I’m Jay Kent, managing director of SLB Performance, a consulting firm that helps companies reduce supply chain costs, implement BI tools, and improve in-stocks and customer service. After 25 years of leading some of the most complex supply chains in the industry, I began advising companies in multiple industries and verticals. To mitigate costs and improve efficiencies, it’s important to understand the market. So twice a month, I’ll share parcel news and thoughts. Be sure to hit the subscribe button to receive the latest newsletter in your LinkedIn notifications.
Happy 2023!
Buckle up for what is likely to be another interesting year for supply chains. Geodis CEO Marie-Christine Lombard describes expectations best in a WSJ article, “This complexity is here to stay.”
Indeed, and not only complex but expensive as higher parcel rates go into effect. UPS’ 6.9% GRI went into effect on Dec 27, while FedEx’s 6.9% GRI went into effect on Jan 2. Regional small parcel carrier’s GRI has either gone into effect or will soon. USPS’ 2023 rates will go into effect on Jan 22.
UPS and FedEx rate analysis can be found from a number of organizations, including:
Here’s a round-up of news from the last two weeks of December that I found interesting:
Big & Bulky deliveries expensive
A joint reportfrom Armstrong & Associates and the National Home Delivery Association published a report, “Making it Count: Big and Bulky Last-Mile Delivery in the United States,” found that despite the rise of big and bulky shipments, last-mile provider revenue per shipment is low by traditional LTL standards, averaging less than $90 per shipment. However, total shipment revenue varies depending on the value-added services performed at the time of delivery.
The study further found that transportation costs for a shipment from a distribution center or fulfillment center to a customer’s doorstep can account for 30% to 40% of the total cost of transportation.
Limited delivery delays
According to the founder and president of transportation consulting firm, ShipMatrix, Satish Jindel, Amazon struggled with some deliveries, handing over 1 million parcels a day to UPS and the USPS to meet delivery commitments.
Jindel noted that Amazon shifted more middle-mile shipments to UPS’ two-day delivery service and more last-mile shipments to the USPS’ Parcel Select. Much of Amazon’s problem occurred upstream and not with the performance of Amazon’s last-mile service.
USPS
Meanwhile, USPS reported FY23 Q1 (Oct. 1 through Dec. 23) service performance score for First-Class mail as 91.6% of First-Class Mail delivered on time against the USPS service standard, which declined 1.6% from the fiscal fourth quarter.
However, it noted that it was impacted in some local markets due to transportation disruptions caused by winter storms across the Midwest and the East Coast in late December.
In November, USPS completed the installation of 137 new package sorting machines across its network, which expanded daily package processing capacity to 60 million. USPS installed a total of 249 new processing machines since the launch of the Delivering for America plan in March 2021.
Subscription box businesses struggling
During the pandemic, subscription box services increased, but as the market emerges from the pandemic, demand for such services is easing.
The subscription box business model “works better when the economy is robust, and when consumers are confident, and when there is cash sloshing around”, Neil Sanders, a retail analyst, told the Financial Times. “As soon as those things end, the model comes under pressure. People question whether they really need these subscriptions.”
As a result, several of the leading subscription box companies are now embarking on a recovery plan: cutting costs and diversifying, leveraging customer data to launch new products that do not rely on subscription revenue.
Sharing warehouse space
JLL and Quiet Platforms, a wholly owned subsidiary of the retailer American Eagle Outfitters announced a partnership that will provide a flexible rent-as-a-percentage-of-revenue model for logistics real estate.
“We’re focused on rapidly expanding our nationwide network of fulfillment centers to help all of the retailers and brands in the Quiet Platforms network deliver excellent experiences to their end customers,” said Shekar Natarajan, President of Quiet Platforms. “We’re pleased to partner with the real estate experts at JLL to accelerate the growth of our facilities network through a unique, variable-expense model that offers more flexibility at the real estate level.”
FedEx earnings
FedEx announced its FY2023 Q2 (period ending Nov 30) earnings on Dec 20. FedEx reported overall revenue down 3% year over year to $21.63 billion and operating income down 26.2% YoY at $1.17 billion.
All three divisions—Express, Ground, and Freight—reported year-over-year volume declines. However, despite volume declines, the company exceeded its fiscal Q2 earnings target primarily through “higher yield and cost management actions,” according to FedEx CEO Raj Subramaniam.
FedEx Ground reported a 1.6% increase in revenue to $8.4 billion and a 7.1% increase in operating income to $598 million. Average daily volumes declined by 9.1%, while average revenue per package increased by 12.5%.
“Our Ground service is now back to pre-pandemic levels supported by continued enhancements to our route optimization and package handler scheduling technologies,” Subramaniam told analysts during the company’s earnings call on Dec. 20, 2022.
That’s it for now. Comments are always welcomed. Let me know what I missed. Stay tuned for the next newsletter on Jan 18, and don’t forget to hit the subscribe button to ensure you receive it in your LinkedIn notices.
-Jay