severe punishment will ensue.
UPS’s renewed focus on the parcel sector and careful attention to pricing has paid off. Recently the company reported a profit margin improvement, which it attributed to more shippers getting lower pricing discounts. Additionally, UPS’ stock price has risen 33% since the sale of its LTL unit. During the same timeframe, the Dow Jones Industrial Average and FedEx shares were only up about 12%.
FedEx Ground is similarly making changes to increase efficiency and cut costs. For many years, Pittsburgh, Pennsylvania-based transportation expert Satish Jindel has opined that FedEx could reduce costs by over $1 billion annually if it combined the operations of FedEx Ground and FedEx Air. CEO Fred Smith had kept the two divisions totally separate since acquiring Caliber System to create FedEx Ground in 1998. Apparently, FedEx finally concurs with Jindel—who, by the way, learned the business as a FedEx executive and is a personal friend of Smith—as the company has started to combine some operations between the divisions.
FedEx has also announced that it is utilizing software to identify which SmartPost shipments it could cost effectively deliver itself as opposed to passing them along to the USPS. Obviously, this change will help FedEx increase route density, which will result in greater efficiency. Meanwhile USPS will suffer as it loses the less costly shipments, leaving them primarily with the less profitable business.
The takeaway for parcel shippers? More than ever, it pays to be efficient and cooperative. It’s worth it to work on being an efficient shipper—especially before starting negotiations with your parcel carrier—because the less efficient shippers will always pay more. Finally, while you should strive for cooperation with your carrier, you should also pay attention to details so you have full understanding of all charges.
Specifically, the new global average robot density has reached a record 162 units per 10,000 employees in 2023, which is more than double the mark of 74 units measured seven years ago.
Broken into geographical regions, the European Union has a robot density of 219 units per 10,000 employees, an increase of 5.2%, with Germany, Sweden, Denmark and Slovenia in the global top ten. Next, North America’s robot density is 197 units per 10,000 employees – up 4.2%. And Asia has a robot density of 182 units per 10,000 persons employed in manufacturing - an increase of 7.6%. The economies of Korea, Singapore, mainland China and Japan are among the top ten most automated countries.
Broken into individual countries, the U.S. ranked in 10th place in 2023, with a robot density of 295 units. Higher up on the list, the top five are:
The Republic of Korea, with 1,012 robot units, showing a 5% increase on average each year since 2018 thanks to its strong electronics and automotive industries.
Singapore had 770 robot units, in part because it is a small country with a very low number of employees in the manufacturing industry, so it can reach a high robot density with a relatively small operational stock.
China took third place in 2023, surpassing Germany and Japan with a mark of 470 robot units as the nation has managed to double its robot density within four years.
Germany ranks fourth with 429 robot units for a 5% CAGR since 2018.
Japan is in fifth place with 419 robot units, showing growth of 7% on average each year from 2018 to 2023.
Businesses are cautiously optimistic as peak holiday shipping season draws near, with many anticipating year-over-year sales increases as they continue to battle challenging supply chain conditions.
That’s according to the DHL 2024 Peak Season Shipping Survey, released today by express shipping service provider DHL Express U.S. The company surveyed small and medium-sized enterprises (SMEs) to gauge their holiday business outlook compared to last year and found that a mix of optimism and “strategic caution” prevail ahead of this year’s peak.
Nearly half (48%) of the SMEs surveyed said they expect higher holiday sales compared to 2023, while 44% said they expect sales to remain on par with last year, and just 8% said they foresee a decline. Respondents said the main challenges to hitting those goals are supply chain problems (35%), inflation and fluctuating consumer demand (34%), staffing (16%), and inventory challenges (14%).
But respondents said they have strategies in place to tackle those issues. Many said they began preparing for holiday season earlier this year—with 45% saying they started planning in Q2 or earlier, up from 39% last year. Other strategies include expanding into international markets (35%) and leveraging holiday discounts (32%).
Sixty percent of respondents said they will prioritize personalized customer service as a way to enhance customer interactions and loyalty this year. Still others said they will invest in enhanced web and mobile experiences (23%) and eco-friendly practices (13%) to draw customers this holiday season.
That challenge is one of the reasons that fewer shoppers overall are satisfied with their shopping experiences lately, Lincolnshire, Illinois-based Zebra said in its “17th Annual Global Shopper Study.” While 85% of shoppers last year were satisfied with both the in-store and online experiences, only 81% in 2024 are satisfied with the in-store experience and just 79% with online shopping.
In response, most retailers (78%) say they are investing in technology tools that can help both frontline workers and those watching operations from behind the scenes to minimize theft and loss, Zebra said.
Just 38% of retailers currently use artificial intelligence-based prescriptive analytics for loss prevention, but a much larger 50% say they plan to use it in the next one to three years. Retailers also said they plan to invest in self-checkout cameras and sensors (45%), computer vision (46%), and RFID tags and readers (42%) within the next three years to help with loss prevention.
Those strategies could help improve the brick-and-mortar shopping experience, as 78% of shoppers say it’s annoying when products are locked up or secured within cases. Part of that frustration, according to consumers, is fueled by the extra time it takes to find an associate to them unlock those cases. Seventy percent of consumers say they have trouble finding sales associates to help them during in-store shopping. In response, some just walk out; one in five shoppers has left a store without getting what they needed because a retail associate wasn’t available to help, an increase over the past two years.
Additional areas of frustrations identified by retailers and associates include:
The difficulty of implementing "click and collect" or in-story returns, despite high shopper demand for them;
The struggle to confirm current inventory and pricing;
Lingering labor shortages; and
Increasing loss incidents.
“Many retailers are laying the groundwork to build a modern store experience,” Matt Guiste, Global Retail Technology Strategist, Zebra Technologies, said in a release. “They are investing in mobile and intelligent automation technologies to help inform operational decisions and enable associates to do the things that keep shoppers happy.”
The survey was administered online by Azure Knowledge Corporation and included 4,200 adult shoppers (age 18+), decision-makers, and associates, who replied to questions about the topics of shopper experience, device and technology usage, and delivery and fulfillment in store and online.
Census data showed that overall retail sales in October were up 0.4% seasonally adjusted month over month and up 2.8% unadjusted year over year. That compared with increases of 0.8% month over month and 2% year over year in September.
October’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were unchanged seasonally adjusted month over month but up 5.4% unadjusted year over year.
Core sales were up 3.5% year over year for the first 10 months of the year, in line with NRF’s forecast for 2024 retail sales to grow between 2.5% and 3.5% over 2023. NRF is forecasting that 2024 holiday sales during November and December will also increase between 2.5% and 3.5% over the same time last year.
“October’s pickup in retail sales shows a healthy pace of spending as many consumers got an early start on holiday shopping,” NRF Chief Economist Jack Kleinhenz said in a release. “October sales were a good early step forward into the holiday shopping season, which is now fully underway. Falling energy prices have likely provided extra dollars for household spending on retail merchandise.”
Despite that positive trend, market watchers cautioned that retailers still need to offer competitive value propositions and customer experience in order to succeed in the holiday season. “The American consumer has been more resilient than anyone could have expected. But that isn’t a free pass for retailers to under invest in their stores,” Nikki Baird, VP of strategy & product at Aptos, a solutions provider of unified retail technology based out of Alpharetta, Georgia, said in a statement. “They need to make investments in labor, customer experience tech, and digital transformation. It has been too easy to kick the can down the road until you suddenly realize there’s no road left.”
A similar message came from Chip West, a retail and consumer behavior expert at the marketing, packaging, print and supply chain solutions provider RRD. “October’s increase proved to be slightly better than projections and was likely boosted by lower fuel prices. As inflation slowed for a number of months, prices in several categories have stabilized, with some even showing declines, offering further relief to consumers,” West said. “The data also looks to be a positive sign as we kick off the holiday shopping season. Promotions and discounts will play a prominent role in holiday shopping behavior as they are key influencers in consumer’s purchasing decisions.”
Supply chains are poised for accelerated adoption of mobile robots and drones as those technologies mature and companies focus on implementing artificial intelligence (AI) and automation across their logistics operations.
That’s according to data from Gartner’s Hype Cycle for Mobile Robots and Drones, released this week. The report shows that several mobile robotics technologies will mature over the next two to five years, and also identifies breakthrough and rising technologies set to have an impact further out.
Gartner’s Hype Cycle is a graphical depiction of a common pattern that arises with each new technology or innovation through five phases of maturity and adoption. Chief supply chain officers can use the research to find robotic solutions that meet their needs, according to Gartner.
Gartner, Inc.
The mobile robotic technologies set to mature over the next two to five years are: collaborative in-aisle picking robots, light-cargo delivery robots, autonomous mobile robots (AMRs) for transport, mobile robotic goods-to-person systems, and robotic cube storage systems.
“As organizations look to further improve logistic operations, support automation and augment humans in various jobs, supply chain leaders have turned to mobile robots to support their strategy,” Dwight Klappich, VP analyst and Gartner fellow with the Gartner Supply Chain practice, said in a statement announcing the findings. “Mobile robots are continuing to evolve, becoming more powerful and practical, thus paving the way for continued technology innovation.”
Technologies that are on the rise include autonomous data collection and inspection technologies, which are expected to deliver benefits over the next five to 10 years. These include solutions like indoor-flying drones, which utilize AI-enabled vision or RFID to help with time-consuming inventory management, inspection, and surveillance tasks. The technology can also alleviate safety concerns that arise in warehouses, such as workers counting inventory in hard-to-reach places.
“Automating labor-intensive tasks can provide notable benefits,” Klappich said. “With AI capabilities increasingly embedded in mobile robots and drones, the potential to function unaided and adapt to environments will make it possible to support a growing number of use cases.”
Humanoid robots—which resemble the human body in shape—are among the technologies in the breakthrough stage, meaning that they are expected to have a transformational effect on supply chains, but their mainstream adoption could take 10 years or more.
“For supply chains with high-volume and predictable processes, humanoid robots have the potential to enhance or supplement the supply chain workforce,” Klappich also said. “However, while the pace of innovation is encouraging, the industry is years away from general-purpose humanoid robots being used in more complex retail and industrial environments.”