Warehouse Wisdom. Weekly. 4/5/2024

Happy Friday!

We hope you survived all the April Fool’s Day pranks, like Locus Robots running grocery shopping trips at your nearest supermarket and Rye’s perfect warehouse employee, the “Human Digital Twin.”

So, listen up because this week’s newsletter is not a prank! We will catch you up on the logistics industry’s LMI growth streak, Amazon fees & counterfeit products, TikTok marketplace boom, Walmart return fees, new temporary alternate route amid Baltimore Bridge collapse, UPS’ air cargo contract, and a new import tax threshold. We will also delve into Canada and U.S. train rails, commercial industrial rents updates, AI and robotics takeover, and more!

LOGISTICS VITALS

LOGISTICS INDUSTRY CONTINUES GROWTH STREAK

The latest Logistics Manager's Index (LMI) report shows that economic activity in the logistics industry grew for the fourth month in a row in March. The LMI is a monthly report card for warehousing and transportation markets (Above 50, and things are looking good, but below 50, and we're in contraction mode).

It seems like things are returning to a more "healthy and normal" level of growth. Let’s look at these LMI numbers:

• 58.3 - March 2024

• 56.5 - February 2024

• 55.6 - January 2024

• 50.6 - December 2023

After a crazy rollercoaster ride in logistics activity during the pandemic, things seem to be settling down in early 2024.

ONLINE MARKETPLACES

AMAZON, TIKTOK, & WALMART MAKING BIG E-COMMERCE MOVES

Is Amazon having second thoughts on its’ FBA fees? For now, they’ve hit pause on the rollout until at least May. Amazon is sticking to its plan to charge controversial seller fees, but don't worry, they'll get their money back in April. They're calling it a "transition period" to show sellers how the low-inventory fee works without actually making them pay for it yet. Interesting…

Kind of makes you wonder if smaller brands can keep up with the relentless pace of Amazon. If brands want a piece of the Amazon pie, they had better find a unique niche to succeed, according the AI-backed data and Amazon experts.

However, Amazon also has its’ hands full of other dilemmas. Amazon played a game of cat and mouse with counterfeiters and came out on top, seizing and disposing of 7 million counterfeit products worldwide. But what's even more impressive? The 700,000 wannabe counterfeiters didn't even get a chance to sell counterfeit products thanks to Amazon's Counterfeit Crimes Unit. In 2020, they stopped a whopping 6 million fake account attempts - that's a decrease of 88% in less than four years. Looks like Amazon is winning this game!

As counterfeit products are still lingering around Amazon, some retailers are now heavily investing in TikTok. Despite the uncertain future of TikTok due to a potential ban and slowing user growth, brands are still diving headfirst, using the platform to reach the massive young audience for new sales opportunities. TikTok has already racked up $10 billion in consumer spending and aims to hit $17.5 billion in U.S. eCommerce sales this year. Looks like TikTok is on a roll, making money moves!

And another major retailer has acted against the astronomical return rates. Walmart decided to raise return shipping rates for seller-fulfilled orders because, let's face it, they need to make money too. It seems like businesses are trying to find that sweet spot between keeping customers happy with easy returns and not breaking the bank from all those return shipping costs. Some are even starting to charge return fees or making their policies stricter. It's like they're saying, "You can't return that shirt you spilled ketchup on two months later, sorry!"

OCEAN AND PARCEL SHIPPING

BALTIMORE BRIDGE UPDATES, UPS'S MAJOR AIR CARGO CONTRACT, & NEW IMPORT TAX THRESHOLD

Since the Baltimore bridge collapse last week, all shipping traffic in and out of the Port of Baltimore is still on hold. But don't worry. They're working on opening up a temporary shipping route on the northeast side channel to get things moving again for ‘commercially essential vessels.’ Though, they haven't given us a specific timeline for when the alternate route will open, so let's hope they don't take too long.

UPS scored a major air cargo contract with the USPS (United States Postal Service). After FedEx and USPS couldn't come to an agreement, UPS swooped in and saved the day. FedEx's contract is ending on Sept. 29, 2024, but UPS is already taking over as the contract is immediately effective. This deal is set to last at least five-and-a-half years, and it's all in the name of improving mail transport efficiency and saving on airfreight costs. Looks like UPS is the new delivery king in town!

And get ready for some potential tariff shakedowns, as new import tax thresholds and rules mean different countries pay different tariffs when importing into the US, with some countries possibly not even getting the privilege at all. The current import tax threshold for imports is $800, up from $200 in 2016. Lawmakers have been looking to change these rules, partly due to the flood of low-value e-commerce imports from China that avoid taxes. Under the new rules, the tariff would match the originating country's threshold.

But watch out! There's also talk of a “blacklist” for countries deemed “non-trustworthy” who would be denied de minimis benefits. China and Russia are already on that list, which could generate over $15 billion in additional revenue annually. Keep an eye out for the full blacklist to drop within a year of the new rules kicking in.

RAIL FREIGHT

CANADIAN RAIL POSES POTENTIAL STRIKE, WHILE U.S. RAIL GETS GRANT MONEY & SAFETY RULES

Looks like the Canadian rail conductors and engineers are at a standstill over a new collective bargaining agreement, setting the stage for a potential strike next month. The Teamsters Canadian Rail Conference (TCRC) members will vote from April 8 to May 1 on whether to strike against the Canadian National Railway (CN) and Canadian Pacific Kansas City (CPKC). If the vote passes, a strike could disrupt intermodal service to and from Canadian container terminals, impacting around 50,000 TEUs per week in imports. Let the negotiations begin!

But, rail in the US gets a financial boost from the government. The U.S. Department of Transportation’s Federal Railroad Administration (FRA) is handing out over $2.4 billion in grants for rail projects. They're using money from the Consolidated Rail Infrastructure and Safety Improvements (CRISI) program to modernize freight and passenger rail infrastructure. So, all aboard the grant train!

And, guess what else is new in rail? New safety requirements were also announced. The FRA has set minimum safety requirements for train crew sizes. The rule basically says two crew members are better than one for train safety. So now, all trains must have a second crew member to keep things running smoothly and safely. So, make sure you've got your train crew buddy with you next time you hit the tracks!

COMMERCIAL REAL ESTATE

NATIONAL INDUSTRIAL RATES UP 7.5% Y.O.Y, BUT REAL ESTATE INDUSTRY COULD BE IN TROUBLE

In February, the national industrial rents were at $7.68 per square foot, dropping a whole four cents from January. But hey, it's still up 7.5% year-over-year. The vacancy rate also went up to 5.0%, with nearly 420 million square feet under construction. Industrial transactions also totaled $5.7 billion, with an average sale price of $132 per square foot. So yeah, industrial real estate is still thriving despite those pesky rent fluctuations.

But, overall, the commercial real estate industry may be in serious trouble. Business owners may be feeling good about stable or even declining rents for office, retail, or warehousing spaces. But behind the scenes, landlords are freaking out, and bankers are sweating bullets over maturing loans on these properties. In 2024, 20% of all securitized commercial real estate debt will be due. With nearly $1 trillion in commercial real estate debt maturing this year, we'll soon see how landlords and banks navigate this debt wall to avoid a financial meltdown.

WAREHOUSE TECH

AI AND ROBOTICS TAKING OVER BEAUTY BRANDS’ WAREHOUSE AND SUPPLY CHAIN

GXO Logistics and robotics developer Dexterity are teaming up to test some fancy AI-enhanced robotics in a beauty brand's warehouse. Using a mix of robotics, AI, and machine learning, they're making the mundane tasks of de-palletizing, labeling, and re-palletizing packages look like child's play. And guess what? This is just the beginning—more AI magic is on the horizon for GXO, as big business continues to invest in the future.

But are small businesses falling behind in the AI and tech war in logistics? Big businesses are investing the most in AI and machine learning in their supply chains. They're doubling down on these technologies compared to their lower-performing peers. And guess what? They're using their size to stay on top and keep that business momentum going strong. Only time will tell if the investment pays off and helps to take over even more market share.

WAREHOUSE QUICK DELIVERIES

WALMART COMPASSION TRAINING, AND MORE…

• Walmart Offers Store Managers “Compassion Training” for Interaction and Relatability Lessons

• What do Online Shoppers Want? Lower Prices, Free Shipping, and Product Variety

• Saia Partners with Mexican Carrier for Cross-Border LTL Services