Warehouse Wisdom. Weekly. 4/19/2024

Happy Friday!

Thank goodness Tax Day has come and gone. As it turns out, many of you ended up better than usual! Combine that with job growth, and voila—non-store sales grew at more than double the rate of total sales in March. Even despite inflationary pressures, consumer spending remains steady.

Now if only ALL the week’s news was that good, we’d be in good shape. But in this week’s newsletter, we will update you on some alarming turn of events in the Middle East for the ocean freight industry, a drop in U.S. parcel revenues for the first time in 7 years, continued legal battles over California independent contract law AB5, and more.

At least your bank accounts may be padded a little further from those tax refunds and thank goodness your warehouse wasn’t a victim of this mass commercial break and enter like this one in the GTA. Oh - and hopefully your competitors aren’t stooping this low, like Amazon, to get competitive info.

LOGISTICS VITALS

MANUFACTURING INDUSTRY COULD BE SHORT 1.9 MILLION WORKERS BY 2033

Uh oh, experts are getting a little concerned because the manufacturing industry might be short 1.9 million workers by 2033! Even though manufacturing has been booming post-pandemic with lots of investments, there are still not enough people to fill all the jobs. Let’s look at the numbers:

• 13 million - Current manufacturing workers

• 3.8 million - New jobs projected by 2033

• 1.9 million - Unfilled positions based upon current open positions and skills shortage estimates

It looks like the industry needs some serious recruiting efforts to avoid falling short!

FREIGHT DISRUPTIONS

IRAN SEIZES PORTUGUESE CONTAINERSHIP, FREIGHT RATES SURGE, & PROTESTORS HALT BAY AREA

The Revolutionary Guards in Iran seized a Portuguese containership, MSC Aries, in the Strait of Hormuz last Saturday, April 13, 2024. According to Iran’s state-run IRNA news agency, a Guards helicopter swooped in and diverted the Portuguese-flagged MSC Aries into Iranian waters because of its connections to Israel. Analyst Hasan Alhasan of the International Institute for Strategic Studies said that Iran’s seizure of the MSC Aries might be their way of getting back at Israel without making things worse. Needless to say, the high seas haven’t been this treacherous in a long time.

And, of course, you guessed it…with all the chaos in the Middle East, freight rates are starting to surge. With Iran seizing MSC Aries, Iran has also decided to stir things up with a coordinated attack on Israel using drones and missiles on the same day! Now, everyone's a bit on edge about the possibility of things escalating and causing trouble for shipping in the area. If things get worse, it could spell trouble forh global oil prices, shipping routes, and energy security - so let's hope things calm down soon!

And news of disputes and further disruptions don’t stop there - protestors stopped traffic on Bay Area freeways on April 15, calling for an end to the war in Gaza. Commuters were left in a jam as protestors blocked the Golden Gate Bridge and Interstate 880. The Port of Oakland was on high alert, too, with three out of four terminals shutting down in anticipation of protests. Luckily, the Matson's terminal stayed open, enabling things to move smoothly.

But thank goodness for the rain forecasts in Panama. If they prove to be true, things may get back to normal in the Panama Canal. In addition to favorable rain forecasts, the Panama Canal Authority has announced plans to boost capacity to 31 transits per day starting May 16 and then up to 32 per day from June 1, effectively operating at approximately 90% capacity. They also feel confident about hitting full capacity again by early 2025.

SMALL PARCEL SHIPPING

U.S. PARCEL REVENUES DROP FOR FIRST TIME IN 7 YEARS, WHILE AMAZON SURPASSES UPS IN PARCEL VOLUME

US parcel revenues declined for the first time in 7 years! Despite the parcel volume increase by 0.05%, revenue fell 0.03% from $198.4 billion to $197.9 billion. Out of the big four carriers – USPS, Amazon, UPS, and FedEx – only USPS and Amazon saw a boost in volumes, while UPS and FedEx were feeling the pinch with drops in volume and revenue. Nonetheless, Pitney Bowes predicts an upcoming parcel volume boom, with 23 billion to 35 billion parcels expected by 2029. Let’s hope that US parcel revenues get back on their feet!

As parcel revenues declined, legacy delivery providers also saw a decrease in volume as Amazon and other new players took a bigger piece of the parcel market pie. According to the Pitney Bowes Parcel Shipping Index, Amazon is now ahead of UPS in parcel volume, and regional carriers are also making their mark. The future of the delivery sector is looking interesting, to say the least.

COMMERCIAL REAL ESTATE

U.S. VACANCY RATES KEEP RISING; PROLOGIS ANTICIPATES TIGHTENING MARKET AHEAD OF INTEREST RATE CUTS

Getting a warehouse lease is getting a lot easier these days, as the vacancy rate for U.S. industrial properties is on the rise again. The industrial vacancy rate, which includes a variety of real estate types, has risen by 5.8%, closing to hit the 10-year pre-pandemic average of 7%. Big markets like Southern California are seeing the highest vacancy rates in over a decade – as high as 6.2%.

The development pipeline is also dwindling fast, with a 40% annual decline in new projects. Looks like we're in for a bumpy ride throughout the remainder of 2024 as interest rates climb and the supply wave starts to recede.

And commercial warehouse giant Prologis thinks the market will continue to tighten until interest rate cuts begin. Prologis said the uncertain timing of interest rate cuts is putting a damper on leasing demand for now, but their long-term outlook remains optimistic. Expect some cautiousness in the market for the next couple of quarters with a potential bounce back in two to three years.

WAREHOUSE LABOR

CTA PERSISTS LEGAL BATTLE OVER INDEPENDENT CONTRACTORS; TECH & HIGH SCHOOLERS TO THE RESCUE FOR LABOR SHORTAGES

The California Trucking Association (CTA) hasn’t given up hope despite their recent loss in the fight against the California independent contract law AB5. Surprisingly, the decision to appeal the ruling to the 9th U.S. Circuit Court of Appeals was made despite many in the trucking legal community thinking it would be costly and unlikely to succeed. The judge that rejected the request for a new injunction against AB5 enforcement in trucking believed that AB5 was preempted by the Federal Aviation Administration Authorization Act (F4A) because it could impact prices, routes, and services, which the F4A blocks. So, the legal battle continues!

With all the talk of evolving independent contractor laws and challenging labor markets in logistics, supply chain professionals are having to think even further outside of the box, incorporating more tech to overcome labor shortages. According to a recent report, 54% of supply chain and logistics operations are focused on automation as an alternative to mitigate workforce shortages.

But amidst all this tech, don’t forget about good old-fashioned hiring people right out of high school. High schools across the U.S. are now offering classes to help students get their CDLs and drive trucks. The goal is to give students more career options and support the trucking industry. According to the American Trucking Associations, there will be a need for 1.2 million drivers in the next ten years. Some people argue whether there is a shortage of truck drivers, but the trend of high schoolers learning to drive trucks is gaining speed!

WAREHOUSE TECH

WAREHOUSE LABOR GETS HELP FROM FORKLIFTS AND DRONES

Driverless forklifts are becoming mainstream, as Walmart launched 19 autonomous forklifts in four distribution centers this past week. After a successful 16-month trial in Brooksville, Florida, Walmart decided to roll out their latest gadget - the FoxBot autonomous forklift. This futuristic machine uses AI and machine vision to unload pallets from trucks and stow them away in storage. These cool robots will pop up in Florida, Texas, New York, and Alabama.

Programmers are also working hard to find ways to consolidate and optimize space utilization using drones. After raising $17 million in March, Gather AI, a drone-powered inventory management provider, has rolled out two new offerings to help warehouses find underutilized space. The first tool is location occupancy, which uses drone data to pinpoint unused space and alert managers for consolidation. The second tool is inferred case count, which predicts the number of items on a pallet using AI and historical data. Say goodbye to manual error detection and hello to optimized space utilization!

WAREHOUSE QUICK DELIVERIES

SAVANNAH PORT SEES 22% Y.O.Y INTERMODAL SURGE, TEMU LAUNCHES U.S. WAREHOUSING, AND MORE…

• Savannah Port Notches Intermodal Surge, Reaching an Increase of 22% Y.O.Y

• Amazon Live Launches Shoppable Channel, called FAST Channel

• 73% of U.S. Consumers Blend Online Research, Physical Store Visits in Making Purchase Decisions

• Temu Sets Up U.S. Warehouses Due to Growing Marketplaces

• 2023 Not a Good Year for 3PLs as Transportation Rates Deflate