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Supply Chain by the Numbers

- Nov. 4, 2021

  Supply Chain by the Numbers for Nov. 4, 2021

Carriers Seeing Record Profit; Prologis Cannot Build Warehouses Fast Enough for Demand; US PMI for October down a Bit but Still Strong; UPS Announces Major Rate Hikes



That was the year-over-year growth in Q3 profits for trucking firm Schneider, as it also saw a new quarterly record for earnings per share, surpassing the previous record the company had set just one quarter before. Schneider is just one of just many carriers and logistics companies seeing fat bottom lines, the result of constrained supply and soaring rates. Trucking and logistics operator ArcBest more than doubled its quarterly profit from the year-ago period, also seeing the highest quarterly revenue and operating income in its history. Truckload carrier Knight-Swift reported a 68.9% increase in third-quarter net income to $206.2 million. Ocean container carriers are raking it in too. Giant Maersk Line’s parent company announced Q3 earnings of amazing $5.44 billion earlier this week, nearly double profits seen in all of 2020 by the company. And 3PL CH Robinson Worldwide, the largest freight broker in North America, said its third-quarter net income rose 81% from a year ago, to $247 million But shippers are feeling the pain, with soaring spending on freight transport that is really cutting into profits.


That’s how much warehouse developer Prologis now expects total US inventories to rise through 2020, up from a prediction of 5-10% growth back in April. That according to CEO Hamid Moghadam at a Prologis supply chain event in San Francisco last week. Distribution center capacity, already very tight in major US markets, will be continue to be constrained, and likely until at least 2023, Prologis predicts, in bad news for shippers. It also presents a challenge and opportunity for developers like Prologix. Moghadam said the company had the financial resources to spend $20 billion on new warehousing space, but that won’t be enough. He added limited space in urban areas is offers few opportunities for new construction, while major distribution hubs such as Atlanta, Chicago and New York are “effectively sold out”. Another issue constraining warehouse supply: resistance from communities and residents against warehouse development and associated truck traffic has also increased. What can be done? Moghadam cited converting vacant retail space into fulfillment centers, and building multi-story facilities in urban areas as potential solutions.




That was the level of the US Purchasing Managers Index for October, as released on Monday by the Institute for Supply Management. That was down just a little bit (0.3 percentage point) from the 61.1 reading in September. But it is still well below the 50 mark that separates US manufacturing expansion from contraction. It also marked the “17th consecutive month of growth in the overall economy after a contraction in April 2020. The New Orders Index registered 59.8, down 6.9 percentage points compared to September, but is still at a strong level, in a good sign for future manufacturing activity. But supply chain inflation remains a worry. The Prices Index registered 85.7, an increase of 4.5 percentage points compared to the September reading of 81.2, indicating raw materials prices increased for the 17th consecutive month, and at a faster rate in October. It means 85.7% of companies are seeing higher costs for components and materials.




That is the 2022 general rate increase announced by UPS late last week, matching the same 5.9% GRI that FedEx announced back in September. For both parcel carriers, that is up from the 4.9% GRIs we’ve seen in recent years. Of course, this is an average “list price” rate hike – some parcel shippers will reduce that hike down in contact negotiations, while others may see higher percentage increases due their parcel freight mix. For example, USP also announced its large package surcharge will increase within a range of 8%-16.7% and the additional handling charge for weight and dimensions will increase from 5.2%-13.9% depending on zone, as Brown continues to raise prices on heavy and large shipments. The minimum charge for ground shipments will increase from $8.76 to $9.36 (6.9%), while the rate for 1-5 pound ground parcels will increase by almost 8%. What’s more, UPS is rebranding “Peak Surcharges” as “Peak/Demand Surcharges” – potentially indicating the extra fees while stay around after the 2021 holiday shopping season.

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