They have little control over freight rates and less over fuel prices, but cost-conscious shippers still have one option: work closely with carriers to cut out wasteful spending.
Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.
It is no longer news that tight capacity in the motor carrier industry has driven up freight rates, making for a couple of very profitable years for at least some segments of the industry.
Nor is it a shock any longer to see diesel prices a critical component of freight costs hovering around three dollars a gallon. The average price for a gallon of diesel fuel at the end of August was a fraction below $3.03 a gallon, according to the federal Energy Information Agency. The price was $2.59 the same week a year ago, just prior to the jump in fuel prices following the hurricanes along the Gulf Coast. Since then, prices have ranged anywhere from $2.43 to $3.07. In contrast, in the prior 12 months, diesel fuel costs hovered closer to the $2.00 mark and frequently fell lower.
Shippers that move goods by less-than-truckload (LTL) carrier are accustomed to paying fuel surcharges to compensate carriers for the cost of diesel. But those soaring surcharges over the past year, along with rising base freight rates, have led shippers to look anew at ways to control their freight expenditures.
Last month, as part of its continuing series of white papers on supply chain management, ProLogis, a major developer of distribution centers, examined some of those strategies. Paul Nuzum, the author of the report, interviewed a dozen senior logistics executives on how they are managing in the current transportation climate.What he found was a mix of ideas some old and some new many of which involved ways of working more closely with carriers.
Nuzumemphasizes that the executives he interviewed were concerned about more than costs."[T]hey are all more concerned about ensuring that their companies' products are on the shelf when their customer wants to buy them," he writes."When lead times lengthen or become erratic, inventory stock-outs become more frequent, resulting in lost sales and, worse still, lost customers."
Nuzum, an adjunct professor at the University of Denver and a principal in the consulting firm Supply Chain Insights, grouped his study's conclusions into four broad categories:
Companies are adding consolidation and deconsolidation centers to their distribution networks;
Companies are taking responsibility for their own freight bills in order to create more efficient freight lanes, leverage transportation spending and ensure daily execution at the best negotiated rates;
Companies are forging closer connections with their carriers;
Companies are looking to extract greater capacity from existing fleets and facilities by improving cube utilization, reducing empty miles and extending hours of operation.
When more equals less
What may be most indicative of the state of transportation costs is the first: companies are adding new facilities to their networks in order to take better advantage of the rates for full loads. "Adding new links to the supply chain ... would appear to be antithetical to the industry's long-standing quest for simpler, less costly and more efficient supply chains," Nuzum writes. "But the new links added to companies' supply chains are not DCs per se, but freight pooling hubs." It makes sense to add such facilities, he suggests, if the resulting transportation cost savings exceed the cost of running the facilities.
In practice, he explains, shippers choose from a number of distribution network designs based on the volumes of products moving to each DC in the network.
Some companies are choosing to lease facilities, others to own, and others to use third parties, says Leonard Sahling. He is the editor of ProLogis's supply chain white paper series and first vice president of ProLogis Global Research. "It's all over the map," he says. "It is similar to the situation with DCs generally."
He terms the concept of adding these new facilities "a striking trend" that runs counter to the efforts of many companies to shed DCs over the past 15 years. Many of the facilities, he adds, are located near ports, where container loads of goods from overseas can be deconsolidated for shipment to DCs.
"Think of them as freight pooling hubs," he says. "It is a variation on an old theme."
Motor carriers and third-party logistics service providers offer variations of that type of service. One example of a consolidation and deconsolidation service: Old Dominion Freight Line, a North Carolina-based LTL carrier that provides regional services around the country, offers what it calls assembly and distribution services. That is, it will collect freight at its service centers and assemble it into truckloads, and accept truckload shipments at a center to break into LTL shipments in its region.
Chip Overbey, vice president of national accounts for Old Dominion, says, "We'll work with customers and work with their vendor patterns and pattern a program to load into one point."
Buy globally, execute locally
The concept of centralizing transportation purchasing is hardly new, but Nuzum sees the development as different in kind. Using the power to buy centrally to win the best rates is still important, of course, but it also creates the potential for better overall network design and execution. That is, concentrating the control over the freight buy enables shippers to ensure that the lane-by-lane commitments made to carriers in order to win good rates are in fact fulfilled. That, in turn, ensures that the shipper gets the best available rate.
Further, by linking transportation planning with shipping forecasts from sales and marketing, shippers can provide better advance information to carriers, helping them to plan capacity, which translates into having a truck at the dock when it is needed. "As a general rule, centralizing transportation decisions also enables a shipper to move transportation planning closer to the point of order so that it ceases to be an end-of-the-line function," Nuzum writes.
Jim Staley,president and CEO of YRC Regional Transportation, says that corporate bid packages allow carriers to develop broad price and service packages. He adds that it's important that shippers understand the precise capabilities of carriers and match that with their own needs. "The main thing is to make sure they understand what our core competencies are and where our services meet their needs." For instance, he says, carriers in the YRC group, which include New Penn Motor Express and the USF group of regional carriers, focus on overnight and second-day delivery.
The extent of centralization efforts can be extensive. Chuck Odom, vice president of global development for Averitt Express, a Southeastern regional LTL carrier based in Tennessee, describes a complex project undertaken for one customer. The customer decided to consolidate the freight buy for its multiple brands. ("No one is negotiating in silos," Odom says.) The result was a program in which Averitt operates a large facility for the customer, moving about 12,000 cartons a day through the facility from multiple vendors and out to outlet stores. Previously, the shipments moved through 14 distribution centers and 30 apparel suppliers. All the DCs operated independently, with their own freight spend and own rate structure, Odom says.
Sahling cautions that the sample used in the ProLogis study is too small to justify calling the centralization of transportation management a trend. But, he adds, "It makes such eminent sense. Along with centralization comes the whole effort to enhance collaboration. They really go hand in hand. It is not just an effort to beat the price down, but to get overall control and in the process find ways to economize on cost and make sure the goods actually move."
Talk to each other
Carrier executives emphasize how crucial this information is to their businesses. "Getting information from the shipper is increasingly important," Staley says. The better the advance information, he notes, the better the carrier can schedule capacity.
Overbey explains, "If we get information ahead of time, we can sit with customers and help them create load plans." Good planning can, for example, reduce the number of breakbulks LTL shipments move through and allow more shipments to move directly to destination.
He says that advance information creates a "domino effect" advance information allows building better loads and more direct loads, which in turn reduces transit time and, with less handling, reduces damage. "Our job is to be an extension of what they are doing," he says. "The sooner we are in the loop, the better the job we can do for them."
The information flow, and the forecasting of freight flows, is just one example of the ways in which shippers are working more closely with carriers. Others take place at the heart of shipping operations. Motor carriers cheer shipper efforts to improve the efficiency of dock operations. Truckers have long complained about the costs they incur while they wait to load or unload at shipper and consignee docks. As capacity tightened over the last couple of years, they have lost any reluctance they may have had to add accessorial or detention fees when shippers hold up their equipment and drivers. Furthermore, shippers that work with carriers to reduce their costs are likely to be favored when capacity is at its tightest during peak shipping seasons.
"Shippers are taking a close look at their shipping and receiving practices, searching for ways to lower their carriers' costs," writes Nuzum.
J. Edwin Conaway, vice president of sales for Con-way Freight, says, "Shippers are doing two things. They are planning their loads better, so when we come to do a pickup, we don't have a long wait. The second thing they are doing is being better prepared when we have a drop-off, so we're in and out of the dock faster."
In addition, some shippers have extended their hours of operation, Nuzum notes, essentially increasing dock door capacity. "Shipping or receiving at night and on weekends smoothes the operations of both shippers and carriers," he writes.
Fair exchange
In another bid to help carriers control costs, some shippers have agreed to stop aging their freight bills and to pay carriers promptly a significant boost to any carrier's cash flow, and an important step in becoming a preferred customer. To reduce processing time, Nuzum says, some shippers have adopted self-invoicing programs for carriers. In those programs, he explains, the carrier accepts the rate at the same time it accepts the load, and the shipper pays on delivery without a time-consuming auditing process. In return for prompt payment, shippers are likely to win lower freight rates.
The extent of collaboration among some shippers and carriers is further demonstrated by the development of two-way metrics, in which both shippers and carriers evaluate one another's performance. Nuzum cites dwell time, accuracy of count, quality of documentation, disparities between forecast and actual loads moved, and changed orders as examples of the sorts of metrics used to gauge shipper performance. The idea is that those measures will be used to identify and eliminate problems in the shipping process.
The collaboration further extends to getting more out of existing assets. Nuzum terms it "creating capacity," but it might also be described as making better use of what already exists. Carriers and shippers alike are involved in attempting to improve cube utilization. That can take several forms: better, more efficient packing by shippers and carrier equipment that allows higher stacking, for example.
Staley says, "We are trying to strike a good balance between being flexible toward customer needs and the scheduled service that we need. We work with shippers on flexible pickup and delivery times. We know for example that morning deliveries are important, so we are stressing morning delivery performance."
Another long-term bugbear for freight carriers, empty miles, is also getting greater focus from both shippers and carriers. It has historically been seen as a carrier problem, but some shippers are now helping truckers address the problem for example, by working to link their vendors with carriers on lanes where the carriers have a problem with running empty miles.
"Finding such synergies is seldom simple," Nuzum acknowledges. But he adds that it can pay off. He cites one executive who says that he is using his transportation management software to identify all his company's freight patterns to find just that sort of opportunity.
What holds true for carriers regarding asset utilization can also hold true for shippers by extending DC operating hours. "We're seeing more and more companies expanding their workweeks," Nuzum writes. Some have been forced to do so, he adds, as a result of customer demands for round-the-clock shipping capability. What those shippers discover, he asserts, is that longer hours translate into smoother flows of freight volumes, which translate into reduced overtime, improved inventory turns and faster deliveries.
Further, longer hours equate to greater shipping capacity, less dock congestion, and reduced loading and unloading times. The last is another bonus of carrier collaboration.
The pressure to keep freight moving at reasonable cost is driving much of the innovation by both carriers and shippers. "It is not just cost, but capacity," Odom says. "Customers will even consider collaborating with each other. We have an ability to explore ideas that would not have been there four or five years ago. We are definitely seeing creativity and innovation for efficiency."
The overall goal seems simple enough. Writes Nuzum: "Shippers hope that such collaborations will yield them consistent availability of carrier capacity along with minimal rate increases."
This story first appeared in the September/October issue of Supply Chain Xchange, a journal of thought leadership for the supply chain management profession and a sister publication to AGiLE Business Media & Events’' DC Velocity.
For the trucking industry, operational costs have become the most urgent issue of 2024, even more so than issues around driver shortages and driver retention. That’s because while demand has dropped and rates have plummeted, costs have risen significantly since 2022.
As reported by the American Transportation Research Institute (ATRI), every cost element has increased over the past two years, including diesel prices, insurance premiums, driver rates, and trailer and truck payments. Operating costs increased beyond $2.00 per mile for the first time ever in 2022. This trend continued in 2023, with the total marginal cost of operating a truck rising to $2.27 per mile, marking a new record-high cost. At the same time, the average spot rate for a dry van was $2.02 per mile, meaning that trucking companies would lose $0.25 per mile to haul a dry van load at spot rates.
These high costs have placed a significant burden on the operations of trucking companies, challenging their financial sustainability over the last two years. As a result, 2023 saw approximately 8,000 brokers and 88,000 trucking companies cease operations, including some marquee names, such as Yellow Corp. and Convoy, and decades-long businesses, such as Matheson Trucking and Arnold Transportation Services.
More so than ever before, trucking companies need to get better at efficiently using their assets and reducing operational costs. So, what is a trucking company to do? Technology is the answer! Given the nature of the problem, technology-led innovation will be critical to ensure companies can balance rising costs through efficient operations.
One technology that could be the answer to many of the trucking industry’s issues is the concept of digital twins. A digital twin is a virtual model of a real system and simulates the physical state and behavior of the real system. As the physical system changes state, the digital twin keeps up with the real-world changes and provides predictive and decision-making capabilities built on top of the digital model.
DHL, in a 2023 white paper, suggests that—due to the maturation of technologies such as the internet of things (IoT), cloud computing, artificial intelligence (AI), advanced software engineering paradigms, and virtual reality—digital twins have “come of age” and are now viable across multiple sectors, including transportation. We agree with this assessment and believe that digital twins are essential to radically improving the processes of fleet planning and dispatch.
THE NEED TO AUTOMATE
Outside of attaining procurement efficiencies, trucking companies can achieve lower costs by focusing on critical operational levers such as minimizing deadheads, reducing driver dwell time, and maximizing driver and asset utilization.
However, manual methods of planning and dispatch cannot optimally balance these levers to achieve efficiency and cost control. Even when planners work very hard and owners strive to improve processes, optimizing fleet planning is not a problem humans can solve routinely. Planning is a computationally intensive activity. To achieve fleet-level efficiencies, the planner has to consider all possible truck-to-load combinations in real time and solve for many operational constraints such as drivers’ hours of service, customer windows, and driver home time, to name just a few. These computations become even more complex when you add in the dynamic nature of real-world conditions such as trucks getting stuck in traffic or breaking down or orders getting delayed. This is not a task humans do best! For these sorts of tasks, technology has the upper hand.
When a company creates a digital twin of its trucking network, it has a real-time model that factors in truck locations, drivers’ hours of service, and loads being executed and planned. Planners can then use this digital model to assess possible decisions and select ones that increase asset utilization, improve customer and driver satisfaction, and lower costs.
For example, a digital twin of the network can offer significant insights and analysis on the state of the network, including exceptions such as delayed pickups and deliveries, unassigned loads, and trucks needing assignments. Backed by AI that takes business rules into account, digital twins can allow companies to optimize their fleet performance by finding the most efficient load assignments and dynamically adjusting in real time to changes in traffic patterns and weather, customer delays, truck issues, and so on.
With a digital twin, carriers can optimize the matching of assets, drivers, and freight. Typically, an investment in this innovative technology results in a 20%+ increase in productive miles per truck, while also improving driver pay and significantly decreasing driver churn. Drivers get paid by the miles they run, so when they run more, they are able to make more money, resulting in less need to chase the next job in search of better pay.
ADDITIONAL BENEFITS
Digital twins also combat deadheading, another source of driver dissatisfaction and cost inefficiencies. On average, over-the-road drivers spend 17%–20% of road miles driving empty. Using a digital twin, a company can search across several freight sources to find a load that perfectly matches the deadhead leg without impacting downstream commitments. These additional revenue miles will help drivers to maximize their earnings on the road and carriers to maximize their asset utilization and profitability.
The traditional manual dispatch planning model is becoming increasingly outdated—each planner and fleet manager tasked with overseeing 30 to 40 vehicles. Carriers try to manage this problem by dividing the fleet into manageable chunks, which results in cross-fleet inefficiencies. Such a system isn’t scalable. A digital twin acts as an equalizer for small and mid-sized fleets. It enables carriers to expand by venturing beyond the fixed routes and network they were forced to run out of fear of additional logistical complexity.
A digital twin can also give an organization the transparency and visibility it needs to find and fix inefficiencies. A successful carrier will leverage the technology to learn from the hitches in its operations. While this visibility is beneficial in its own right, it also provides the first step toward a seamless, digitized operation. “Digital revolution” is a buzzword frequently heard at transportation conferences. Yet not too many organizations are dedicated to digitizing their operations past the visibility stage. The end goal should be using decision-support systems to automate key elements of the system, thus freeing up planners from their daily rote tasks to focus on problems that only humans can solve.
Finally incorporating a digital twin can also help trucking companies work toward the broader trend of creating greener supply chains. Because they have lower deadhead and dwell times, trucking companies that have adopted a digital twin can be more attractive to shippers that are looking for more efficient operations that meet their environmental, social, and governance (ESG) goals.
THE FUTURE IS HERE
It is important to note that the benefits described here are not dreams for the future; digital twin technology is already here. In fact, choosing a digital twin can seem daunting because there are already a spectrum of options out there. First and foremost, an organization must ensure that the digital twin it selects aligns with both the goals and the scope of its operation.
Additionally, the ideal digital twin should:
Operate in near real time. A digital twin should be able to refresh as often as the network changes.
Be able to factor in specific customer delivery requirements as well as asset- and operator-specific constraints.
Be computationally efficient and comprehensive as it considers thousands of permutations in milliseconds. The digital twin should be able to reoptimize an entire fleet’s schedule of multi-day routes on the fly.
Before implementing a digital twin, carriers need to make sure that they have robust data management processes in place. Electronic logging devices (ELDs), customers’ tenders, billing, shipments, and so on are already inundating carriers with a glut of data. However, the manual nature of operations in many carriers leads to poor data quality. Carriers will need to invest in data management approaches to improve data quality to support the generation and use of high-fidelity digital twins. Otherwise, the digital twin will not be representative of reality and companies will run into an issue of “garbage in, garbage out.”
REINVENTION AND TRANSFORMATION
While data management is critical, change management through the ranks of dispatch operations is often a harder task. In fact, the largest roadblock carriers face when undergoing a digital transformation is the lack of willingness to change, not the technology itself. Many carriers cling to outmoded planning methods. Planners, used to operating based on well-worn business rules and tribal knowledge, could be wary of the technology and resistant to change. They may need to be assured that, while it is true that every trucking network is uniquely complex, digital twins can be set up to model the intricacies of their specific dispatch operations and drive value to the network. A significant amount of time and resources will need to be expended on change management. Otherwise even though trucking companies may invest in cutting-edge technology, they won't be able to fully capitalize on the added value it can provide.
As the truckload industry works through the current freight cycle, it is important to realize that change is inevitable. Carriers will need to reinvent their operations and invest in technologies to ride through the busts and booms of future freight cycles. Recent global events point to the many ways that wrenches can be thrown into global transportation networks, and the fact that such volatility is here to stay. Digital twins can provide companies with the visibility to navigate such changes. But above all, an operation that uses the digital twin to drive decisions can make customers and drivers happy, and help the carriers keep their heads above water during times such as now.
More than half of home deliveries to U.S. online shoppers arrive either late, damaged, or at the wrong address, totaling 53% of orders with one of those issues, according to a study from e-commerce software vendor HubBox.
Specifically, almost one in three (27%) home delivery packages are currently delivered late, while almost one in six (15%) online orders are delivered to the wrong address. The results come from Atlanta-based HubBox, which works with networks and carriers to provide retailers with pickup access to over 400,000 locations worldwide.
Furthermore, the survey of more than 1,000 U.S. shoppers revealed consumers’ top five home delivery pain-points: 1. Orders delivered to the wrong house or block (37%), 2. Packages left with neighbors they don’t like or don’t speak to (30%), 3. Item arriving damaged (28%), 4. Delivery is late (27%), and 5. Having to wait at home for deliveries (25%).
According to HubBox, those frustrations have pushed nearly half (49%) of shoppers to consider out-of-home delivery collection points to overcome poor delivery service.
“Shoppers expect seamless experiences throughout their buying journey – and nowhere more so than in delivery and the last mile where shoppers’ anticipation of receiving their order is highest,” HubBox CEO Sam Jarvis said in a release. “Retailers that offer flexible and convenient delivery experiences, such as pickup points or BOPIS, (Buy Online Pick Up in Store) stand a better chance, and, if they can’t meet these expectations, they risk significant lost sales and future loyalty.”
In addition, more shoppers now expect compensation for late deliveries; over half (53%) expect money off their next order if a delivery is delayed, while 63% expect delivery charges to be waived and another 54% expect a free delivery code for their next order.
“Late deliveries don’t just erode hard-won customer loyalty. Increasingly, as retailers are having to compensate customers for delayed orders, they eat away at already slim margins – and this at a time when the cost of fulfilment is rising and some carriers are charging additional fees for home deliveries,” Jarvis said. “By diversifying fulfilment options, such as adding local pickup, retailers can ensure demand can be met across their network even during peak trading periods such as Black Friday and the Christmas holidays while ensuring consumer experience is maintained.”
Regular online readers of DC Velocity and Supply Chain Xchange have probably noticed something new during the past few weeks. Our team has been working for months to produce shiny new websites that allow you to find the supply chain news and stories you need more easily.
It is always good for a media brand to undergo a refresh every once in a while. We certainly are not alone in retooling our websites; most of you likely go through that rather complex process every few years. But this was more than just your average refresh. We did it to take advantage of the most recent developments in artificial intelligence (AI).
Most of the AI work will take place behind the scenes. We will not, for instance, use AI to generate our stories. Those will still be written by our award-winning editorial team (I realize I’m biased, but I believe them to be the best in the business). Instead, we will be applying AI to things like graphics, search functions, and prioritizing relevant stories to make it easier for you to find the information you need along with related content.
We have also redesigned the websites’ layouts to make it quick and easy to find articles on specific topics. For example, content on DC Velocity’s new site is divided into five categories: material handling, robotics, transportation, technology, and supply chain services. We also offer a robust video section, including case histories, webcasts, and executive interviews, plus our weekly podcasts.
Over on the Supply Chain Xchange site, we have organized articles into categories that align with the traditional five phases of supply chain management: plan, procure, produce, move, and store. Plus, we added a “tech” category just to round it off. You can also find links to our videos, newsletters, podcasts, webcasts, blogs, and much more on the site.
Our mobile-app users will also notice some enhancements. An increasing number of you are receiving your daily supply chain news on your phones and tablets, so we have revamped our sites for optimal performance on those devices. For instance, you’ll find that related stories will appear right after the article you’re reading in case you want to delve further into the topic.
However you view us, you will find snappier headlines, more graphics and illustrations, and sites that are easier to navigate.
I would personally like to thank our management, IT department, and editors for their work in making this transition a reality. In our more than 20 years as a media company, this is our largest expansion into digital yet.
We hope you enjoy the experience.
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In this chart, the red and green bars represent Trucking Conditions Index for 2024. The blue line represents the Trucking Conditions Index for 2023. The index shows that while business conditions for trucking companies improved in August of 2024 versus July of 2024, they are still overall negative.
FTR’s Trucking Conditions Index improved in August to -1.39 from the reading of -5.59 in July. The Bloomington, Indiana-based firm forecasts that its TCI readings will remain mostly negative-to-neutral through the beginning of 2025.
“Trucking is en route to more favorable conditions next year, but the road remains bumpy as both freight volume and capacity utilization are still soft, keeping rates weak. Our forecasts continue to show the truck freight market starting to favor carriers modestly before the second quarter of next year,” Avery Vise, FTR’s vice president of trucking, said in a release.
The TCI tracks the changes representing five major conditions in the U.S. truck market: freight volumes, freight rates, fleet capacity, fuel prices, and financing costs. Combined into a single index, a positive score represents good, optimistic conditions, and a negative score shows the opposite.
A coalition of truckers is applauding the latest round of $30 million in federal funding to address what they call a “national truck parking crisis,” created when drivers face an imperative to pull over and stop when they cap out their hours of service, yet can seldom find a safe spot for their vehicle.
According to the White House, a total of 44 projects were selected in this round of funding, including projects that improve safety, mobility, and economic competitiveness, constructing major bridges, expanding port capacity, and redesigning interchanges. The money is the latest in a series of large infrastructure investments that have included nearly $12.8 billion in funding through the INFRA and Mega programs for 140 projects across 42 states, Washington D.C., and Puerto Rico. The money funds: 35 bridge projects, 18 port projects, 20 rail projects, and 85 highway improvement projects.
In a statement, the Owner-Operator Independent Drivers Association (OOIDA) said the federal funds would make a big difference in driver safety and transportation networks.
"Lack of safe truck parking has been a top concern of truckers for decades and as a truck driver, I can tell you firsthand that when truckers don’t have a safe place to park, we are put in a no-win situation. We must either continue to drive while fatigued or out of legal driving time, or park in an undesignated and unsafe location like the side of the road or abandoned lot,” OOIDA President Todd Spencer said in a release. “It forces truck drivers to make a choice between safety and following federal Hours-of-Service rules. OOIDA and the 150,000 small business truckers we represent thank Secretary Buttigieg and the Department for their increased focus on resolving an issue that has plagued our industry for decades.”