In this episode, Alan Amling, Professor of Practice at the University of Tennessee and CEO of Thrive and Advance, LLC, joins the show to discuss the outlook of the parcel shipping industry as we enter 2024.
2024 Parcel Shipping Outlook (ft. Alan Amling)
2023 was a year for the books in parcel shipping. But 2024 might bring even more uncertainty.
What do shippers need to be on the lookout for?
In this episode, Alan Amling, Professor of Practice at the University of Tennessee and CEO of Thrive and Advance, LLC, joins the show to discuss the outlook of the parcel shipping industry as we enter 2024.
- The return to a “shipper’s market”
- New fulfillment trends
- How FedEx and UPS are reversing course on COVID-era decisions
- Amazon’s challenge to FedEx and UPS
- How shippers can go on offense in 2024
Welcome back to another episode of LeaderShipping.
It was a pretty wild year in parcel shipping. 2023 saw the largest GRI from UPS and FedEx in history. Carrier labor strikes were narrowly avoided, which was a huge deal over the summer. Parcel shipping rates hit an all-time high, and since then a lot of negotiating power has since shifted back to shippers for the first time in recent memory. 2024 is here now and a lot of shippers are wondering, “man 2023 was a hard year, what’s coming up this year?” And so our conversation today is really on what’s next, what to expect for 2024.
We’ve shifted back to a shipper’s market but number one question that a lot of shippers have is how can they actually leverage that and take advantage of it and what should shippers expect for the coming year, potential challenges and, or I think more than likely great opportunities.
Joining us to talk about what’s coming in 2024 is one of the most prominent voices in parcel shipping, Alan Amling. Alan, welcome to the show!
Thank you, it’s great to be here, Caleb.
As I mentioned, Alan is a major thought leader in our industry. He regularly speaks at conferences and events, advises startups through his advisory firm, Thrive and Advance LLC, and teaches in the master of supply chain program at University of Tennessee. Alan, you’ve got quite the history with transportation in the background, predominantly with UPS for a large chunk of it.
You spent 27 years at UPS serving in a variety of roles, if I’m understanding that right. Your journey started, it sounds like, with UPS as a seasonal employee in 1982. I talk to a lot of people at UPS who started as seasonal employees and have kind of stayed with the organization for a really long time. It’s a great program for that.
Absolutely, it’s very common.You know, it’s interesting – in August when they have Founders Day they recognize you know years of service and in order to be recognized in the corporate office, in order to be recognized and have them call on you and you come up and they shake your hand, you had to have at least 30 years of service because there were too many people that had 15, 20, 25. I remember, I think they kept calling me “rookie” until I had 10.
I was going to say, you’re kind of a lightweight if you’ve got like 15 years of experience there!
Yeah, that’s right. That’s right.
Yeah. So, you know, shifting gears into some challenges or let’s talk about maybe the overarching trends that you’re seeing for 2024. What would those be? What should shippers, you know, we have a lot of people that listen that are transportation managers, VP of operations, COOs at organizations that have that supply chain. And we also have individuals that are working in the industry that are trying to keep up with trends and kind of have their pulse on it. You obviously have your pulse on both carriers and the shipper side. What are some of those major trends that are on your radar for 2024?
Yeah, so quite a bit of things. So, you know, in terms of shippers, the good news for you is we are, the pendulum has swung back, right? And during the pandemic, you know, it was just crazy. You saw between 2020 and 2022, UPS’s average revenue per piece went from $9.92 to $12.11. It had gone from $9.86 to $9.82, the two years prior to that, right? And that’s the normal way of this industry. I would tell people that, yeah, don’t get caught up in this
shippers market because it is an anomaly what is happening right now in my 27 years at UPS maybe three or four Were a shippers market or were you know were the carriers market? It’s typically you know UPS fighting with FedEx and you’re trading off volume and you might have a
you know, 5% rate increase, but you’re actually not giving out that 5%, right? You’re just increasing your discount. So most of your shippers are staying even. And I think that’s kind of where we are right now.
And I think that the shippers, especially if they had to renegotiate during the pandemic, it’s time to take control again, right? You need to renegotiate your contracts because with the volume down, coming back down to earth, let’s say, it’s not like it was pre-pandemic because now there are so many more players in the market. I think one of the biggest disruptions that happened during COVID was the rise of ship from store.
Yeah, right. And that was, and they had, you know, the ship from store is really interesting because they had that as an option for a really long time. They could have done it at any point in time, but it was a forcing function. COVID forced that to take place so that, you know, it would be able to reach customers faster for less money and all of that great, you know, benefit that comes from ship from store. But it took a massive pandemic in order for organizations to actually take advantage of it. It’s a really interesting use case.
Yeah, isn’t that crazy? And it’s not that uncommon in terms of, sometimes what it takes to get incumbent firms to try something new. And in terms of kind of going on offense, I mean, I think that’s a big theme for shippers in 2024. The other thing is, plan to pivot. You just absolutely have to plan to pivot because there is I think there is potentially more uncertainty in 2024 than 2021. And let me just. so you’ve got you know not only do you have all of the existing geopolitical issues you have you know right now. The two major canals are in trouble, right? You’ve got the Suez with the Houthis firing on them, and then you’ve got the drought in the Panama Canal. You know, that’s causing issues. You’ve got over 70 elections worldwide in 2024, you know, and that’s— that’s going to cause chaos. It’s already had a potential major impact with the Taiwan election, because you have a very pro-Taiwan independence, and so China doesn’t like that, so are they going to escalate blockages in the Taiwan Strait? All of that has a ripple effect down to the parcel shippers. So, and I don’t think the fat lady has sung on the economy either.
Yeah, right. It still feels like there is – we’re at that precipice right at that cliff and it doesn’t really feel like we’re away from that edge at this point and You know who knows how it’s gonna shake out. But I do feel like that is a potential risk. I think you know being in transportation certainly not as long as you have with your background, but seeing it over the last 20 years, one thing I’ve seen is that just because it’s in the favor of customers right now doesn’t mean it’s going to stay in favor of the customers for very long. I think things will shift around, and strike while the iron’s hot, right? I think you’ve got so many things to your point on the edge, on the verge that are potentially coming. Control what you can control right now and don’t wait for shipping costs to increase for those impacts to already take place for you to be like, okay, now I need to go do it. Don’t be that forcing, don’t have that be your forcing function.
That’s right. Yes, absolutely. And you know, the other thing that I would say is, you know, the shipping patterns have changed. Right. So you have so much more, so many more parcels that are now getting shipped in bulk closer to the point of consumption. And then, you know, distributed through regional carriers, gig outfits, and all of the Amazon Shipping is actually becoming pretty aggressive. It was one of those things that you knew Amazon was going to offer a third party shipping service. I mean, right? It was just a question of when. And so now they’re, now that they’ve got some capacity, they’re, you know, really putting the jets on there.
And so if you’re a shipper, it’s actually really good for you, right? Because you have many more options now. And the, and you know, when you look at, this really played out if you look at the rate increases from FedEx and UPS. So they were a little lower than last year, but traditionally still fairly high on average. But when you look at kind of, it wasn’t evenly dispersed, right? So it’s the long zones got hit harder. And heavier weight packages got hit harder. And that speaks to the strength of these kind of retail logisticians, the Walmart Plus and purchase of Sears logistics doing a lot of their own.
So all of that kind of plays out in short zone. And that’s where they’re facing the heaviest competition from regional carriers. So what did they do? They didn’t increase rates as much in the short zones, but in the areas that those companies don’t touch, that’s where they hit the rates.
Right. Yeah, the zone six, seven and eights become, you know, profit land for UPS and FedEx. You know, I’m interested on that Amazon front. We’re seeing so much growth happen with OnTrac, for example, merging with LaserShip, expanding into new areas, new territories. You know, I’m really, you know, kind of bullish on Amazon Shipping.
I’ve been really vocal that 2024 will be a year that will be unprecedented for Amazon Shipping to enter the market. And I don’t think that can be overstated given the fact that we’ve been in a duopoly for so long. The last time we had a true competitor to Amazon or to UPS and FedEx was DHL that bought Airborne Express in 2001 or 2002 to go to blows with UPS and FedEx.
And that didn’t end very favorably for DHL. So do you feel like Amazon, the juggernaut that it is, this time it’ll stick?
Oh, God, I love that example, Caleb, because the thing about DHL is DHL tried to beat UPS and FedEx at their game. And UPS and FedEx said, “bring it on, go ahead. You can go ahead and sponsor Major League Baseball. You go do that. And we’re gonna cut rates, and you’re not gonna be able to build density. And we’re just going to see how long you bleed cash until you leave,” right? Which is exactly what happened.
And they did. Yeah. I saw a statistic that they lost, that DHL lost $12 to $14 on every package that they moved, which is unbelievable.
I know. Right, right. I mean, it really is. And Amazon is, they’re not playing the UPS game, right? They completely changed how they get packages from source to doorstep, right? They had the luxury, I mean, I think there was a, like a two year span where they spent about $60 billion on their network. And just to put that into perspective, like UPS and FedEx, I think they spend maybe five to six billion in CapEx every year. So it’s like a 10X.
And the other thing that has changed is the connecting and thinking technologies and you know the AI and ML and you know I remember when I was with UPS and I was up with some folks at Amazon headquarters and we were walking to lunch and there was this big gray building. I said, “what is that? It looks like a prison.” And they said, “oh that’s our ML University.” And I said, “What are you talking about, ML University?” They said, “yeah, so we can’t hire enough data scientists. So we have data scientists on staff that we hire that work with us. And they also teach so that we can have more data scientists.”
And so it’s one of the things that a little exercise I do with my my students in my supply chain technology class at University of Tennessee, I say, okay, it’s online, so they all have their laptops in front of them. I said, “okay, pull up LinkedIn. Type in Amazon, data scientists, go to people and tell me how many hits you get.” And it’s like, you know, 15,000 plus. And I say, okay, now do Walmart.” And Walmart’s about two, 3000. So, okay, now substitute Macy’s or UPS or FedEx or anyone else. And you start to realize this advantage that Amazon has built.
And people say, “well, AI, that’s a bunch of hooey. Is it really being used in supply chain?” And I say, “well, I’ll tell you what. Have you received a same day shipment ever from Amazon?”
“Well, yeah, I get same day once in a while.”
“Okay, well, you just experienced AI. How do you think that they knew that product was going to be consumed by someone in your, by you in that, in your area? They had to predict your purchase. Because there’s no way they could have delivered it to you same day if they didn’t”.
And so you know that’s one of the things for you know shippers is that that’s it’s not the that traditional model of you know we’re going to send vehicles out and we’re going to fill them up with. We’re going to deliver during the early part of the day, and we’re gonna pick up at the end of the day. That model’s gonna continue for sure for B2B, but for B2C, it’s really changing.
Yeah, it’s interesting. And I think one thing that, um, you know, to your point on Amazon being a different breed, they are not only are they tackling this differently, but they have other portions of their business that can help subsidize or pay for their expansion into this area or this market. That’s something that, you know, OnTrac doesn’t have that’s not, you know, OnTrac doesn’t have AWS. They’re a totally separate business model. They have massive revenue coming in so that they can then use those funds to fuel growth and being willing to do what DHL wasn’t able to do. And that is, you know, wait it out. And I really believe that Amazon, I think, will look back and, you know, chuckle about the days that I can’t believe there was a duopoly that acted like a monopoly for so long.
And I think for shippers, to your point on what they need to do for 2024, staying nimble and staying willing to explore new options and to strike while the iron’s hot should definitely be looked at from a regional carrier standpoint, including Amazon shipping and that. You know, it’s the idea that gone are the days where you could single source with all of your business with UPS or with FedEx. And I think shippers need to add a little bit more complexity but get a lot of benefit in return.
Yeah, absolutely. And I think that there are a lot of opportunities for collaboration as well. One of the, if you don’t, no one has the kind of volume that Amazon has. And one of the mantras at UPS that was drilled into me early in my industrial engineering days was that volume creates opportunity. And so, you know, are there opportunities to, you know, even work with competitors where you’re, you know, bundling shipments that are, you know, originating in the same general area and going to the same general area, can you create package characteristics that make
that lower the cost for a UPS and FedEx, allow you to get a better deal with those companies? There’s a lot of things that, opportunities that you can take advantage of.
And it’s, you know, I think about some of the best sustainability opportunities which globally for… In the US, it’s still not front and center globally. It’s becoming a bigger thing because reporting and fines are starting to hit this year.
But one of the things I’ve always said that’s also good for lowering cost is if they could just put clear plexiglass sides on 40-foot trailers. You can see how many trailers are going down the highway, half full, quarter full, nothing in them, right? It’s a lot.
Yeah, finding that extra capacity, I think, is huge. And there are carriers that have that extra capacity that are saying, “help me fill those trucks.” And it’s the marrying up of data. And I think data is the main component to this that helps you kind of marry that up of shipment to carrier. I think it’s just a really interesting time and I think sustainability will, to your point, I totally agree with you. I think some brands that we talk to, sustainability is top of mind. But that’s few and far between and I think it’s because most people associate sustainability with luxury. Like driving a Tesla, okay, that’s a luxury brand. And you know, I think a lot of shippers are focused on just getting packages out the door and not necessarily focused on “How do I make sure that I’m reducing my carbon footprint? How do I make sure that I don’t have my, I have less material ending up in landfills?”
The unique part about tackling sustainability in parcel is it’s a direct one-for-one on, if I move the needle with sustainability, I’m gonna move the needle also on cost reduction. Reduce the size of the box, it’s cheaper. Reduce how many miles it moves, it’s cheaper. Everything you do is pretty much a one for one from a cost perspective, which I love.
Yeah, spot on, Caleb. Yeah.
You know, I noticed a really interesting LinkedIn post about UPS and FedEx that you posted, somewhat ignoring B2C shipments in favor of higher margin volume during the pandemic. You know, I think that’s a really interesting trend and they’re trying to shift that focus back to B2C. Can you explain why they’ve had that shift from B2C to B2C and… What are they doing specifically to win more B2C volume?
Yeah, you bet. So one of my dissertation committee members when I was getting my PhD, I was focused on this idea of disruption. And why is it that these incumbent firms that have all of the resources, the, you know, both intellectual and financial and technological are getting passed up by startups and why is that continuing to happen? And basically the pattern of disruption, just real simply, it’s just really important for people to understand, it’s the incumbent who chases higher margins. Because if I take my limited capacity and focus it on higher margin, I’m going to make more profit and that plays like a symphony in the boardroom. Everyone shakes their head up and down. “Yes. Okay.”
So what’s the problem with that? Well, you leave the low end of the market unattended. And you think of what happened during the pandemic and parcel. That’s exactly what happened. FedEx and UPS went up market. They abandoned the low end of the market, which is typically the large commercial B2B or B2C shippers where they don’t make a lot of margin. And then new entrants come in to fill that void, doing it differently than the incumbent so that they can still make money. And that’s the rise of ship from store. That’s the expansion of Amazon and Walmart shipping and even DoorDash, right?
And so, and then what happens is the incumbent, you know, typically if they can, they ignore it. And the low end of the market gets saturated and they move up market to displace the incumbent. It’s happened over and over and over again. And it’s, but it’s really hard. How do you go to the board and say, “Yeah, we’re actually going to, we’ve got this limited capacity, but we’re going to spend some of the, we’re going to keep some of the capacity on the low end of the market.” It’s just, I mean, it’s just really tough to do. And that’s, and that’s what happened.
And then the market switched, went back as we were talking about earlier, went back to a shipper’s market. And you know, the other thing that I always heard at UPS is you got to feed the beast, right? You’ve got these, you know, huge networks in place. And yes, there’s a lot of variable costs, but there’s a lot of fixed cost as well. And so as the utilization of those fixed cost facilities goes down, the cost per piece of every piece going through that facility goes up, right?
And eventually that will sink you. FedEx and UPS see that, right? And so now they’re going back and they’re becoming much more aggressive on winning back business. That’s been a real theme. They’re still focusing on B2B, which is where they’re gonna get the best margin. And they’re also, I think, you know,
I’m just not as familiar with FedEx, but I know UPS is doing some really smart things around going after the higher margin portions of B2C. So SMBs and the small to medium sized businesses, that’s where actually FedEx is going after that as well. And then returns, right? Returns is inherently very profitable for parcel shippers because it’s a consolidated pickup.
So it really has a lot of B2B characteristics, even though it’s B2C.
And UPS acquiring happy returns. I thought that was big news. It was a bold move, especially since I think thousands of happy returns locations happen to be FedEx Office stores.
Yeah, that’s big news. That’s really interesting. And it’s interesting to hear, you know, because we’ve heard, you know, specific from UPS, Carol Tomé’s mantra of “better, not bigger,” which was post COVID, right? Better, not bigger. We’re not out for more. We want better. And I think as the market has slowed down and as some of those, especially larger shippers that I personally talked to on a regular basis that used to feel like they carried significant weight and, you know, strong relationship with the carriers. And I mean that with both UPS and FedEx – were being told, “hey, you have volume caps now on your account. And because of the types of shipments that you have and the pricing that we’ve put in and our capacity is now really tight, we don’t value your freight the exact same way.”
And whether, you know, whether that was, no doubt it wasn’t told that way, but that was how those clients have felt since then, which opens up that door for disruption, opens up that door for, “well, let’s entertain regional carriers, because I can’t put myself and my staff through that again.” It’s really an interesting time. And having conversations with some of the bigger shippers out there, it was almost a negative to be one of the larger shippers shipping B2C over the last couple of years.
Yeah, yeah, which is, you know, I mean, I can’t even relate to it. I just I cannot even relate to it because, you know, I retired in March of 2019, which is just about when COVID hit. And then Carol Tomé came in middle of that year. And, you know, I’ll tell you, I don’t…
She was on the board for 15 years. The board wanted her to move the stock price. It hadn’t moved in decades, right? It had crawled. And she got in there, she made things happen, and she changed a lot of things for the better. But I… I gotta tell you, I cringed a little bit because I could see the writing on the wall. And actually in my book, I have a kind of a side-by-side chart that shows the stages of disruption and what US Steel went through and what UPS was going through. And I didn’t know how the story was going to end, I just kind of mapped it through 2021. And my book was published in early 2022.
And the stock price went up and now it’s higher than it was, but it has, it’s come down. And you know what, I think there’s a, I think there’s a lesson there for, you know, for,
for all businesses that it’s, yes, you want to maximize profits, but at the end of the day, it’s the customer, right? It’s the customer. And those customers have long memories. Good at memory.
Yeah, they do. Especially in transportation. If they get wronged or jaded, it is a chip that they hold on their shoulder for a very long time. It’s really difficult to rebuild that because at the end of the day, you’re exactly right. This is all about relationships.
Oh yeah. Yeah, I’ll tell you what, my entire career I heard from customers about the strike in 97.
Yeah, exactly. Right? I know. It’s like still you talk to shippers today and they’ll still say, “oh, I will never use UPS because of that situation,” you know, and it’s interesting to see that kind of hang on.
This has been such a great conversation, Alan. If you were to put it in a nutshell for our listeners, what would be your final piece of advice for them to take into 2024?
Yeah, so I think this theme of go on offense and don’t wait, right now, and that is not only renegotiating contracts, but also taking stock of what you have and your internal business processes, and are there ways that you can do things differently to… react to the market more quickly, to shave off some costs. How are you using technology today? Are you investing in your people? Because at the end of the day, I emphasize this all the time with my technology classes, the reason technology fails typically has nothing to do with the technology and everything to do with the… the people. So if you want to be able to create options that are so important in conditions of uncertainty, you want to create options that allow you to pivot away from danger and towards opportunity, your first investment is not in technology, your first investment is in your people and making sure that you have the people in place that will be able to execute. And then you’re investing in technology.
The other thing is, I was just listening to some economists this morning that were talking about the economy and they described it as fragile. And I think that that’s right. It’s fragile. There’s, because of all this uncertainty. So, you know, make sure that you are ready to pivot those war rooms and communications channels that you had in place during COVID. You know, make sure that you’re talking to your organization, that you’re drilling on those things. If you haven’t done any scenario planning, now’s the time to do it, because you don’t want to get caught flat-footed.
Because that’s what’s the getting caught flat-footed in that indecision is what’s really going to bite you. So that’s really it.
I love it. I think that’s phenomenal advice and I’ve seen both sides where shippers out there have taken exactly what you’ve said to heart. They put in people that are willing to adopt and use transportation software properly, that have proper models that are built, that are willing to strike while the iron’s hot. And those are honestly the the clients of FedEx and UPS that we see have best in class, most resilient supply chains. And on the flip side of that, I see a lot of businesses that completely ignore a lot of that advice and their supply chain is exactly what you said about the economy, super fragile and ready to break at any time. It just puts, you know, and I think part of it is just making sure that you’re as strong as you possibly can be at your job to the best of your abilities and ultimately strengthening your organization that you work for.
You mentioned that your book, I just wanted to call that out, it’s called Organizational Velocity, it’s available on Amazon.
Alan, thank you so much for joining the show. Let our listeners know where they can get in touch with you and how they can interact with you.
Yeah, absolutely. So best way probably is just to connect with me on LinkedIn. And then you’ll see my post, which I’m posting not as regularly as some people, but I get some posts out there. But you can also get in touch with me through my website, https://alanamling.com.
Those are probably the best ways to get a hold of me.
Thank you so much, Alan, for being a part of the show. It’s been a phenomenal conversation.
Yeah. Yeah, well, thanks a lot, Caleb. Thanks for having me.
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