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.
There is no shortage of unsettling trends confronting U.S. truckers. Qualified drivers are in short supply, and those being seated are getting paid much more than before. The electronic logging device (ELD) mandate has curbed fleet productivity as runs that in the past could be completed in one workday can now take two days. As of mid-June, nationwide on-highway diesel fuel prices were up 75 cents a gallon from the same period in 2017, according to government reports. Road congestion, and the delays that accompany it, is worsening. The cost of everything from trucks to tires continues to escalate. Insurance premiums rise as insurers terrified by so-called "nuclear verdicts" in the many millions of dollars ratchet up rates or leave the business. Then there is the ever-present and formidable competition from railroads, with their more economical and fuel-efficient services.
Thus, it might seem odd to think trucking firms would be in a commanding competitive position as the decade winds down. But that is what the authors of the 29th annual "State of Logistics Report," released June 19 in Washington, D.C., have predicted. The report, prepared by consultancy A.T. Kearney Inc. for the Council of Supply Chain Management Professionals (CSCMP) and presented by third-party logistics service provider (3PL) Penske Logistics, found that favorable supply-demand dynamics combined with information technology adoption will enable truckers to generate solid profits and take market share from a railroad industry struggling to keep pace with innovation.
Advanced technologies ranging from autonomous vehicles and truck platooning—which could be widely available to shippers over the next three to seven years—to enhanced route optimization tools will narrow the cost differential between the two modes and put railroads under increasing pressure, according to the report. That's because rail suppliers have not been as aggressive as their trucking counterparts have in embedding performance-enhancing technology into their products, the authors said.
Using sophisticated analytics, truckers can assess the profitability of each route and shift assets to higher-margin lanes while rejecting more loads on low-density lanes, the report said. By tracking how much time trucks spend at each stop, carriers can purge "sluggish" shippers that take up too much driver time and generate little profit, according to the authors. In the current cycle, which could last several years, shippers stuck in the transactional rate-driven mindset that paid short shrift to the needs of fleets and drivers will be marginalized.
That's not to say railroads still can't make hay. It's just that they have to do it while the sun shines. Based on the report's data, it's shining right now. Intermodal costs climbed 10.5 percent in 2017 over the prior-year totals, the biggest gain among across-the-board leaps in freight rates as a better economy met up with tighter capacity, according to the report. Strong demand gave railroads pricing power—especially in intermodal—while productivity improvements boosted their profit margins and the newly enacted corporate tax cuts increased their cash flows, the report found. Intermodal gained a powerful tailwind from traffic conversions by shippers struggling to find over-the-road capacity.
How long intermodal's good times last will not only depend on the traction of truckers' improvements, but also on the rails' ability to keep their own operational house in order. Events of the past few months haven't been encouraging. In March, the Surface Transportation Board (STB), the nation's rail regulator, concerned about unreliable and inconsistent service, ordered all Class I railroads to submit to the agency their service plans for the rest of 2018. Service complaints in 2017 spiked 144 percent from 2016 levels, the STB said.
Erik Hansen, vice president, intermodal for Kansas City Southern, the Kansas City, Mo.-based railroad that operates north-south routes within the U.S. and in and out of Mexico, said at a June 19 news conference following the report's release that the company is closely watching developments in linehaul technology. Hansen shared the view held by many that it could be years before such technologies become mainstream and that their impact on all supply chains, including the railroads, is "uncertain."
STEEP GRADE AHEAD
The exceptional pricing leverage enjoyed by asset-based carriers was the central narrative of this year's report, titled "A Steep Grade Ahead." Last year's report, which analyzed 2016's performance, described an uncertain future for the industry and posited various scenarios for its direction. By contrast, this year's report had a single message: Assets are where it's at.
"Carriers are in control as demand outstrips supply, while shippers try to 'create capacity' by improving efficiency whenever possible," according to the authors. For shippers, the biggest challenge won't be fighting the upward rate trend, but rather, finding creative ways to secure adequate capacity at prices they can live with.
Shippers are digging deeper into their routing guides than ever before and are increasing their reliance on freight brokers, which continue to show healthy demand increases. Broker volumes rose 40 percent in 2018, a period of ultra-tight capacity that forced many shippers onto the "spot," or non-contract, market, said the report, citing data from loadboard operator DAT Solutions.
Shippers who avoided putting their freight out to bid in an effort to wait out the upward rate trend often found themselves facing load rejections that disrupted their operations, the report found. Those who re-bid their freight, although they absorbed "painful" rate hikes, managed to preserve service levels and to keep disruptions at bay, the authors wrote.
LOGISTICS COSTS RISE
Overall, after declining in 2016 for the first time since 2009, U.S. business logistics costs climbed 6.2 percent in 2017. Logistics costs as a percentage of gross domestic product (GDP) rose to 7.7 percent last year from 7.6 percent the prior year. The report's three main components—transportation, inventory-carrying costs, and so-called "other" expenses, such as administration—rose substantially.
Transportation costs increased 7 percent, led by intermodal. That was followed by dedicated contract carriage, which spiked by 9.5 percent as more shippers demanded capacity assurance, and parcel and express, which rose 7 percent. Truckload and less-than-truckload (LTL) costs rose 6.4 percent and 6.6 percent year over year, respectively, according to the report. Only waterborne freight, with an increase of just 1.1 percent, came in below the 3-percent threshold for year-over-year gains.
Inventory-carrying costs climbed 4.6 percent over 2017 figures, paced by a 5-percent gain in borrowing costs as interest rates climbed, according to the report. Physical storage costs rose 4.2 percent as demand for facilities to support e-commerce fulfillment and distribution continued apace, the report said. The driver shortage has forced many shippers to push goods closer to end customers in order to meet fulfillment and delivery commitments, according to the report. This, in turn, has increased inventory levels and reduced warehouse capacity, thus driving up inventory and storage rates.
In a sober assessment of the long-running problems between shippers and their 3PLs, the focus between the two still remains on cost cutting rather than on building mutually beneficial relationships, according to the report. Blame can be found on both sides: Shippers expect 3PLs to meet unrealistic implementation milestones and performance standards, while 3PLs avoid the risk of developing premium-priced and customized solutions for fear of losing price-sensitive customers, and then wonder why shippers dissatisfied with 3PL cookie-cutter solutions regularly rethink the idea of bringing logistics activities in-house.
In a climate of ever-increasing end user demands, shipper and 3PL executives can't afford to give up on collaboration, the report said. For their part, shipper and 3PL executives at the June 19 event said the problem isn't grounded in mutual distrust but in the failure to have the right conversations. As Joe Carlier, Penske Logistics' senior vice president of global sales, put it, the dialogue shouldn't focus on "here is the rate for this," but on "here's what I can do" for your spending.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.