Summer has been one for the history books as the market wrestled with UPS’ labor negotiations, FedEx’s restructuring, downshifting consumer spending, and slackening parcel demand.
Gary Frantz is a contributing editor for CSCMP's Supply Chain Quarterly and a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He's served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He's a proud graduate of the Journalism program at California State University–Chico.
As the parcel express market moves from summer into fall, a perfect storm of carrier challenges, market shifts, an unsettled economy, and weakening demand is threatening to upend the best-laid plans of shippers—just as supply chains are beginning to normalize after two years of pandemic-induced turmoil.
Among the challenges:
A massive restructuring at FedEx designed to cut costs, consolidate ground and express parcel network operations into a new “One FedEx” organization, and ultimately shutter some 100 locations.
Slowing e-commerce volumes as consumers become more cautious, shift spending from goods to services, and return to shopping in stores.
Shippers dealing with stubbornly high rates as well as a rising tide of parcel and package surcharges and fees.
Understanding how United Parcel Service (UPS) will operate going forward and what will happen with parcel rates, now that it has secured a new five-year labor agreement for its 340,000 Teamster employees who pick up and deliver some 20 million packages a day.
Looking forward
The new Teamsters contract covering UPS workers, which Teamsters officials termed “historic” and “overwhelmingly lucrative,” raises wages for all workers, creates more full-time jobs, and includes workplace protections and improvements, according to the union.
UPS Chief Executive Officer Carol Tomé, in the company’s second-quarter earnings call, described the contract as a “win-win-win.” “Together, we reached agreements on the issues that were important to Teamster leadership, to our employees, and to UPS,” she said.
Tomé noted that the company, which moves 6% of the U.S. gross domestic product (GDP) every day, did expect the negotiations to be “late and loud,” and as the noise increased through the second quarter, “we experienced more volume diversion than we anticipated.” She thanked UPS customers for their support through the negotiations, adding “for those customers who [diverted their business], we look forward to bringing you back to our network. We are now laser-focused on executing our win-back initiatives and pulling through the more than $7 billion of opportunity in our sales pipeline.”
According to the company, by the end of the new five-year contract, the average full-time UPS driver, in terms of total compensation, will make about $170,000 annually in pay and benefits. Part-time union employees who are already working at UPS will be making at least $25.75 per hour, by the end of the contract, while receiving full health care and pension benefits.
Between the labor situation, a tepid economy, and softer overall demand for package delivery services, UPS saw its second quarter 2023 revenues decline by 10.9%, to $22.1 billion. Strong cost controls, however, helped the company report $2.9 billion in operating profit.
Going forward, Tomé said UPS is focused on winning back diverted freight over time and participating in the industry’s peak shipping season, which she expects to be 21 days, “the same as last year.” “So [shipping’s] still going to pick up. It's just from a different volume level,” she notes. “And we're well prepared. ... It’s just another day with more volume.”
Meanwhile, at FedEx
In April, FedEx announced its plans to consolidate operations, which it expects to be fully implemented in June 2024. The move will bring together FedEx Express, FedEx Ground, FedEx Services, and other operating units into a single operating company under the FedEx brand, explained President and CEO Raj Subramaniam.
“Our new structure will provide a distinct focus on air and international volume, while facilitating a more holistic approach to how we move packages on the ground, utilizing both FedEx employees and contracted service providers,” he said.
Jenny Robertson, FedEx’s senior vice president of integrated marketing and communications, emphasized that the company is being deliberate and methodical, creating a more streamlined organization that will “help our customers compete through a fully integrated ground and air network.”
The plan calls for facility consolidations as well as reducing some redundant routes, including closing at least 100 facilities by 2027, although that number could change.
Robertson noted that FedEx had begun implementing some strategic consolidation initiatives before the pandemic, such as optimizing last-mile residential deliveries where FedEx Express contracted with FedEx Ground for the transport and delivery of certain shipments, but then the pandemic hit, and e-commerce-driven package volumes went through the roof.
Robertson emphasized that for FedEx as it emerges into its new, leaner form, “e-commerce and residential delivery are still the No. 1 area for growth. We see a lot of opportunity to realign our network to address and capture that growth.”
Surcharges creep up
Package volumes have clearly slowed and demand remains soft, but that hasn’t prevented parcel carriers from implementing tactics to protect yield and expand revenue per shipment, noted Micheal McDonagh, president of parcel for AFS Logistics, an audit and cost management specialist that manages over $4 billion in parcel spend annually for about 900 customers. He noted that in FedEx’s March earnings call, the company reported per-package revenue increased 11%, even with decreased volume.
“It’s interesting what is happening to yield” as well as stubbornly resilient parcel rates, he notes. Among the factors (or culprits if you are a shipper): fuel surcharges that go up quickly but don’t drop as fast when fuel prices decline; surcharges that were once instituted for weeks, but now extend for months or a full year; and late fees charged by carriers.
“[Carrier] payment terms used to be 30 days; now they want payment in seven to 15 days,” he explains. Then there are what used to be “peak” surcharges. In 2018, McDonagh recalls, peak surcharges started around Black Friday and ended around December 23.
“Now, post COVID, peak charges start in October and extend to January. And in some cases, they never go away,” he says. Large and oversized shipments are particularly vulnerable.
Another area is “remote” delivery surcharges, where the carrier charges an extra fee for rural or extended-delivery areas. “Delivery area surcharges extended during peak were $7.15. Now they are $13.25 for specific ZIP codes, and they don’t go away. No added service but an extra charge. It’s a great way [for the carrier] to increase revenue without adding cost,” he says.
As for how shippers can best protect themselves, McDonagh counsels customers to be strategic yet careful about spreading out their volumes among multiple carriers.
“Our recommendation is to have at least two carriers, but be careful,” he emphasizes. “A lot of discounts are based on revenue spend. The more you spend [with the carrier], the higher the discount. When dividing your volume among carriers, be sensitive with spend levels. If you fall down a tier, you lose the discount, and that could negate the savings you expected.”
Business software vendor Cleo has acquired DataTrans Solutions, a cloud-based procurement automation and EDI solutions provider, saying the move enhances Cleo’s supply chain orchestration with new procurement automation capabilities.
According to Chicago-based Cleo, the acquisition comes as companies increasingly look to digitalize their procurement processes, instead of relying on inefficient and expensive manual approaches.
By buying Texas-based DataTrans, Cleo said it will gain an expanded ability to help businesses streamline procurement, optimize working capital, and strengthen supplier relationships. Specifically, by integrating DTS’s procurement automation capabilities, Cleo will be able to provide businesses with solutions including: a supplier EDI & testing portal; web EDI & PDF digitization; and supplier scorecarding & performance tracking.
“Cleo’s vision is to deliver true supply chain orchestration by bridging the gap between planning and execution,” Cleo President and CEO Mahesh Rajasekharan said in a release. “With DTS’s technology embedded into CIC, we’re empowering procurement teams to reduce costs, improve efficiency, and minimize supply chain risks—all through automation.”
And many of them will have a budget to do it, since 51% of supply chain professionals with existing innovation budgets saw an increase earmarked for 2025, suggesting an even greater emphasis on investing in new technologies to meet rising demand, Kenco said in its “2025 Supply Chain Innovation” survey.
One of the biggest targets for innovation spending will artificial intelligence, as supply chain leaders look to use AI to automate time-consuming tasks. The survey showed that 41% are making AI a key part of their innovation strategy, with a third already leveraging it for data visibility, 29% for quality control, and 26% for labor optimization.
Still, lingering concerns around how to effectively and securely implement AI are leading some companies to sidestep the technology altogether. More than a third – 35% – said they’re largely prevented from using AI because of company policy, leaving an opportunity to streamline operations on the table.
“Avoiding AI entirely is no longer an option. Implementing it strategically can give supply chain-focused companies a serious competitive advantage,” Kristi Montgomery, Vice President, Innovation, Research & Development at Kenco, said in a release. “Now’s the time for organizations to explore and experiment with the tech, especially for automating data-heavy operations such as demand planning, shipping, and receiving to optimize your operations and unlock true efficiency.”
Among the survey’s other top findings:
there was essentially three-way tie for which physical automation tools professionals are looking to adopt in the coming year: robotics (43%), sensors and automatic identification (40%), and 3D printing (40%).
professionals tend to select a proven developer for providing supply chain innovation, but many also pick start-ups. Forty-five percent said they work with a mix of new and established developers, compared to 39% who work with established technologies only.
there’s room to grow in partnering with 3PLs for innovation: only 13% said their 3PL identified a need for innovation, and just 8% partnered with a 3PL to bring a technology to life.
Even as a last-minute deal today appeared to delay the tariff on Mexico, that deal is set to last only one month, and tariffs on the other two countries are still set to go into effect at midnight tonight.
Once new U.S. tariffs go into effect, those other countries are widely expected to respond with retaliatory tariffs of their own on U.S. exports, that would reduce demand for U.S. and manufacturing goods. In the context of that unpredictable business landscape, many U.S. business groups have been pressuring the White House to pull back from the new policy.
Here is a sampling of the reaction to the tariff plan by the U.S. business community:
American Association of Port Authorities (AAPA)
“Tariffs are taxes,” AAPA President and CEO Cary Davis said in a release. “Though the port industry supports President Trump’s efforts to combat the flow of illicit drugs, tariffs will slow down our supply chains, tax American businesses, and increase costs for hard-working citizens. Instead, we call on the Administration and Congress to thoughtfully pursue alternatives to achieving these policy goals and exempt items critical to national security from tariffs, including port equipment.”
Retail Industry Leaders Association (RILA)
“We understand the president is working toward an agreement. The leaders of all four nations should come together and work to reach a deal before Feb. 4 because enacting broad-based tariffs will be disruptive to the U.S. economy,” Michael Hanson, RILA’s Senior Executive Vice President of Public Affairs, said in a release. “The American people are counting on President Trump to grow the U.S. economy and lower inflation, and broad-based tariffs will put that at risk.”
National Association of Manufacturers (NAM)
“Manufacturers understand the need to deal with any sort of crisis that involves illicit drugs crossing our border, and we hope the three countries can come together quickly to confront this challenge,” NAM President and CEO Jay Timmons said in a release. “However, with essential tax reforms left on the cutting room floor by the last Congress and the Biden administration, manufacturers are already facing mounting cost pressures. A 25% tariff on Canada and Mexico threatens to upend the very supply chains that have made U.S. manufacturing more competitive globally. The ripple effects will be severe, particularly for small and medium-sized manufacturers that lack the flexibility and capital to rapidly find alternative suppliers or absorb skyrocketing energy costs. These businesses—employing millions of American workers—will face significant disruptions. Ultimately, manufacturers will bear the brunt of these tariffs, undermining our ability to sell our products at a competitive price and putting American jobs at risk.”
American Apparel & Footwear Association (AAFA)
“Widespread tariff actions on Mexico, Canada, and China announced this evening will inject massive costs into our inflation-weary economy while exposing us to a damaging tit-for-tat tariff war that will harm key export markets that U.S. farmers and manufacturers need,” Steve Lamar, AAFA’s president and CEO, said in a release. “We should be forging deeper collaboration with our free trade agreement partners, not taking actions that call into question the very foundation of that partnership."
Healthcare Distribution Alliance (HDA)
“We are concerned that placing tariffs on generic drug products produced outside the U.S. will put additional pressure on an industry that is already experiencing financial distress. Distributors and generic manufacturers and cannot absorb the rising costs of broad tariffs. It is worth noting that distributors operate on low profit margins — 0.3 percent. As a result, the U.S. will likely see new and worsened shortages of important medications and the costs will be passed down to payers and patients, including those in the Medicare and Medicaid programs,” the group said in a statement.
National Retail Federation (NRF)
“We support the Trump administration’s goal of strengthening trade relationships and creating fair and favorable terms for America,” NRF Executive Vice President of Government Relations David French said in a release. “But imposing steep tariffs on three of our closest trading partners is a serious step. We strongly encourage all parties to continue negotiating to find solutions that will strengthen trade relationships and avoid shifting the costs of shared policy failures onto the backs of American families, workers and small businesses.”
In a statement, DCA airport officials said they would open the facility again today for flights after planes were grounded for more than 12 hours. “Reagan National airport will resume flight operations at 11:00am. All airport roads and terminals are open. Some flights have been delayed or cancelled, so passengers are encouraged to check with their airline for specific flight information,” the facility said in a social media post.
An investigation into the cause of the crash is now underway, being led by the National Transportation Safety Board (NTSB) and assisted by the Federal Aviation Administration (FAA). Neither agency had released additional information yet today.
First responders say nearly 70 people may have died in the crash, including all 60 passengers and four crew on the American Airlines flight and three soldiers in the military helicopter after both aircraft appeared to explode upon impact and fall into the Potomac River.
Editor's note:This article was revised on February 3.
GE Vernova today said it plans to invest nearly $600 million in its U.S. factories and facilities over the next two years to support its energy businesses, which make equipment for generating electricity through gas power, grid, nuclear, and onshore wind.
The company was created just nine months ago as a spin-off from its parent corporation, General Electric, with a mission to meet surging global electricity demands. That move created a company with some 18,000 workers across 50 states in the U.S., with 18 U.S. manufacturing facilities and its global headquarters located in Massachusetts. GE Vernova’s technology helps produce approximately 25% of the world’s energy and is currently deployed in more than 140 countries.
The new investments – expected to create approximately 1,500 new U.S. jobs – will help drive U.S. energy affordability, national security, and competitiveness, and enable the American manufacturing footprint needed to support expanding global exports, the company said. They follow more than $167 million in funding in 2024 across a range of GE Vernova sites, helping create more than 1,120 jobs. And following a forecast that worldwide energy needs are on pace to double, GE Vernova is also planning a $9 billion cumulative global capex and R&D investment plan through 2028.
The new investments include:
almost $300 million in support of its Gas Power business and build-out of capacity to make heavy duty gas turbines, for facilities in Greenville, SC, Schenectady, NY, Parsippany, NJ, and Bangor, ME.
nearly $20 million to expand capacity at its Grid Solutions facilities in Charleroi, PA, which manufactures switchgear, and Clearwater, FL, which produces capacitors and instrument transformers.
more than $50 million to enhance safety, quality and productivity at its Wilmington, NC-based GE Hitachi nuclear business and to launch its next generation nuclear fuel design.
nearly $100 million in its manufacturing facilities at U.S. onshore wind factories in Pensacola, FL, Schenectady, NY and Grand Forks, ND, and its remanufacturing facilities in Amarillo, TX.
more than $10 million in its Pittsburgh, PA facility to expand capabilities across its Electrification segment, adding U.S. manufacturing capacity to support the U.S. grid, and demand for solar and energy storage
almost $100 million for its energy innovation research hub, the Advanced Research Center in Niskayuna, NY, to strengthen the center’s electrification and carbon efforts, enable continued recruitment of top-tier talent, and push forward innovative technologies, including $15 million for Generative Artificial Intelligence (AI) work.
“These investments represent our serious commitment and responsibility as the leading energy manufacturer in the United States to help meet America’s and the world’s accelerating energy demand,” Scott Strazik, CEO of GE Vernova, said in a release. “These strategic investments and the jobs they create aim to both help our customers meet the doubling of demand and accelerate American innovation and technology development to boost the country’s energy security and global competitiveness.”