What do global shippers have to look forward to during the last quarter of 2022?
And, what’s in store for them in 2023?
First and foremost is a real threat of a recession.
The fact is that some financial experts have claimed we are already in a full-blown recession. The 4th quarter of 2022 also promises continued high inflation, including rising fuel prices, as well as rising interest rates which will surely continue into 2023. When you add all of these financial woes together, you can see why global shippers are really concerned, not only about the fourth quarter of 2022, but what this means for their businesses in 2023 as well.
Some interesting facts that have added to this concern is the operational and financial troubles at FedEx impacting the global shipping market. With major service and labor issues as well as declining revenues, FedEx is significantly increasing costs for their customers. Their 2023 General Rate Increase, as well as their Peak shipping season surcharges will certainly have a negative financial impact on their customers.
With all of this “noise” out there, we are constantly looking at the trends to best advise our clients in preparing for the future. Much has been written about FedEx’s problems. In a recent Bloomberg article (Thomas Black, Sept 16, 2022), the headline reads “FedEx’s Problems Are About FedEx, Not the World”. But let’s face it, that headline in our estimation is very misleading. The fact is that FedEx’s problems do affect the “world” FedEx plays in and obviously their problems will have a significant impact on their global shipping community.
One major issue with FedEx is their 2 separate operating units; FedEx Ground and FedEx Express. Ground primarily hires independent contractors to handle packages from sorting facilities to final destination, what we call the Final Mile. This unit struggles with operational inefficiencies and has seen profit margins decline for years. The recent worker shortages continued pressure from the government, both federal and state to change employment status from independent contractor to employee have only exacerbated the problem. On the other hand, the Express unit or overnight deliveries has never been very profitable. Some have suggested combining these units would improve efficiencies and should reduce costs, but that remains to be seen, even if FedEx would entertain such a decision.
UPS recently announced its 2023 General Rate Increases and we had estimated they would be an average of 6.9%, just as the GRI FedEx will be implementing. We were right.
And let’s not forget there is a real threat of a strike at UPS sometime in mid-2023 as the Teamsters Union continues to point to taking a hard line on bargaining with “Big Brown.” How will UPS’ “Better not Bigger” strategy hold up during those negotiations is anyone’s guess.
To start, the union is obviously well aware of the excellent financial position of UPS, especially over the past several years under their new CEO Carol Tome. With significant growth in UPS’ bottom line, the Teamsters will definitely attempt to use this unprecedented growth to their advantage in their upcoming contract negotiations.
Other issues affecting global shippers for the past three years is China’s policy to end Covid-19 outbreaks by shutting down city after city after even a minor Covid breakout. This will continue to cause production and shipping nightmares for global shippers.
Global shippers that single source their business, especially with FedEx or UPS for that matter, might consider looking into other competitive service providers to protect themselves against these real potential service disruptions.
In our opinion, it’s a foregone conclusion that both FedEx and UPS shippers are nervous and will be tempted to look at other shipping alternatives available to them.
However, do they really have good alternative shipping options available? We think not.
Certainly the upcoming peak shipping season will make it virtually impossible to move large volumes of business seamlessly as has been the case over the past several years.
All of this leads to the inevitable, increased shipping costs, and the potential for unexpected service interruptions. So global shippers will just have to lash themselves to a tree and ride out the storm. But it’s not all bad news. Having a trusted advisor by your side during tough times is critical.
As always, ICC is here to assist you in navigating these muddy waters. Contact us today to learn how we can help you navigate and be in the best possible position for these unprecented times.
Looking to negotiate better rates? Make sure you read our latest white paper, the 7 Critical Mistakes Shippers Make and learn how to avoid common pitfalls and take back your negotiating power.