Transportation & Logistics Q1 2021

United Airlines Grounds Boeing 777 Jets after Engine Failure

The FAA ordered mandatory inspections on Boeing 777 airplanes equipped with Pratt & Whitney engines after one of the engines failed on a United Airlines flight. The order comes after two similar incidents with the engines in recent years. Currently, United Airlines is the only U.S. airline affected, with 24 total 777 airplanes equipped with the Pratt & Whitney engines in its fleet. United Airlines stated that the grounding would directly impact its planned cargo shipments, one of its largest revenue generating services.¹

Two New Low-Cost Airlines Look to Start Service in Early 2021

Avelo Air, based in Houston, and Breeze Airways, based in Salt Lake City, announced their plans to begin flight operations in early 2021. Both airlines are low-cost carriers focused on serving smaller airports which are often overlooked by industry players. These announcements come after a year where air travel has decreased significantly and is not predicted to return to previous levels for several more years. Both companies view the timing as positive as large industry players have laid off experienced staff, there are more available airport gates, airports have more landing slots available, and corporate office space is cheap due to the pandemic.²

U.S. West Coast Ports Backlog Rattles Supply Chains

Significant congestion has jammed ports in both Los Angeles and Long Beach, California, the nation’s two largest ports. The delays have significantly impacted the global supply chains for all industries. The port of Los Angeles handled 47.0 % more containers in February 2021 than it did in February 2020. Similarly, the port of Long Beach handled 43.9% more containers in February 2021 than it did in February 2020. It is predicted that the increase in containers will continue through the summer of 2021.

In January 2021, 27.4% of the containers arriving at the ports waited longer than five days to be handled, compared to only 2.4% in January 2020. The backlog has caused importers to shift supply chains to more costly shipping methods, such as airfreight, to ensure they get their goods on time. The increases in shipping costs are expected to be passed on to consumers . Paris, Costas. “Shipping Logjams Spread on Crush of Imports.” The Wall Street Journal, Dow Jones & Company, 18 Mar. 2021. ³

FedEx Announces $2 Billion Investment to Convert to Carbon-Neutral Operations

FedEx Corporation (NYSE: FDX) has announced a $2 billion investment to make its global operations carbon-neutral by 2040. Earlier this year, FedEx signed an agreement with General Motors Company (NYSE: GM) to take delivery of 500 EV600s, General Motor’s new commercial electric trucks. FedEx plans to convert its entire fleet to electric by 2030, with a goal of 50% of vehicle purchases to be electric by 2025. This announcement follows competitors, United Parcel Services (NYSE: UPS) and Amazon.com, Inc. (NASDAQ: AMZN), announcements to purchase electric trucks, solidifying the move toward greener energy sources for logistics companies.⁴

Gasoline Demand Peaks Illustrating Pivot to Electric Vehicles

The International Energy Agency’s five-year forecast stated that the world’s demand for gasoline has peaked. Global demand for gasoline in 2019 was 26.6 million barrels per day, and it is predicted that demand through 2026 will decrease to 25.9 million barrels a day. The accelerating global shift toward electric vehicles was cited as one of the main reasons why gasoline demand will not return to pre-pandemic demand levels. Major carmakers have already announced their intentions to develop electric vehicles. General Motors Company (NYSE: GM) announced the end of gas-powered car sales by 2035, and Volvo announced their entire fleet would be electric by 2030. Electric vehicles currently account for 4.2% of new car sales globally, and global sales of electric vehicles increased 43% in 2020 compared to 2019. ⁵

Pandemic Induced Trucking Failures Soared in 2020

In 2020, 3,140 trucking fleets reported shutting down, an increase of 185% from 2019. Smaller operators were hit especially hard, as larger, better capitalized companies could weather the significant decrease in demand seen in the second quarter of 2020. Currently, 97% of the U.S. freight industry is comprised of companies with fewer than 20 trucks in their fleet. For these smaller carriers, margins are typically slimmer due to higher volatility in contracts and higher purchasing costs. As the economy begins to recover, there could be a growing trend of consolidation within the industry as companies look to preserve and improve margins.⁶

Logistics Expansion Continues Causing Rise in Prices

February saw an increase in the economic growth of the logistics industry. Demand is outpacing supply which is causing prices to increase. In February, the transportation prices, warehousing prices, and inventory costs were all at their highest levels in more than two years. Industry analysts predict this trend will continue through much of 2021 as consumer spending and industrial growth continue to increase.⁷

Berkshire Grey to Merge with Revolution Acceleration Acquisition Corp.

Berkshire Grey Inc., a company offering logistics automation through artificial intelligence, has announced they will go public via a merger with special-purpose acquisition company Revolution Acceleration Acquisition Corp. The deal values Berkshire Grey at $2.7 billion. Berkshire Grey uses artificial intelligence, mobile robots, scanning, gripping, and sensing technology to increase speed and efficiency at distribution centers. As e-commerce continues to grow, automation and increased efficiency have become even more critical for supply chains to function.⁸

Suez Canal Blockage Strains Global Supply Chains

The Suez Canal was blocked on March 23rd by a large container ship, the Ever Given, caused shipping delays and a backlog of more than 400 ships waiting to pass through the canal. The ship is one of the largest container ships currently in use. Container ships are becoming larger due to increased demand for consumer products. The incident was predicted to cost global trade roughly $9.6 billion each day the canal was blocked. As ships expand and more susceptible to incidents, firms may look to air transportation to ship goods, which is significantly more expensive.⁹