Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
In a famous scene from the 1967 film "The Graduate," a man approaches recent college graduate Benjamin Braddock at a party and whispers one word of advice in Braddock's ear about his future career:
"Plastics."
In that spirit, one can almost envision Benjamin Franklin, the founder of the U.S. Postal Service (USPS), pulling Paul Vogel, USPS's president and chief marketing and sales officer, aside at a function and whispering one word in Vogel's ear about the post office's direction:
"Parcels."
Unlike Braddock, who recoiled at the idea of choosing plastics as a career, the 61-year-old Vogel, who runs all sales, marketing, and domestic and international product development and management, would likely be receptive to Franklin's advice. Though far from being the tail that wags the postal dog, parcels are becoming an increasingly critical part of the quasi-governmental agency's present, and more importantly, its future.
"It's a growth area," Vogel said in a recent interview with DC Velocity. "The shipping industry is doing well for us."
Vogel has good reason to be upbeat about USPS's place in the parcel world. The growth of online commerce from all sources—computers, mobile devices, and social media—plays to the strength of the USPS's infrastructure, which is built around handling packages weighing one to five pounds—the typical weight range of an online shipment—and delivering it to any address in the United States at a lower cost than its private rivals can.
And there is more of that growth expected to come. According to Forrester Research and Booz & Co., the value of all U.S. online sales—excluding groceries—will hit $324 billion by 2015, up from $204 billion in 2011. Those projections do not include the cost—and potential revenue—involved in handling the returns of products bought online.
Vogel said he's focused on strengthening USPS's niche, which is moving large quantities of parcels from merchants, fulfillment houses, and parcel consolidators to millions of residences. By contrast, Vogel is steering the agency away from the corporate business-to-business parcel category dominated by its rivals, and its partners: FedEx Corp. and UPS Inc.
"I am a harsh realist," he said. "Our strength is with the consumer and the small business."
Vogel also believes USPS is in the sweet spot of the shipping segment. "I would question how much the [business-to-business] market is growing," he said. Vogel said USPS speaks regularly with businesses that would like to enter or expand into the consumer market but have yet to do so or as yet have made minimal strides.
Wanted: new business
The surge in online shopping and shipping can't come soon enough for USPS, which desperately needs new revenue sources to offset the declines in products like first-class mail that are being cannibalized by digital transactions.
In its fiscal 2012 first quarter, which ended Dec. 31, USPS said revenue for its "shipping services," which encompass Express Mail and Priority Mail, International Mail, and the fast-growing product called "Parcel Select"—where packages are inducted by shippers and consolidators deep into the postal system for the final delivery to the consignee—hit $2.8 billion, an increase of $179 million, or 7 percent, over the fiscal 2011 period. The increase was due in part to greater online buying—and shipping—activity during the holidays.
However, those gains were dwarfed by a combined $650 million revenue decline in first-class mail and the bulk mail service for printed matter and advertising known as "standard mail," USPS said. Revenue for first-class mail, which contributes two-thirds of USPS's profit, declined 4.1 percent from the year-earlier period. Total mail volume declined by 6 percent.
First-class mail's future seems none too bright. It will account for 37 percent of total volumes in 2016, down from 44 percent in 2011, according to agency data. Its revenue contribution will drop to 41 percent from 49 percent in that period. Due to the weakness in first-class mail, total USPS revenue is expected to drop to $62 billion by 2016, down from $66 billion in 2011.
In a government filing accompanying the first-quarter results, USPS said the decline in its most profitable product, combined with congressional restrictions on entering new lines of business, could keep it revenue-challenged for many years to come. "There currently is no foreseen revenue growth solution that would completely resolve the Postal Service's financial problems," it wrote.
The multiyear outlook for shipping is somewhat different. By 2016, shipping services will account for nearly 20 percent of USPS's revenue, up from 16.1 percent in 2011, according to USPS data. The volume contribution, however, will be virtually unchanged, with shipping accounting for 1.7 percent of total volumes by 2016 compared with 1.6 percent in 2011. Today, shipping contributes 9.5 percent to USPS's annual profit.
Jerry Hempstead, who held high-level U.S. sales posts at the old Airborne Express and DHL Express and now heads a parcel consultancy bearing his name, said parcel volumes at USPS will never reach the levels required to overcome the financial damage done by the loss of first-class and standard mail. "Even if they doubled the number of parcels overnight, it's such a small contribution to their income statement that it's like a pimple on the butt of an elephant," he said.
Steve Rifai, managing director at Dymo Endicia, a Palo Alto, Calif.-based firm that provides automated workflow solutions to large postal users, agreed that the parcel business, in and of itself, will not cure USPS's ills. "However, without parcels, the problems will be much more difficult for USPS to overcome," he said.
Rifai said Endicia's customers tendered $1.5 billion of parcel business to USPS in 2011. That figure is expected to grow by between $300 million and $400 million in 2012, he said. Rifai forecast that parcels will eventually bring in half of all new postal revenue on an annual basis.
Improving the proposition
USPS, which estimates that it handles 29 percent of all U.S. shipping volumes, said it is being as aggressive as possible to boost its shipping value proposition. It has developed flat-rate packaging configurations for its Express Mail and Priority Mail products, allowing users to cram as much material as will fit in a box for a flat rate shipped anywhere in the United States.
Megan O. Brennan, who as USPS's executive vice president and chief operating officer oversees what may be the nation's most complex distribution network, said she and her team are also exploring the possibility of expediting delivery schedules of Priority Mail, which are currently marketed as two- to three-day deliveries. "We want to stretch our capabilities to see how much of the second-day network we can advance into the overnight mail system," she said in an interview.
USPS has begun marketing its first-class mail parcel product—bulk shipments of individual pieces weighing less than 13 ounces—in the free market, rather than keeping it protected from competition, as has been the case for many decades. USPS said the shift will give it more pricing flexibility and align all of its so-called competitive products in one portfolio.
However, Hempstead warned that if USPS decides to raise prices on the product—which accounts for more than 40 percent of its total parcel business—it could lose the historical price advantage over FedEx and UPS and may see that business migrate away.
USPS has also launched regional delivery services for Priority Mail and Parcel Select shipments that allow users to ship their products over shorter distances, a dramatic departure from USPS's traditional model of long-distance shipping.
In the case of the regional service for Parcel Select, USPS is trying to attract low- to medium-volume shippers tendering shipments moving within 300 miles.
The product is an effort to capture a larger share of lightweight ground parcel traffic traveling across shorter distances. About 45 percent of all ground shipments handled by private parcel carriers weigh five pounds or less, according to data from SJ Consulting, a Pittsburgh-based consultancy. Of those, one-third move less than 300 miles, according to the firm.
FedEx and UPS are heavy users of the service because it enables them to pursue more e-commerce transactions without the cost of dispatching a truck and driver to low-density residential areas.
Postal executives said Parcel Select's low costs give merchants the financial latitude to offer free shipping to online customers at a relatively small expense to them. According to data from consultancy IMS Worldwide Inc., three out of every four online orders are canceled if customers are not promised free shipping.
Vogel acknowledges the need of online retailers to provide free shipping in order to stay competitive. However, he said it puts additional pressure on USPS to drive down costs on what is already a low-margin product.
"The term I've learned to hate is 'free shipping,'" he joked.
Cutting out lag time
From an operations standpoint, postal observers said, the agency needs to improve in the areas of online tracking and in ensuring that parcels parked at the facility where they are scheduled to be given to the letter carrier leave the unit the day they arrive—and if they don't, that shippers see exception reports almost in real time to find out why it didn't happen.
Currently, letter carriers scan packages at delivery but must wait until they return to the delivery unit to upload the data into the postal computers. That time lag, which could sometimes be several hours depending on the carrier's schedule and road conditions, is considered unacceptable in today's time-compressed, data-driven world. It also drives up a shipper's customer service costs, observers contend.
USPS is working on the issue, and even its detractors said it is making strides to add technology that enables real-time tracking.
In the case of moving parcels quickly out the delivery door, Rifai of Dymo Endicia said USPS has developed a system where officials at its Washington, D.C., headquarters get daily data feeds from delivery units that enable the agency to monitor its performance. "They now have the visibility at HQ to see which [delivery units] are performing and which aren't," he said.
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.
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.”
“While there have been some signs of tightening in consumer spending, September’s numbers show consumers are willing to spend where they see value,” NRF Chief Economist Jack Kleinhenz said in a release. “September sales come amid the recent trend of payroll gains and other positive economic signs. Clearly, consumers continue to carry the economy, and conditions for the retail sector remain favorable as we move into the holiday season.”
The Census Bureau said overall retail sales in September were up 0.4% seasonally adjusted month over month and up 1.7% unadjusted year over year. That compared with increases of 0.1% month over month and 2.2% year over year in August.
Likewise, September’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.7% seasonally adjusted month over month and up 2.4% unadjusted year over year. NRF is now forecasting that 2024 holiday sales will increase between 2.5% and 3.5% over the same time last year.
Despite those upward trends, consumer resilience isn’t a free pass for retailers to underinvest in their stores by overlooking labor, customer experience tech, or digital transformation, several analysts warned.
"The 2024 holiday season offers more ‘normalcy’ for retailers with inflation cooling. Still, there is no doubt that consumers continue to seek value. Promotions in general will play a larger role in the 2024 holiday season. Retailers are dealing with shrinking shopper loyalties, a larger number of competitors across more channels – and, of course, a more dynamic landscape where prices are shifting more frequently to win over consumers who are looking for great deals,” Matt Pavich, senior director of strategy & innovation at pricing optimization solutions provider Revionics, said in an email.
Nikki Baird, VP of strategy & product at retail technology company Aptos, likewise said that retailers need to keep their focus on improving their value proposition and customer experience. “Retailers aren’t just competing with other retailers when it comes to consumers’ discretionary spending. If consumers feel like the shopping experience isn’t worth their time and effort, they are going to spend their money elsewhere. A trip to Italy, a dinner out, catching the latest Blake Lively and Ryan Reynolds films — there is no shortage of ways that consumers can spend their discretionary dollars,” she said.
Editor's note:This article was revised on October 18 to correct the attribution for a quote to Matt Pavich instead of Nikki Baird.