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Article
Transportation Capacity Crunch

Ecommerce and an improved consumer outlook are increasing the trucking capacity crunch.


Full Article Below -
Untitled Document

As I heard that sound—the thud of boxes being dropped off on my porch late on a Saturday night—I, like many supply chain professionals, understood why deliveries are now coming later in the evening and even on Sundays. Behind the scenes the all-out crunch of transportation capacity is increasing delivery hours and raising the cost of delivery.1 It’s not just ecommerce, but the diversity of manufacturing and warehouse sites across the land that is increasing the supply chain’s reliance on transportation.

This provocatively titled article from the Wall Street Journal sums it up: A Shortage of Trucks Is Forcing Companies to Cut Shipments or Pay Up. They go on to say, In the spot market, where shippers hire trucks on short notice, there were about 10 loads waiting to be moved for every available truck in the week ending Jan. 20, compared with three in the same week last year, according to online freight marketplace DAT Solutions LLC. Spot-market prices for dry vans, the most commonly used big rig, are up more than 20% year-over-year. Analysts expect long-term contract rates that shippers negotiate with carriers to rise by between 5% and 8% this year.”2

It’s crunch time, too, for the new companies touting fresh deliveries of meals, companies that promise same-day services, ecommerce companies who are pushing much more into local markets with more products and services to the home, and traditional businesses upgrading their business models to reflect this current consumer reality. Along with inbound to the customer, there is also an increase in outbound shipments—i.e., returns (read about Returns in this issue of the brief). 

Then there is Alexa, the more famous of the home servants, to whom your every wish is their command, upping the demand for instant deliveries.

This change in the shopper is a huge boon for the economy across multiple sectors as demand increases for new trucks, airplanes, and the equipment to support the automation of manufacturing, warehouses, and delivery. Even the humble tote, as well as new and more packaging to protect fragile products—all these supporting industries within the manufacturing sector that support fulfillment are driving up B2B transportation demand, too.  

Ultimately, that also means retailers, manufacturers and 3PLs, once again, are revamping their physical supply chains and running optimization models3 to determine the best customer service, yet with a reduced burden on resources.

Shippers and carriers are exploring every avenue to keep up, using both old and new methods to increase capacity.

Insourcing–Private Fleets

The tide is turning a bit as shippers are leveraging as many options as they can over the road. This has included establishing their own transportation fleets.4 That, of course, is not a panacea, since any company, unless they are willing to pay a premium, has to wait in line like anyone else for a new truck. They also have to hire and manage personnel and embrace technologies5—end-to-end fleet management transportation systems—in order to be successful.

This expanding demand for transportation and the expanded use of private fleets is a current boon for manufacturers of trucks and airplanes. Private fleets for air cargo can leverage older passenger planes. And as the air passenger sector turns over older equipment to upgrade their fleets, more planes will be available for these cargo fleets. Yet, even Boeing forecasts6 an almost doubled increase in orders for original equipment for cargo use over the next ten years, many going into private fleets for use beyond their own services, and even beyond the well-known freight companies like UPS.7

The Broker

Freight brokerage continues to be big business, in spite of predictions that automation would eliminate the use for them. For companies to compete for their preferred carriers, novel approaches are being used, as well as old fashion methods—human negotiations and arm-twisting to take care of their most important shipper customers. The dynamics of the market have led to more competition for resources—shippers, brokers and carriers all seeking out the best means, the best rates, and dependable service to ensure reliable freight movement.

Brokers have to connect with a vast network of providers—not just their usual sources—and keep their eye on availability as well as price opportunities to advise their clients of when and how to make their moves.

Reflecting the importance of the broker, Descartes System recently acquired Aljex, a SaaS freight-broker software product, with twenty years of expertise in the broker business. Leveraging networks like MacroPoint,8 a location-based truck tracking network, brokers can see a huge population of trucks on the move and seize an opportunity in motion.

These services are critical in this climate, since, in the words of one shipper, “It’s been tough,” said Candace Holowicki, who manages transportation and logistics for dental-supply firm Metrex Research, a division of science, health-care and technology conglomerate Danaher Corp. “So far in January I’ve had 22 loads that I either had to switch brokers, find a different carrier or pay more money, anywhere from $300 extra to $1,200 extra.”9 With that kind of customer base, brokers have to be more competent, have a broader reach, and know how to serve customers end to end.

Driverless?

Though still in the future, that future will be coming faster, with many companies investing more now to address an only increasing demand for capacity. Most of the large auto makers have partnered up with several of the most advanced driverless wunderkinds—Nuro; Wamo;10 Argo AI, with Ford as underwriter; Aurora, partnering with Volkswagen and Hyundai; GM’s Cruise acquisition; Aptiv and NuTonomy, owned by Delphi, and partnered with Lyft and others;11 as well as Tesla, Audi, Uber, and so on. They, and many venture funds, are pouring billions into this future, with plans to release a few of these autonomous vehicles soon for commercial services.

Ubers for Business

UberRUSH, GoShare, and Lyft are only a few examples of services that can provide a driver for regular or spot commercial services. Understanding that they are more than an equipment rental (or passenger/ride share), these firms are working diligently to develop platforms that cater to business. The current climate is surely providing lucrative opportunities for these types of firms to gain a foothold in the commercial market competing against local carriers and parcel carriers.  

Conclusion

Since the steam engine and horseless carriage entered our world, the field of transportation has incrementally improved because of technological innovation. Our world of superhighways, high-speed trains and so on does not look at all like the world of just a little over a century ago. But we are at the point of one of those huge changes again. Driverless vehicles will be entering our world adding to and, ultimately, replacing a large percentage of human navigation. Though the physical world of superhighways may look mostly the same on the surface, our approach to and access to transportation will be altered across the world. 

As our lifestyles change and we consumers want more and more goods and services delivered to our homes or businesses, our desires will put more pressure on an already strained transportation industry. As a result, we will have to adapt to changes in the way those goods are delivered to us. This may include sharing the roads with autonomous vehicles as shippers fulfill our desires and meet the need for increased capacity. And transportation services will have to adapt and embrace the latest technologies to be part of this new era.

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1 At the same time, the Teamsters, whose union includes UPS and other parcel carrier employees, is asking for a reduction in late-night deliveries, which can be offset by hiring at least another 10,000 workers for UPS alone. This is while firms like Amazon are upping their game—promising deliveries till 11 pm for Prime customers. -- Return to article text above

2 WSJ: A Shortage of Trucks Is Forcing Companies to Cut Shipments or Pay Up -- Return to article text above

3 Read: Multi-Echelon Inventory Optimization in the 21st Century -- Return to article text above

4 Private Fleets Both Large and Small Are Affected by Trends in Safety and Comliance, the Driver Shortage and Technology -- Return to article text above

5 Read about choosing between fleet or for hire here -- Return to article text above

6 The number of airplanes in the worldwide freighter fleet will increase by 70 percent during the next 20 years. -- Return to article text above

7 UPS, FedEx, DHL etc. However, the largest air cargo carriers are still the airlines and they will fight for this lucrative business. -- Return to article text above

8 Also a Descartes acquisition -- Return to article text above

9 Ibid WSJ -- Return to article text above

10 The spin out from Google -- Return to article text above

11 There are hundreds of companies beyond the short list mentioned here that include elements such as devices, auto design and components, fuel systems, software with advanced AI, cloud networks for controlling navigation, and so much more. -- Return to article text above


To view other articles from this issue of the brief, click here.




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