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Logistics’ Big Three for 2019: E-Commerce, Freight Rates and Sustainability

The e-commerce juggernaut, trade tensions, rising costs and the push for more sustainable modes of transportation is expected to drive the logistics sector in 2019.

E-Commerce

The substantial growth of shipping volumes is directly linked to the rapid rise of e-commerce. The Pitney Bowes Parcel Shipping Index forecasts global shipping volume to surpass 100 billion parcels in 2020 compared to 74.4 billion parcels shipped in 2017, which itself was a 17 percent increase.

“Globally, e-commerce continues to drive growth in all regions,” said Lila Snyder, president of commerce services at Pitney Bowes. “Global e-commerce giants continue to raise the bar, resetting consumer expectations when it comes to shipping. As retailers and marketplaces race to keep up with increasing consumer expectations, carriers must create efficient, seamless services that deliver in a world of ‘fast and free’ e-commerce shipping.”

UPS opened an Atlanta Super Hub in October to meet speed and volume needs. By opening its second-largest ground transportation facility in the U.S., UPS said it was positioning itself to handle volume surges during peak shipping times, particularly for e-commerce.

DHL broke ground for a new Innovation Center in Rosemont, Ill., in June that will exhibit the technologies and innovations in logistics that DHL is already implementing across the region, and drive development of future logistics and supply chain solutions. DHL said the new center elevates its logistic innovation footprint in the Americas, where it has already implemented advanced technologies in all of its operations to boost productivity and serve the evolving needs of customers, including e-commerce and general desire for fast delivery.

“Every major retailer is turning their stores into distribution centers,” said Steve Sarracino, founder and partner in Activant Capital Group, which invests in logistics companies. “That increases the complexity of the supply chain and the need for transportation at all those nodes. There’s so much tailwind into providing same day supply chain that brokers are going to do very well in the next few years.”

There are hundreds are new brands being created every year through e-commerce and they all need their supply chain managed, Sarracino said. The sector is “very focused on incentivized logistics,” he added, which “drives efficiency and transparency.”

Looking to boost New York City’s aging transportation system and logistics infrastructure, while aiding a range of business sectors, including apparel manufacturing, city officials unveiled Freight NYC. The $100 million plan to overhaul the city’s aging freight distribution systems through strategic investments is aimed at modernizing maritime and rail assets, and creating new distribution facilities. This comes as the city was picked as the site of one of Amazon’s second headquarters.

The New York City Economic Development Corp. (NYCEDC) said with consumers increasingly demanding near-instant deliveries, local freight volumes will grow an estimated 68 percent by 2045, further choking traffic and impeding commerce. This challenge is particularly difficult in the “last mile” of distribution, NYCEDC noted, with trucks bringing goods in from port facilities and central warehouses often located in neighboring states like New Jersey, to consumers over city streets and arteries.

Looking to expand its e-commerce delivery capabilities, FedEx Corp. acquired P2P Mailing Limited, a provider of worldwide e-commerce transportation solutions. FedEx said P2P’s capabilities complement and expand its existing portfolio of offerings that serve the vital fast-growing global e-commerce marketplace.

P2P, headquartered in the U.K., provides customers with last-mile delivery options, leveraging its relationships with private, postal, retail and clearance providers in more than 200 countries. Its technology and processes provide plug-and-play options with carrier networks and customer systems.

“For brokers it’s a good time to be in business,” Sarracino said. “Their margins have gone up pretty dramatically over the last two years. We think it’s driven by the explosion in e-commerce delivery and last mile. The need for last mile has actually sucked a lot of talent out of the long haul market and that’s where you’ve seen a lot of shortage of truckers and trucking in the U.S.”

In freight forwarding, it has also created strong demand for 3PL and even 4PL for fully managed shipping supply chain, he added.

Freight rates

Fuel costs and mandates, new technologies and shifts in trade routes should continue to make determining freight costs volatile in the year ahead.

Maersk CEO Søren Skou, discussing the world’s top container freight carrier’s third quarter earnings, summed up the situation when he said, “Our business performance in ocean is still challenged by increased bunker prices not being fully compensated through higher freight rates. However, we continue to see improved results in the third quarter after a very weak start to 2018.”

The World Container Index assessed by Drewry, a composite of container freight rates on eight major routes to and from the U.S., Europe and Asia was down 1.2 percent to $1,622.68 per 40-foot container for the week ended Dec. 13, but was up 43.1 percent from a year earlier.

Kayla Bruun, senior economist for pricing and purchasing at IHS Markit, said, “Shipping prices remain elevated, but some of the pressures that caused capacity strains earlier this year have partially subsided.”

“Over the summer, carriers cut capacity on trans-Pacific and Asia-European routes just as demand ramped up quickly and unexpectedly,” Bruun said. “The announcement of U.S. tariffs on Chinese goods caused importers to rush in shipments ahead of the implementation date, resulting in the peak shipping season moving up one month to July rather than August. Since then, volumes have retreated and carriers are keeping additional capacity available through the end of the year to accommodate any uptick in demand associated with the tariff rates increasing from 10 percent to 25 percent in January 2019.”

Shipping rates for FedEx Express, FedEx Ground and FedEx Freight will increase effective Jan. 7, following rate hikes at the U.S. Postal Service (USPS) and other shippers. FedEx Ground, Express and Home Delivery shipping rates will increase by an average of 4.9 percent. FedEx Freight shipping rates will increase by an average of 5.9 percent.

USPS filed notice with the Postal Regulatory Commission for price increases to take effect Jan. 27. The proposed prices would raise mailing services product prices roughly 2.5 percent, while bumps for shipping services prices vary by product. The increases range from 70 cents to $1.05 per parcel, depending on package size.

USPS noted its Priority Mail Express will increase 3.9 percent and Priority Mail will go up 5.9 percent. Although price increases for mailing services are based on the Consumer Price Index, shipping services prices are primarily adjusted according to market conditions. The postal service said these new rates will keep it competitive, while at the same time provide the agency with needed revenue.

Starting Dec. 26, UPS said its Ground, Air and International services, as well as UPS Air Freight rates within and between the U.S., Canada and Puerto Rico, will increase an average net 4.9 percent. UPS said the rate increases support ongoing expansion and capabilities enhancements while ensuring UPS is fairly compensated for the value and high service levels provided. The shipper previously instituted a ground fuel surcharge increase of 0.25 percent based on the national U.S. average on highway diesel fuel price and adjusted weekly.

Another key issue for the big carriers is advancing technology for greater efficiency and transparency. Sarracino said, “Tech-enabling logistics in the supply chain is seeing major investments.”

Sustainability

Countries that are part of the United Nations’ International Maritime Organization (IMO) adopted an initial strategy this year on the reduction of greenhouse gas (GHG) emissions from ships as they set out a broad vision to phase those emissions out from global shipping as quickly as possible.

The new strategy calls for GHG emissions from international shipping to be reduced by at least 50 percent by 2050 compared to 2008 levels. The strategy also identifies barriers and supportive measures, including capacity building, technical cooperation and research and development toward meeting the goals.

The initial strategy identifies ambitious goals for the international shipping sector, including the worldwide introduction of alternative fuels and energy sources. It also stresses that carbon intensity should decline through implementation of further phases of the energy efficiency design index for new ships, with overall goals of reducing CO2 emissions by at least 40 percent by 2030, pursuing efforts toward 70 percent by 2050.

Under the regulation, the new sulfur content of bunker fuel content must be 0.5 percent compared to the current 3.5 percent fuel sulfur content ceiling. To become compliant, ship owners will have to invest in compliant fuels, liquid natural gas or scrubber technology. This is aimed at lowering global shipping’s sulfur emissions, a source blamed on contributing to respiratory disease and acid rain, by more than 80 percent.

Maersk instituted a new bunker adjustment factor (BAF) surcharge to recover the company’s costs of compliance with a global sulfur cap that enters into force on Jan. 1, 2020. Maersk noted that the regulation is meant to comply with the IMO guidelines.

Maersk said the BAF consists of two key elements: the fuel price that is calculated as the average fuel price in key bunkering ports around the world, and a trade factor that reflects the average fuel consumption on a given trade lane as a result of variables such as transit time, fuel efficiency and trade imbalances.

Combining the two factors gives customers greater predictability of their costs both before and after 2020, the company said. To allow customers to familiarize with the changed formula, Maersk Line’s BAF surcharge will be introduced on Jan. 1.

“We fully support the new rules,” Vincent Clerc, chief commercial officer of Maersk Line parent company A.P. Moller – Maersk, said. “They will be a significant benefit to the environment and to human health. The 2020 sulfur cap is a game changer for the shipping industry.”

Maersk also announced aims to have carbon neutral vessels commercially viable by 2030 and called for strong industry involvement. Maersk also announces a goal to reach carbon neutrality by 2050. To achieve this goal, carbon neutral vessels must be commercially viable by 2030, the company said, and an acceleration in new innovations and adaption of new technology is required.

As logistics companies look to improve their environmental impact and reduce fuel costs, they are also turning more to electric vehicles. FedEx Corp. is expanding its fleet to add 1,000 Chanje V8100 electric delivery vehicles for use in commercial and residential pick-up and delivery services in the U.S.

The electric vehicles can travel more than 150 miles when fully charged and have the potential to help FedEx save 2,000 gallons of fuel while avoiding 20 tons of emissions per vehicle each year. The maximum cargo capacity is around 6,000 pounds.

FedEx said it believes wider adoption of alternative-fuel, electric and hybrid electric vehicles will play a key role in reducing global emissions, while diversifying and expanding renewable energy solutions.

CityFreighter Inc. and XPO Sales entered into a strategic partnership and signed a letter of intent for the purchase of 100 CF1 Full Electric Class 4 Trucks for last mile delivery. CityFreighter is a clean-tech startup with operations in the U.S., Europe and Asia. It is developing smart, medium-duty commercial electric vehicles for the “last mile,” combined with intelligent front and back end integration to meet the needs and challenges of urban logistics in the future.

As part of its planned Urban Smart Logistics Institute, a new research center in Xiongan, China, dedicated to developing futuristic automation technology for urban logistics in China’s smart cities, Jd.com said it will look first at developing underground logistics systems. The company said these operations would make use of subterranean tracks and integrated municipal pipe corridors and, in turn, help preserve open, convenient and aesthetically pleasing above-ground space that normally would be used for traditional logistics systems.

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