Contributing Editor Toby Gooley is a writer and editor specializing in supply chain, logistics, and material handling, and a lecturer at MIT's Center for Transportation & Logistics. She previously was Senior Editor at DC VELOCITY and Editor of DCV's sister publication, CSCMP's Supply Chain Quarterly. Prior to joining AGiLE Business Media in 2007, she spent 20 years at Logistics Management magazine as Managing Editor and Senior Editor covering international trade and transportation. Prior to that she was an export traffic manager for 10 years. She holds a B.A. in Asian Studies from Cornell University.
Earlier this year, World Customs Organization (WCO) Secretary General Kunio Mikuriya spoke of e-commerce bringing a "tsunami of small packages to the doorsteps of customs administrations and other regulatory agencies around the world." Mikuriya was not exaggerating.
Millions of international packages are shipped to consumers daily, and that volume is rising fast. E-Commerce Logistics in the United States, a 2018 report by the market research firm Armstrong & Associates, says cross-border e-commerce today accounts for 15 to 20 percent of the world's online traffic. Growing at about twice the rate of domestic e-commerce, it's expected to represent 22 percent of global online sales by 2020, the report says. The surge is straining customs operations and creating challenges for authorities around the globe.
WHO GOES THERE?
Historically, customs agencies have dealt with large-scale industrial transactions between established companies that are known to government authorities. But the Internet makes it easy for even the smallest businesses and entrepreneurs to sell their wares overseas. As a result, business-to-consumer (B2C) transactions often involve "one-off" orders shipped by companies or individuals that customs authorities may not know and that are bound for individuals who are also unfamiliar. This has made it harder for authorities to identify criminals and fraudulent activity, including duty evasion, smuggling, and improperly described goods.
Furthermore, e-commerce has created a new category of casual buyers and sellers with limited knowledge of export/import processes and regulations. Consequently, documentation, product descriptions, and declared values for B2C shipments often are incomplete or inaccurate.
In such circumstances, imports can be flagged for review and held up for hours, or even days. But e-commerce merchants who compete on timely deliveries are anxious to keep merchandise moving. That puts pressure on customs authorities to clear shipments quickly, sometimes without sufficient staffing to handle the huge growth in volume, said Amy Magnus, president of the National Customs Brokers & Forwarders Association of America (NCBFAA) and director of customs affairs and compliance for customs broker A.N. Deringer, at the Coalition of New England Companies for Trade's (CONECT) Northeast Trade & Transportation Conference in April.
THE DE MINIMIS DILEMMA
For U.S. Customs and Border Protection (CBP), perhaps the biggest issue is that many e-commerce orders fall below the de minimis value threshold. That means the shipment's value is so low that it's exempt from duties and only minimal information must be provided to CBP when the goods enter the United States.
Under the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA), Congress raised the U.S. de minimis for merchandise to $800 from $200, with the aim of reducing paperwork and speeding up customs clearance for small shipments. That change has led to a series of problems, creating what the NCBFAA has called the "de minimis dilemma."
The new threshold made millions of additional shipments eligible for the documentation and duty exemptions, and therefore a potential source of risk. The identity of the receiver is required, but that of the buyer, which may differ from the receiver, is not. This makes it harder for CBP to screen importers for wrongdoing. Nor is the Harmonized Tariff System (HTS) commodity-identification code required; a written description is deemed sufficient.
The incomplete information constrains customs authorities' ability to collect trade data for economic analysis and to identify imports that violate intellectual property law. Magnus pointed out that other government agencies relying on import data supplied by CBP might not receive sufficient information to carry out their own assessments. However, CBP and other federal agencies can still require formal entries and inspections for certain imports, such as those that are subject to quotas.
The updated regulation regarding de minimis, popularly referred to as "Section 321," says that the exemption from duties, taxes, and most customs-clearance formalities can be claimed for articles "imported by one person on one day" with a "fair retail value in the country of shipment" of $800 or less. It also says that merchandise covered by a single order or contract that is shipped in separate lots to avoid duties does not qualify for de minimis. This has been difficult to enforce, partly due to ambiguity surrounding the definition of "one person" and to shippers' ability to manipulate shipments to meet the "one order" criterion.
Some third-party logistics service providers (3PLs) have set up fulfillment centers in Mexico and Canada that are "filled with goods, waiting for e-commerce orders" specifically to take advantage of the $800 threshold, Magnus said. One example is XB Fulfillment, which says it offers "a legal way to completely eliminate duties" under Section 321.
In one example from the company's brochure, merchandise imported in container or pallet loads via air or ocean to Los Angeles moves immediately in-bond to XB's warehouse in Tijuana, Mexico, and thus is not subject to U.S. import duties. When an e-commerce order is received from a client, XB says, it ships the order from Tijuana to meet the promised delivery times to the end consumer in the U.S. According to the brochure, the shipment is considered duty-free as long as each order is sent to an individual buyer/consignee, each consignee receives no more than one shipment per day, each consignee receives a separate commercial invoice, and the value of each order does not exceed $800.
While such practices—akin to taking advantage of a tax loophole—appear to comply with the letter of the law, they may also create problems. For instance, some shipments may violate the rule that merchandise under a single order or contract that is shipped in separate lots to avoid duties does not qualify for de minimis.
These low-value orders often are consolidated and shipped in truckloads to the United States. Currently, according to Magnus, if a truck arrives in the U.S. from Canada or Mexico and no shipment or consignment on that truck is valued at over $800, and the goods are not otherwise subject to other U.S. federal agencies' requirements, then no advance notice is required and the driver can simply present a paper manifest to CBP at the border. (However, if even one shipment on the truck is valued at over $800, then the carrier must transmit the manifest electronically to CBP at least one hour in advance of arrival.) Additionally, if, according to the manifest, every shipment on the truck meets the de minimis criteria, then no formal entry is required and no HTS numbers need appear on that document. The carrier is responsible for preparing the manifest based in part on information received from the foreign shipper(s). That information may well be incomplete, a common problem with e-commerce shipments. For example, a description of "plastic bags" could represent anything from food packaging to parts of medical devices; without an HTS number, it's impossible to know.
This situation places customs officers in a difficult position when it comes to regulatory compliance, security, and risk assessment, said an unidentified CBP officer who was in the audience at the CONECT conference. An officer must figure out what to do with no advance notice, very little information, and a thick pile of paper to work from, he said. "The officer is forced to make a decision: Do we delay the truck, and thousands of small packages, to inspect them? That would take a whole day."
Without access to detailed information or advance notice of a shipment's arrival, customs authorities are hampered in their efforts to target suspicious shipments, Magnus agreed, adding, "Low value does not mean low risk."
SEARCHING FOR REMEDIES
With millions of low-value packages shipping daily, the potential lost revenue and lack of data could have significant consequences. Trade data in countries with large e-commerce volumes has already become distorted due to the large number of de minimis shipments, according to WCO officials.
Authorities are well aware of the problems, and a variety of potential remedies are currently under discussion. For example:
In February, attendees at the WCO's first-ever Global Cross-Border E-Commerce Conference endorsed a proposed e-commerce framework that would standardize and harmonize customs regulations and legislative approaches, establish mechanisms for the exchange of advance electronic data, and enhance security, among other goals. The WCO working group that proposed the framework is also advocating for simplified processing for e-commerce shipments but with more data points and detail than most countries currently require.
NCBFAA, the customs brokers and forwarders group, has urged CBP to establish an electronic entry solution for de minimis shipments within the Automated Commercial Environment (ACE), an information system designed for enforcement of customs regulations and risk-based targeting of inbound shipments.
CBP in March released an e-commerce strategy it developed with input from the Commercial Customs Operations Advisory Committee (COAC). That plan would enhance legal and regulatory authorities to better address threats, help affected CBP operations respond to the rapid growth of e-commerce, and drive private-sector compliance through enforcement and incentives. However, COAC, which includes a cross-section of trade stakeholders, did not agree with CBP on several proposals, such as filing Section 321 entries in ACE and the amount of detail to be required for product descriptions.
Governments inevitably will try to prevent e-commerce shippers from avoiding duties and taxes, wrote Chris Jones, an executive vice president at logistics software developer Descartes Systems Group, in a blog post earlier this year. Jones predicts that sellers will be required to provide information to help governments assess and collect duties, and that carriers and logistics service providers could be required to help enforce laws and collect duties on customs agencies' behalf.
It's hard to say which of these and other proposed responses to e-commerce problems will actually be implemented. But given the spectacular growth of cross-border e-commerce, and with national security and revenue at stake, international traders should be prepared for customs authorities around the world to take aggressive action sooner rather than later.
The way that shippers and carriers classify loads of less than truckload (LTL) freight to determine delivery rates is set to change in 2025 for the first time in decades, introducing a new approach that is designed to support more standardized practices.
But the transition may take some time. Businesses throughout the logistics sector will be affected by the transition, since the NMFC is a critical tool for setting prices that is used daily by transportation providers, trucking fleets, third party logistics providers (3PLs), and freight brokers.
For example, the current system creates 18 classes of freight that are identified by numbers from 50 to 500, according to a blog post by Nolan Transportation Group (NTG). Lower classed freight costs less to ship, ranging from basic goods that fit on a standard shrink-wrapped 4X4 pallet (class 50) up to highly valuable or delicate items such as bags of gold dust or boxes of ping pong balls (class 500).
In the future, that system will be streamlined by four new features, NMFTA said:
standardized density scale for LTL freight with no handling, stowability, and liability issues,
unique identifiers for freight with special handling, stowability, or liability needs,
condensed and modernized commodity listings, and
improved usability of the ClassIT classification tool.
The new changes look to simplify the classification by grouping similar articles together and assigning most classes based solely on density – the most measurable of the four characteristics, he said. Exceptions will be handled separately, adding one or more of the three remaining characteristics in cases where density alone is not adequate to determine an accurate class.
When the updates roll out in 2025, many shippers will see shifts in the LTL prices they pay to move loads, because the way their freight is classified – and subsequently billed – might change. To cope with those changes, he said it’s important for shippers to review their pricing agreements and be prepared for these adjustments, while carriers should prepare to manage customer relationships through the transition.
“This shift is a big deal for the LTL industry, and it’s going to require a lot of work upfront,” Davis said. “But ultimately, simplifying the classification system should help reduce friction between shippers and carriers. We want to make the process as straightforward as possible, eliminate unnecessary disputes, and make the system more intuitive for everyone. It’s a change that’s long overdue, and while there might be challenges in the short term, I believe it will benefit the industry in the long run.
Business leaders in the manufacturing and transportation sectors will increasingly turn to technology in 2025 to adapt to developments in a tricky economic environment, according to a report from Forrester.
That approach is needed because companies in asset-intensive industries like manufacturing and transportation quickly feel the pain when energy prices rise, raw materials are harder to access, or borrowing money for capital projects becomes more expensive, according to researcher Paul Miller, vice president and principal analyst at Forrester.
And all of those conditions arose in 2024, forcing leaders to focus even more than usual on managing costs and improving efficiency. Forrester’s latest forecast doesn’t anticipate any dramatic improvement in the global macroeconomic situation in 2025, but it does anticipate several ways that companies will adapt.
For 2025, Forrester predicts that:
over 25% of big last-mile service and delivery fleets in Europe will be electric. Across the continent, parcel delivery firms, utility companies, and local governments operating large fleets of small vans over relatively short distances see electrification as an opportunity to manage costs while lowering carbon emissions.
less than 5% of the robots entering factories and warehouses will walk. While industry coverage often focuses on two-legged robots, Forrester says the compelling use cases for those legs are less common — or obvious — than supporters suggest. The report says that those robots have a wow factor, but they may not have the best form factor for addressing industry’s dull, dirty, and dangerous tasks.
carmakers will make significant cuts to their digital divisions, admitting defeat after the industry invested billions of dollars in recent years to build the capability to design the connected and digital features installed in modern vehicles. Instead, the future of mobility will be underpinned by ecosystems of various technology providers, not necessarily reliant on the same large automaker that made the car itself.
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.