US Freight Shipping Industry

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US Freight Shipping Industry

The United States freight shipping and warehousing sector comprises a vast network of land, air, and sea delivery methods that connect all 50 states through a $1.3 trillion dollar industry. Over 400,000 warehouses and thousands of miles of railway and highway form a complex matrix of transportation which is increasingly managed by third-party logistics firms and inclined toward innovation. Investments in robotics, artificial intelligence, and automation in the US freight industry seek to improve efficiencies and cut costs as e-commerce consumption experiences rapid expansion and large swaths of the country still find themselves underserved by traditional delivery services.

US Shipping and Warehouse Industry Overview

  • The United States shipping and warehouse industry comprises a wide variety of transportation and warehouse facilities, logistics service providers, and freight transportation vehicles carrying goods and passengers throughout the country. The industry's revenue has increased by an annual rate of 0.4% over the past five years to reach $1.3 trillion in 2020.
  • Like many industries, the US freight shipping sector has experienced severe negative effects due to impacts of the COVID-19 pandemic. The industry has reportedly experienced a 7.0% decline since the beginning of 2020.
  • The largest market shares in the United States freight and warehousing sector are held by the United States Postal Service (USPS), United Parcel Service (UPS), FedEx, Delta Air Lines, American Airlines, United Airlines, and Kinder Morgan.
  • The US shipping and warehouse industry is considered both highly competitive and attractive to international investors given the United States' status as "the world's largest consumer market". In 2018, $1.5 billion in foreign investment was funneled into the industry, and analysts suggest future investment will correlate directly with "sector-specific growth" in the States.
  • As of 2017, the US warehousing market alone was worth an estimated $148.7 billion, with commercial warehouses accounting for a $68.6 billion segment.
  • Technology is playing an increasingly significant role in both freight shipping and warehouse storage in recent years. As the prices of robotic machinery, artificial intelligence, and technological automation services decrease, manufacturers and shipping companies have increased investment in new innovations to remain competitive and reduce costs.

How US Manufacturers And Warehouses Ship Goods Across The US

  • Many businesses in the manufacturing and retail sectors throughout the US rely on warehousing and transportation services such as storage, parcel deliveries, and couriers to manage and move their goods. Approximately 60% of freight in the US is delivered by trucks, but the country's highly-integrated network of air, railway, highway, and maritime transportation services efficiently links businesses and customers across America.
  • Transportation and logistics organizations in the US develop "tailored logistics and transportation solutions" for their B2B customers to maximize efficiency and coordinate shipment tracking at each stage of their delivery network.
  • The logistics services subsector permeates the planning and design processes of the freight and transportation industry, with third-party logistics becoming increasingly popular. Logistics services within the industry include fleet and warehouse management, supply and demand forecasting, and order fulfillment.
  • United States air delivery and other express delivery services (EDS) represent an $87 billion subsector, the growth of which has been spurred in recent years by the proliferation of the e-commerce industry. Air delivery services and EDS firms provide expedited deliveries, high-value deliveries, and end-to-end document services.
  • An average of 5,000,000 tons of goods are delivered each day along America's 140,000-mile freight rail system. The rail network is ideal for high-volume or high-weight cargo that needs transportation over long distances.
  • US Government data from 2017 indicated that the country's freight rail system transported over 70% of US coal, 58% of metal ores, 1,600,000 carloads of agricultural goods, and 13,700,000 "intermodal containers" of consumer goods that year.
  • The US maritime shipping subsector includes carriers, ports, and terminals that move goods and passengers by water. Close to 70% of US international trade and 72% of exports from the US are transported by sea.
  • America's trucking industry saw approximately $700 billion in revenue as of 2017, per American Trucking Association data. In 2017, nearly 11 billion tons of cargo were transported by US trucks across comparatively small-scale regions.
  • "Trucking: Over-the-road transportation of cargo is provided by motor vehicles over short and medium distances. According to the American Trucking Associations, trucking revenues were $700 billion in 2017. That year, trucks moved almost 11 billion tons of freight."

Warehouse Locations Throughout The US

  • Data from commercial real estate intelligence firm Reonomy suggest that the United States is home to over 400,000 warehouses, approximately 20,000 of which exceed 100,000 square feet in area.
  • The total number of parcels stored in US warehouses is estimated to be over 430,000.
  • In 2019, the majority of United States "fulfillment centers, distribution centers and warehouses" were estimated to be 400,000 square feet in building area.
  • The shipping and warehouse industry is experiencing increases in demand among US urban centers that call for "small box" locations, ranging from 50,000 to 200,000 square feet. These smaller-scale facilities are used as intermediary locations in high-demand areas to reduce delivery cost and time.
  • Newer warehouses in the US are also more likely to focus on order fulfillment, rather than "traditional pallet racking", given the surge of e-commerce growth in recent years.
  • Over 183,000,000 square feet of warehouse space was added to the United States in 2018, a marked increase over a steady average of 100,000,000 square feet of warehouse building area that was constructed in each of the previous 10 years.

US Cities And States Underserved By The Shipping And Warehouse Industry

  • US citizens residing in rural areas and small towns across the country are not part of the USPS residential delivery network, and therefore are not able to receive mail at their places of residence. US residents with driveways that are not "less than half a mile long, paved, and wide enough for the truck to get in and out of without backing up" are not able to have parcels delivered to their doors.
  • Certain USPS policies also deny regular delivery to residents of US regions with extreme terrain or frequently hazardous weather conditions. Jackson, WY and Mammoth Lakes, CA, for example, both experience such consistently severe snowfall that regular mail services are considered too hazardous for postal workers.
  • A significant portion of deliveries in rural US locations arrive at mailbox clusters along centrally-located paths. Such clusters often serve wide areas and are frequently far from recipients' places of residence. In these underserved areas, mail can sometimes only be retrieved at post offices over 30 miles away.
  • Consumers from small towns and rural areas in the US also complain of costly extra charges applied to deliveries from UPS and FedEx, and note that Amazon's two-day shipping promise for Prime members is rarely a reality in remote areas.
  • More than 20,000 zip codes in rural and remote US locations are subject to residential delivery surcharges by UPS and FedEx.
  • The "last-mile" stage of delivery, in which goods are transported from distribution centers to their final locations, tends to represent the most challenging and high-cost segment of the US freight industry's supply chain, which research suggests may be part of the reason remote areas of the United States tend to be comparatively underserved.
  • Despite the high cost of last-mile transportation, rural consumers in the US are taking advantage of the conveniences of e-commerce in higher numbers than ever. In 2017, market research firm Kantar Retail published data revealing a 5% increase in online shopping among rural consumers between 2014 and 2016.

Techniques Employed By Manufacturers And Shippers To Obtain Low Shipping Rates

  • US manufacturers and shipping companies make use of third-party logistics (3PL) firms to widen their service areas, automate order fulfillment procedures, and optimize operations at distribution centers in order to cut costs and lower commercial rates.
  • Many US businesses shipping goods also outsource their fulfillment services, utilizing third-party fulfillment center locations in closer proximity to customers to decrease shipping distance and price.
  • Many last-mile deliveries in the US are passed off to local providers who have more robust regional networks and are able to provide courier services at lower rates in locations not typically visited by larger transportation services like UPS and FedEx.
  • UPS and FedEx frequently transfer last-mile deliveries to USPS distribution centers to cut costs, given the postal service's legal obligation to provide service everywhere possible.
  • Retail companies involved in the shipping industry are testing a variety of innovative programs to remain competitive and lower shipping rates. For example, Wal-Mart is piloting a delivery program allowing its own associates to transport goods to customers along their commute for additional pay.

Variations in Shipping Rates By US Region

  • In the Western region of the United States, which includes California, Oregon, Washington, Montana, Idaho, Nevada, Utah, Wyoming, and Colorado, shipping rates are largely stable and affordable. California's extensive railroad network and Wyoming's coal and natural gas industries make shipping prices in these states particularly low.
  • Exceptions to generally reasonable freight prices in the West include rate increases in Colorado that take effect during treacherous winter months, and above-average rates required to deliver to rural areas in states like Montana and Nevada.
  • Shipping rates in the United States Southwest, comprised of Arizona, New Mexico, Texas, and Oklahoma, vary across the region. Freight prices tend to be low in Texas and Oklahoma due to their year-round industry production and centrally-located delivery hubs, respectively.
  • Arizona and New Mexico experience fluctuating freight costs based on their respective agricultural production, which is in turn highly volatile with respect to extreme desert temperatures. Research suggests that shipping rates are lowest in these states during spring and summer.
  • The American Midwest, including the states of North and South Dakota, Nebraska, Kansas, Michigan, Wisconsin, Minnesota, Iowa, Missouri, Illinois, Indiana, and Ohio, tends to have more affordable shipping rates than average. Most of the region's states are centrally located, with steady terrain and booming industries that combine to effect very low freight prices.
  • Freight costs in the Midwestern US may be higher in certain rural areas of Kansas and throughout Minnesota due to the state's relative lack of major cities. Research also suggests that low rates in North Dakota may be a result of comparatively low demand.
  • The Southeastern region of the United States, made up of Arkansas, Louisiana, Kentucky, Tennessee, Mississippi, Alabama, Georgia, Florida, West Virginia, Virginia, and the Carolinas, boasts largely low shipping prices, with summer rates becoming particularly affordable among states with significant agricultural production. Large rural areas in Arkansas and West Virginia lead to increased rates in these states.
  • The highly interconnected nature of Northeastern US states such as Pennsylvania, New York, New Jersey, Connecticut, Delaware, Maryland, Rhode Island, Massachusetts, New Hampshire, Vermont, and Maine lead to generally steady and affordable shipping rates across the region. States in the Northeast have significant numbers of available railroads and sea ports that combine to make shipping options more abundant and cost-effective.
  • Hawaii and Alaska, the only two states separate from the contiguous US, have some of the highest shipping rates in the country. Hawaii is particularly expensive, while shipments departing Alaska tend to be marginally less expensive than the state's inbound deliveries.
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