Short-term contracts are now the norm as shippers and shippers head for a rocky end to 2022.
“Haulers don’t want to enter into a six-month contract if they don’t know what’s going to happen three months from now,” said Daniel Sokolovsky, founder and CEO of Warp, a mid-mile technology company. Sokolovsky said his company is currently only trading on three-month contracts.
“Bigger carriers had a lot more bargaining power, so they could get longer deals [previously]’ he added in an interview with Modern Shipper. “[The supply chain disruptions] have agreed that quarterly transactions a [better deal].”
Warp is working to streamline the middle mile for carriers by connecting many retailers with last mile delivery providers. However, the changes brought about by the recent disruptions have altered strategies, Sokolovsky said, noting that many shippers, shippers and consumers have learned that the old way of doing things was unsustainable.
The shippers have reacted to this with increasing transparency and communication. “We’re seeing a lot more openness from big shippers,” Sokolovsky said.
Because of Warp’s position in the supply chain, Sokolovsky has a unique insight into market dynamics. He said some airlines are worried about long-term volumes and are therefore trying to secure longer-term contracts, although rates are currently low.
“I think right now it’s good for shippers to take something that’s going to be longer,” he said. “Right now a lot of carriers need reassurance that they have business in six months, in 12 months. For that reason alone, there is a reason for longer contracts.”
At the other end, the last mile remains a fluid segment where bankruptcies and mergers take place while interest rates hit highs not seen in decades. Sokolovsky sees more of this going forward, but noted that larger players who are able to buy assets (trucks, warehouses) at a cheaper rate than the current provider is paying for them, potentially allowing them a cheaper asset move forward .
Sokolosky said he sees impoverished companies struggling because they typically charge a premium for their services, but as volumes have fallen, those premiums are falling.
“We’re seeing aggregators losing volume,” he said.
Time to optimize the middle mile
In September, FedEx (NYSE: FDX) shocked Wall Street when it withdrew its financial guidance for the remainder of the fiscal year and then reported earnings per share came in below expectations. It estimated sales at $23.5 billion to $24 billion and earnings per diluted share at $2.65 or more. The company cut its fiscal 2023 capital expenditures by $500 million to $6.3 billion and announced it would close more than 90 FedEx office locations and five corporate offices.
The news triggered an avalanche of news articles about falling e-commerce volumes. While everyone involved in e-commerce — including Amazon (NASDAQ: AMZN) — is seeing sales drop, there’s no general consensus that consumers are reversing pandemic online shopping. In fact, Deloitte is forecasting e-commerce revenue growth of 12.8% to 14.3% this holiday season.
Both UPS (NYSE: UPS) and FedEx have announced overall rate increases of 6.9% for 2023, which will pressure retailers to seek lower costs on their last mile. In these times, the focus on the middle mile is becoming increasingly important, said Sokolovsky. Unfortunately, for the last mile, many retailers and their transportation partners do not have access to the middle mile.
“Of course you would think that the volumes should go away [FedEx and UPS] to smaller last-mile carriers, but the problem is that many of them don’t have a middle-mile provider,” he said. “For the past few months, we’ve been telling shippers, particularly those in e-commerce and those who deliver to stores, to go out and optimize their middle mile.”
Warp is trying to provide that access to the Middle Mile, Sokolovsky said.
“A lot of brokers and carriers out there don’t understand what the shipper is shipping, how much they are shipping and [whether] You can use another vehicle,” he said. “On the freight forwarder side, there are very experienced operators who, if they had more information… [could find] savings and opportunities.”
Sokolovsky said shippers and shippers using Warp’s services can often reduce their shipping costs by 10% or more by better understanding how cargo moves through their networks.
“Many carriers have been blind to the fact that there is a way to optimize your mean mile that doesn’t cost too much,” Sokolovsky said.
Warp is a carrier-agnostic platform, which Sokolovsky says is important as it aims to help shippers better optimize their cargo movements. With the continued drive to fulfill e-commerce orders directly from stores, more retailers are shipping smaller amounts of freight to physical locations, Sokolovsky said.
“There are a lot of retailers who deliver to small shops and transport two pallets on a 53-foot truck,” he noted. “Considering where inventory is, given what’s happening with bricks and mortar … the big push in 2023 is optimizing direct-to-store delivery.”
Referring to the 2022 holiday peak, Sokolovsky said he doesn’t see any major disruption to shipping at this time, even in the face of high diesel prices and a possible rail strike. One change that takes place is inventory movement. There was no shortage of the excess inventory issues retailers are facing this year, and Sokolovsky said Warp is seeing more inventory moving around the country.
“We’re seeing a lot of inventory repositioning,” he said. “It is already here. It’s in the United States, but it’s moving from place to place now as many people are liquidating inventory and discounting. Because of this, we get a lot of trains that go over short distances. What we’ve seen is repositioning taking place and moving into lower cost areas.”
The good news is that as volumes have fallen across the country, this additional cargo movement is not significantly impacting capacity and fares.
“The decrease in volume outweighs the increase that there would be for this type of travel,” Sokolovsky said.
Click here to see more Modern Shipper articles by Brian Straight.
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