Warehouse Wisdom. Weekly. 10/18/2024

Happy Friday!

This week in logistics, there’s no end in sight to the headlines coming from the open seas. Red Sea oil shipments are down more than 50% over the first half of the year because of Houthi attacks, Port Tampa Bay reopens after power is restored following its closure due to the hurricane, and despite valiant efforts to re-route ships through Africa’s Cape of Good Hope (which will likely continue well into 2025), as soon as the canal reopens, experts predict there will be “mass chaos” in the Red Sea, with many vessels arriving simultaneously. This could lead to several weeks or even months of operational disruption.

Talk about the recipe for a good old-fashioned meltdown – and enough to keep us more than busy trying to harness the week’s headlines. In this week’s newsletter, we cover the movement from fast deliveries to affordable deliveries, a potential end for dual shipping labels, holiday “worry lists” from retailers and consumers, an extended forecast of vacancies in warehouse rentals, and more. Let’s dive in.

Freight and Shipping

The tide is turning from ultra-fast shipping to affordable deliveries

Perhaps because of the extended inflationary pressures, consumers are becoming increasingly more content with slower shipping of packages. More people are switching to slower delivery options to save money, and as a result, profits at FedEx Corp. and UPS Inc. are getting squeezed. Shipping costs seem to be a potentially “make-or-break” part of online purchases, especially for higher priced goods. The other reason some are willing to wait for deliveries – consolidation opportunities and the resulting sustainability. Even the larger players are training people to get used to slower shipping, such as Amazon providing incentives to shoppers who don’t opt for expedited deliveries. The same-day delivery rush may be losing some steam…

Speaking of small parcel shipping, USPS is looking at ending dual shipping labels. Dual shipping labels allow shipping partners to choose between delivering a shipment themselves or transferring it to the Postal Service after processing. The proposal looks to be another way to transform its relationships with shipping partners to streamline the agency and bring about more profitability.

All the while, competitors are eating away at the market share of UPS and FedEx. Continued surcharges and additional, non-standard fees are opening the door for regional competitors to get a foot in the door with angry and frustrated customers. Some alternative carriers are getting creative, going so far as to create all-in shipping rates and creating fully transparent pricing terms.

Warehouse Real Estate

Current downturn in warehouse leasing demand will likely continue well into 2025

Commercial real estate giant Prologis is predicting the soft commercial real estate market to last well into 2025. While company management expressed a “measured level of optimism” about the real estate market in general, global market rents were down 3% and they predict that vacancies will continue to rise until the middle of next year, in the least.

But maybe the slowing of growth in warehouse construction and rentals is a welcomed reprieve, at least for nearby residents wondering how much further logistics companies are going to encroach on their residential lifestyle. Riverside County is now the latest to have residents up in arms about warehouse growth.

Logistics Vitals

High-volume shippers are evolving their fulfillment and shipping ops

High volume shippers are having to increase their playbook to meet e-commerce demands. A recent ProShip survey of 209 high volume shippers found that their shipping and fulfillment strategies are evolving to meet the needs of consumers who order through their platforms. Contrary to lower volume shippers, larger players are finding themselves using additional tactics:

• 39% of high-volume shippers are using more than 1 DC

• 52% are using expedited and international shipping options

• 18% said delivery timeliness is their biggest challenge.

Only 15% fulfill and ship through a single warehouse location, and 14% are using third-party fulfillment help.

Marketplaces

A tales of two numbers - Amazon Prime Day grows from some, declines for others

Sales during Amazon Prime Big Deal Days grew 42% year-over-year for some sellers, but overall U.S. online retail sales declined. Global sales growth outside Amazon was flat, with the event underperforming due to recent weather events and consumer uncertainty around the upcoming U.S. election. And Manhattan Associates found that 85% of consumers cited inflation and increased prices as a top concern. Just more evidence of where the consumer’s mind rests financially…

We know what consumers are thinking about for the upcoming holiday season (Can you say, “Deals”?!?), but what are retailers worried about? Apparently, the resounding answer is ‘returns’. A study by goTRG found that 56% of retailers have higher inventory levels this year, but nearly 63% categorize returns as a severe or significant problem (and 52% believe that returns fraud will worsen).

Four months after Target partnered with Shopify to expand its third-party marketplace, progress has been slow, with only 500 new sellers added in 2024. The partnership, intended to bring Shopify merchants onto Target's marketplace and eventually into physical stores, has not led to significant growth.

Warehouse Operations

Another victory for AB5

The U.S. Supreme Court declined to review a case challenging California’s AB5 law, which classifies gig workers as employees, marking another legal victory for the law. However, Proposition 22, passed by California voters in 2020, still exempts gig drivers from AB5, allowing them to maintain their independent status. While gig drivers are shielded by Prop 22, AB5 is still being enforced in other industries, such as trucking.

Meanwhile, Mexico continues its reign as a top trading partner. U.S.-Mexico trade reached $73.77 billion in August, up 4% year-over-year, making Mexico the U.S.’s top trading partner for the eighth consecutive month. Canada ranked second with $63 billion, while China was third at $51.8 billion.

Warehouse Quick Deliveries

Bankruptcies, store closures, class action lawsuits, and more…

• True Values files for bankruptcy.

• Walgreens is closing 1,200 stores.

• J.B. Hunt profit falls.

• UPS faces class action lawsuit.

• Logistics businesses are very cautious about holiday hiring.