Moghadam of Prologis and Smith of FedEx Discuss Industry Key Issues at “Groundbreakers” Conference

Author: Jeff Berman
October 14, 2024

When top executives from renowned logistics companies appear on the same stage, it usually means their perspectives and insights are highly valuable. At the beginning of this month, Hamid Moghadam, co-founder, chairman, and CEO of real estate investment trust company Prologis based in San Francisco, and Fred Smith, founder and executive chairman of Memphis-based freight and logistics service provider FedEx, participated in Prologis’ annual “Groundbreakers” conference in London. They discussed multiple industry trends and topics on stage, with the continuous evolution of AI usage in logistics drawing significant attention.

Moghadam explained that when considering AI and its impact, he categorizes it into several aspects, one of which is enhancing the efficiency of Prologis’ existing business operations. However, for a company like Prologis, he noted that AI is more often used for capital allocation rather than operational purposes due to the nature of their business.

“Our business mainly revolves around capital allocation—where we invest our capital and how we do so,” he said. “This involves identifying land plots where Fred (Smith from FedEx) will locate over the next three years. How do we get there? How do we identify that location? AI is very effective in helping companies solve these problems. But before discussing AI, the most important thing is data—digitizing and organizing data. Without data, no amount of AI can be useful. Everyone has a general model, but the real value lies in scale and having information on clients and their needs, which allows you to serve them better.”

From FedEx’s perspective, Smith observed that the company has been using AI for some time, particularly in predictive analytics.

He described how FedEx uses AI to blur the lines between data and digital interfaces—an important factor in industries such as healthcare.

“During the pandemic, FedEx transported nearly 55% of global vaccines with a delivery accuracy rate of 99.8%, with only 0.02% delayed due to weather conditions,” he said. “We increasingly use AI to provide information for our critical mission clients, especially in healthcare. For example, we can now tell them, ‘Due to the weather conditions, don’t send out this defibrillator or isotope for surgery today.’ AI helps us manage logistics from simple consumer demands to more complex areas like healthcare.”

Smith also emphasized FedEx’s global business coverage through services in over 220 countries, each with its own customs regime. AI assists in navigating what he calls the “trade cacophony,” translating complex and diverse trade regulations into clearer terms.

Talking about nearshoring manufacturing, Smith pointed out that U.S. manufacturing employment peaked in 1979, and automation had a greater impact on reducing manufacturing jobs than China’s rise as a global producer. He predicted that over the next five to ten years, automation and robotics will continue to influence this trend.

“Certain parts of manufacturing need nearshoring, but in terms of supply chain dynamics, a simple explanation is ‘China plus one,’ where China handles about 21% of global manufacturing capacity,” he said. “Concerns over disruptions and the relationship between China and the U.S. and Western Europe will lead to more production moving to Eastern Europe and Mexico.”

With the U.S. unemployment rate remaining at around 4%, Moghadam noted that the labor source for new manufacturing jobs remains an unresolved issue.

“In critical areas such as semiconductors and certain types of pharmaceuticals, government policies guide investments in domestic manufacturing due to national security concerns,” he said. “For other products like toys or T-shirts, we don’t want these jobs from the U.S.; it’s better if they come from elsewhere. If you look at Sino-U.S. trade data—the main area of conflict—these figures have not declined since nearshoring discussions were revived. They remain at levels comparable to when globalization was more dominant about five or six years ago. I believe there is a disconnect between politicians’ rhetoric and actual data.”

Regarding Mexico, Moghadam added that its geographical proximity to the U.S. and having 120 million underemployed people create significant opportunities for both countries, making its role in nearshoring likely to increase.

“I believe nearshoring and ‘China plus one’ are real trends,” he said. “But manufacturing returning to places like Ohio—where will the workforce come from? That’s unrealistic.”

When asked about economic prospects for 2025, Moghadam expressed cautious optimism unless there is significant geopolitical disruption.

“With central banks entering a more accommodative monetary cycle and unemployment rates still hovering around 4%,” he said. “I don’t see how the economy could go into recession with an unemployment rate of 4% and the Fed easing interest rates. I expect moderate growth. However, if tariffs increase and de-globalization continues to impact the economy, it may lead to inflation, triggering a tighter monetary cycle and dragging down the economy. Of course, by then we might have a new president, and policy environments could change.”

From FedEx’s Smith, he agreed that much will depend on consumer spending, especially given rising credit card debt and default rates, as well as a lack of real GDP growth since 2018. He noted that the U.S. borrows about $2 trillion annually, roughly equivalent to what FedEx transports in goods each year, accounting for approximately 6% of GDP.

Source: Logistics Management