Business & Investment

Viewpoint: 2021 is the year of freight ban

FedEx Freight had many problems when it shut down services to hundreds of accounts without notice in June, shipping was stalled, and customers struggled to find alternative transportation in a very tight market. ..

Under-truck carriers have sought to embargo collection to shippers carrying more expensive cargo in regions of the country where cargo flow is high. By imposing volume control, management wanted to maintain the capacity of its core customers.

While the company’s response to increasing terminal network congestion has certainly been difficult, it is not uncommon for carriers in all modes to have better control over capacity in the face of onslaught of shipping demand. .. LTL, trucking, maritime, air and rail carriers all screen their customers to allocate limited resources to their most profitable accounts. The difference is that many of them use a hassle-free method of blocking the shipper while giving them time to make other arrangements.

While it’s convenient to defeat FedEx Freight in dealing with customers, service levels will be degraded for everyone without proactive measures to keep the network liquid. FedEx’s LTL division was trying to avoid the situation that major US airlines are facing this summer. American (NASDAQ: AAL), Southwest (NYSE: LUV) And Spirit (NYSE: saveAs we exited collective COVID hibernation, we canceled and postponed thousands of flights because we did not have enough pilots, flight attendants, and airport staff to handle the surge in travel demand. Many pilots retired or were temporarily dismissed last year as airlines reduced operations and airlines were unable to retrain pilots fast enough to meet ongoing eligibility criteria. Scheduling too many flights before all the resources needed were deployed caused operational problems and confused customers.

FedEx (NYSE: FDXAuthorities recognized that shippers with hurt feelings could impact future sales, so pivot within a week to more carefully target accounts and locations where services are banned. I made it.

During normal business hours, it is usually the cargo owner who chooses the carrier. However, the supply chain is so packed with international and domestic shipping that carriers choose the cargo they accept and prioritize customers who are willing to pay a premium or show a long-term commitment.

Most LTL carriers reject new customers and reservations with disproportionate departure and destination lanes, causing truck drivers to wait in the dock or exhibit other bad habits that push up costs. Pruning and using price increases to get rid of unfavorable accounts.

Support profitable customers

The same thing is happening with sea freight.For carriers Recently estimated a rate of $ 32,000 The message of moving the container from China to Los Angeles was clear. There is no spare capacity, so please leave.

Earlier this year, many shippers did not respect their annual contracts, that is, they canceled their reservations or rolled their cargo to later ship schedules in order to take advantage of higher rates on the spot market. I accused him. However, some airlines have a longer-term view, knowing that more ships will be built after 2023 and market leverage may change.

Maersk, the world’s largest container line, is conservative about adding new service contracts this year due to space issues. “Our strategy is to focus on long-term commitments with our contract customers, rather than regenerating market rates with higher profit margins,” North American media manager Thomas Boyd told me. .. “As part of our contractual commitment, we knew that there was a high percentage of service contract businesses that needed to be protected in ship space, so we were careful not to overcommit and add many new businesses.”

The harsh reality is that carriers, especially truck companies, are generally not bound by the fixed price of the contract. This is a commitment, not a guarantee. We will respect these charges as long as market conditions are stable, but if the carrier does not like the charges or has better options, we can deny the load. And because the demand is so high, they have a lot of options.

The situation is similar for maritime transactions, but conditions can be stricter.

When overcapacity, don’t respect volume commitments and remember that it’s the shipper who buys at the lowest rates.

You can also see the development of this dynamic freight railroad. Both Union Pacific Railroad and BNSF Railway provide services from certain West Coast ports to Chicago to ease congestion at destination terminals and improve cargo flow in the face of record imports. It stopped for a week or two.

And taking advantage of higher rate of return opportunities is not unique to the transportation sector. Dealer lots are almost empty as car production is curtailed by a shortage of chips. When cars appear, they are snapped by worried buyers. It’s no wonder that 40% of buyers are willing to pay 12% of the manufacturer’s suggested retail price (about $ 5,000 for an average new car). Cox Automotive Survey..Some dealers Mark up popular models for $ 10,000 Up to $ 20,000 – because you can.

According to case reports, some retailers have canceled orders for certain products, such as appliances, and are forcing consumers to buy new, higher prices.

FedEx Freight may have kept an eye on abandoning customers in a cold-hearted way, but don’t assume that other carriers aren’t firmly armed with low-margin cargo. They just have a softer feel. 2021 is the year of service embargo and FedEx Freight ends because it is not a Bogeyman.

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Recommended reading:

FedEx Freight cuts 1,400 customers to protect service levels

FedEx Freight cancels service suspension in response to protests from major retailers

Transportation disruptions will be involved as Ningbo Fengshan Port approaches reopening

MSC warns of the impact of international intermodal freight on the west and east coasts

Viewpoint: 2021 is the year of freight ban Viewpoint: 2021 is the year of freight ban

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