Eighty-five percent of supply chain managers expect their outsourcing budget to increase by more than 5% in 2020, according to Gartner, Inc. A sizeable portion of that will be aimed at choosing multiple third-party-logistics (3PL) partners.
The question no longer is whether to outsource; it's what to outsource and how much. Evaluating different outsourcing strategies has become a priority for global managers. To be effective, the supply chain outsourcing strategy needs to be aligned with the overall logistics priorities. Supply chain leaders are realizing that updating their technology systems, increasing speed to customer and improving visibility are their most important goals for next year. We are in the thick of the digital era and new routes to market and technology-enabled products and services are rapidly disrupting industries and business models. To respond to these accelerated and evocative changes, logistics leaders need not only understand the foundational elements of good overall strategy, but also rethink how their logistics outsourcing strategy is assessed and developed.
If your organization is considering a 3PL relationship here are several potential benefits to consider:
Improve global capabilities. 3PLs have on-ground knowledge of local markets, regulations and government agencies, and understanding of capacity constraints.
Reduce costs. 3PLs can help reduce excess carrying costs, return goods cost and lost sales. They can also help manufacturers move more material with fewer assets while still meeting customer requirements. In some cases, manufacturers can realize savings when consolidating warehouses and/or using shared facilities operated by 3PLs.
As another year draws to a close it may be useful to review some of your supply chain protocols. A good place to start is a year end freight bill review. Things are a little quieter this time of year and there is plenty of recent data to review. Typically, this is a no cost exercise provided by your 3PL so there is every reason to have the review done. If for no other reason than knowing your fright payment protocols are working.
What is a Freight Invoice Audit?
As a concept, freight invoice auditing is simple to understand. The idea is to make sure you only pay the shipping charges you should, and nothing more. In most cases, software does the hard work. However, some auditing must be done by hand. All this happens once the invoice is received. The carrier only gets paid after it’s determined that the invoice is accurate.
Billing Errors Happen More Than You Think
Shipping charges can make up to 10 percent of a company’s total expenses. It’s not unusual for companies to spend millions or tens of millions of dollars annually to ship their products with trucking companies or parcel carriers like UPS and FedEx. But it’s common for major shipping carriers to overcharge by missing discounts or mis-classification of freight. Pricing in the shipping industry is complex, and in many cases, carriers make mistakes or do not meet service requirements. Billing in today’s logistics environment contains a myriad of charges and discounts, base rates, fuel surcharges and hundreds of accessorial charges. There’s a lot of opportunity for mistakes, and you need to protect yourself. That’s where freight invoice auditing comes in.
At Freight Payment, Inc., a subsidiary of Land Link, freight bill auditing is a big part of our business. Most successful companies know the value associated with utilizing the services of a fully integrated freight bill audit and payment service. More than 80% of well managed companies, with operations in the US currently use and leverage the power of audit and pay solutions. Our solution takes the benefits of standard freight bill audit and payment to an entirely different level.
Celadon Transport, a division of the Celadon group filed for bankruptcy protection this week just days after two former officials were charged in an accounting fraud scheme. The Chapter 11 bankruptcy filing by the Indianapolis based Celadon Group left more than 3,000 drivers jobless and, in many cases, stranded drivers across the U.S. after their company gas cards were cancelled. Another 500 administrative jobs are expected to be eliminated through the bankruptcy.
Celadon's former president and chief operating officer, William Meek, 39, and its former chief financial officer, Bobby Lee Peavler, 40, were indicted on conspiracy and other charges. They knew the value of a substantial portion of Celadon's trucks had declined and that many trucks had serious mechanical issues that made them unattractive to drivers, according to the indictment.
Earlier this year, Celadon agreed to pay $42.2 million to settle securities fraud allegations stemming from falsely reporting profits and assets. The company's stock was trading at less than 3 cents a share on Monday, down from a 52-week high of $2.83 last April 11. Celadon said it was the largest provider of international truckload services in North America, and its bankruptcy filing means 3,300 trucks and 10,000 trailers will stop rolling.
Among the big companies that failed in 2019 are New England Motor Freight, which employed more than 1,400 drivers. HVH Transportation, Falcon Transport and LME have all shuttered operations this year, too. Part of the problem, according to Donald Broughton, principal and managing partner of data firm Broughton Capital, is that spot pricing has dropped, which is hurtful to smaller companies that operate in the spot market instead of the contract market. Spot prices refer to shipping prices as they currently exist.
Trade tariffs, as well as slowdowns in a variety of markets, including housing and auto, contributed to the drop, Broughton had told FOX Business. He predicted companies would continue to fail into 2020 because of the weak pricing environment.
Additional pain for the industry could be coming next year in the form of labor laws designed to protect contracted workers from being misclassified. In California, for example, starting in January a law will go into effect that will make it harder for companies to classify workers as contractors, which the California Trucking Association has said could put 70,000 owner-operators in the state out of work. The group has sued to prevent the law from taking effect.
New Jersey is considering similar presumption-of-employment status legislation, which has caused alarm among the state’s trucking industry, as well.
What Shipper Can Do To Protect Shipments
The thousands of trucks stranded Celadon trucks likely have customers shipments onboard which will not be delivered anytime soon. Getting that freight delivered will likely cost significantly more than the original rate. The most damaging aspect of getting caught in a bankruptcy like this one is that thousands of customers supply chain has been significantly disrupted.
The best way to protect yourself against insolvent and even under achieving carriers is to vette them annually. Review financial statements, credit ratings, customer experiences on social media and verifiable on time percentages. Another option is to employ a 3rd party Logistics Firm to help with routing decisions. At Land Link Traffic Systems carrier vetting is a standard procedure. We take every precaution to route our customers freight with a financially healthy carrier with above average performance.
We have been writing extensively on the topic of the digital supply chain revolution in recent blog posts. Digital transformation is now the overriding priority for most manufacturers and retailers, with the adoption of digital technologies aimed at improving efficiency and effectiveness in the shorter term while providing the opportunity to grow a leaner operational protocol in the future. The focus is definitely on the efficiency of operations relating to technological applications as we enter 2020. The big question is; are you ready? If not, perhaps we can help. Here are some interesting predictions from a reputable international research firm, IDC, which highlights key areas of technological applications regarding the impending digital revolution of the international supply chain.
The change is coming after more than two years of relative quiet from the FMCSA which had been criticized as too aggressive under the Obama administration. The changes are part of a long-awaited modernization of the HOS rules that govern nearly every truck driver on the road.
The adjustments would happen in five areas:
The trucking sector is going through a major paradigm shift due to the ongoing digitization of the industry and the increased transparency resulting from the digitization and the launching of a trucking forward and freight futures market. It’s now three-dimensional market comprised of the spot, forward and trucking freight futures markets. As the trucking forward and futures markets gain traction, the three markets will become increasingly more interrelated.
The forward market is being established where shippers place “buy” orders to procure future trucking capacity anywhere from two weeks to six months plus out and carriers place “sell” orders to provide trucking capacity to shippers in the same time frame. As opposed to the existing non-standardized RFP based contract market, forward contracts are binding and based on a standardized contract. They provide guaranteed load volume/trucking capacity and rates to shippers and carriers, and the contract rates can be hedged via trucking freight futures.
Trucking Freight Futures Market
The trucking rate futures market was launched at the end of March 2019 on the Nodal Exchange. The underlying rate, which the futures markets track, are indices produced by DAT and updated daily. There are seven directional lanes and four calculated indices, each with a 16-month series. Trucking freight futures provide a trucking rate volatility hedging tool for trucking carriers, shippers and third-party logistics (3PL) providers, allowing them to lock in a trucking rate today for up to 16-months in the future. What does this mean for trucking carriers, shippers and 3PLs? Due to this increased transparency, trucking rates will become more volatile, will change more frequently and will be increasingly influenced by changes in the trucking forward and freight futures markets. Carriers and shippers will be able to see changes in trucking rates around the country in all three markets on a more “real time” basis, causing rates in their lanes to adjust much faster.
Trucking freight futures provide a very effective way to hedge trucking rate risk, and the forward market provides a hedge to lock in guaranteed rates and load volume and trucking capacity on a multi-month basis. There are also viable cross-market hedging and profiting strategies that can be executed on in conjunction with the trucking forward and futures markets.
The new three-dimensional market provides new ways for market participants to mitigate trucking rate risk, determine trucking rates and pricing and to procure trucking capacity or access load volume. The successful companies in this new market will be those that learn to engineer execution strategies via combined solutions from each of the three markets. Regardless of whether a market participant ever uses binding forward and or trucking freight futures, it will need to stay current on the pricing trends in both the trucking forward and freight futures markets as spot market rates in their lanes will be affected by both.
Technology is spawning hybrid markets in many sectors. The successful logistics planner will be the one who understands these emerging markets. To stay informed on this and many other Logistics topics, subscribe to our blog.
The boom in online stores is increasing the demand for parcel delivery services, particularly in the big cities. New York, Chicago and Los Angeles are experiencing serious traffic issues due to the amount of parcel delivery vans clogging the city streets. Add to this the number of ride share drivers in any metropolitan area daily and it is easy to see how things are getting congested.
Consumers today are spending less time in local stores and more time online, buying not only retail items but also groceries from Peapod, office supplies from Postmates and whatever they need from Amazon. According to the National Capital Region Transportation Planning Board, it’s estimated that, on average, every person in the U.S. generates demand for roughly 60 tons of freight each year. In 2010, the United States Post Service overtook both FedEx and UPS as the largest parcel-delivery service in the country and delivered 3.1 billion packages nationwide. Last year, the USPS delivered more than 5.1 billion packages. The growth in e-commerce is fueling a rise in the number of delivery vehicles box trucks, smaller vans and cars alike on city streets.
While truck traffic currently represents about 7% of urban traffic in American cities, it bears a disproportionate congestion cost of $28 billion, or about 17 percent of the total U.S. congestion costs in wasted hours and gas. Cities, struggling to keep up with the deluge of delivery drivers, are seeing their curb space and streets overtaken by delivery vehicles, to say nothing of the bonus pollution and road wear produced thanks to a deluge of Amazon Prime orders.
The problem, really, is that we now live in a world where the brick-and-mortar stores are only one part of the retail equation and, as many a “retail apocalypse” story is warning, they are a shrinking part. Demand is being driven by people in their individual homes and apartments ordering smaller amounts of goods with higher frequency: groceries one day, several items from Amazon the next. As more goods are ordered, more delivery trucks are dispatched on narrow city streets. Often, the box trucks will double-park in a two-lane street if there’s no loading zone to pull into, snarling traffic behind them.
Many American cities are also playing catch-up as they try to understand these new urban delivery challenges and systems. That’s due in part to the failures of urban planning and the nature of the trucking business. While matters of public policy like public transit, bike lanes and walkability fall within the purview of planning boards and municipal departments of transportation, freight has always been a purely private-sector enterprise. Cities don’t have reliable data on the number of delivery trucks coursing through their streets; let alone planning for them.
Looking For Solutions
Cities can’t just ticket their way out of the delivery-truck problem. For big commercial delivery companies, parking fines are just part of the cost of doing business. UPS paid New York City $18.7 million in parking fines in 2006. In 2011 in Washington, D.C., UPS alone received just shy of 32,000 tickets.
If enhanced enforcement isn’t the answer, diverting delivery traffic might be. Seattle is taking an inventory of all the remaining alley space in the city. Instead of letting developers extend housing lots into the alleys, they might be used to accommodate some of the incoming delivery traffic.
Delivery companies are also experimenting with ways to reduce their impact. Late last year, UPS introduced its first “eBike” deliveries in Portland, Oregon. The goal is twofold: Reduce carbon emissions while putting a delivery vehicle on the road small enough to take advantage of curb space. UPS is also integrating across its U.S. routes its new big-data tool, On-Road Integrated Optimization Navigation (ORION). As a UPS driver travels their route, ORION works in the background considering up to 200,000 possible routes before picking the most optimal route for a driver to take to reduce the overall time spent driving around from delivery to delivery. The next generation is going to be a real-time tool taking traffic into account.
UPS currently uses drones to help drivers in rural delivery locations. It’s unclear how practical drone delivery can be in a metropolitan area considering the risk of personal injury, theft and inaccurate consignee deliveries. The solution to the congestion problem will likely come from many angles over the coming years. We simply were not prepared for the online purchasing boom and have never caught up.
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Those in the logistics business have recently speculated as to the direction of technology as it relates to warehousing and distribution advancements. The pace at which technology is advancing is exciting and a little frightening at the same time. The applications seem almost endless and keeping up on the technology can be a daunting task. Let’s take a look at a few emerging technologies in warehouse automation.
Collaborative Robots Infiltrate Human Interaction
Collaborative robots may be described as round one of the robotic invasions into warehouse operations. In this round, robots are introduced to work alongside, and in collaboration with, humans in the day-to-day operations of the warehouse and distribution centers. Last summer, Forbes gave smart cobots, otherwise known as ‘collaborative robots,’ the illustrious title of “the future of work”. It’s a declaration that struck a chord with many, perhaps because the idea of warehouse associates working alongside robots is a simpler image to accept than a fully automated operation in which robots replace living, breathing human workers.
While cobots are quite flexible when it comes to application, the most talked about are the picking and packing variety currently being used by Amazon. Cobots are a no-brainer for large warehouses owned by multichannel retailers who have the extra capital to invest in the technology. These lightweight robots can be programmed quickly and controlled remotely, require just a few hours of set-up time, are often mobile, and, as far as we know, are safer than many of their stagnant, bolted-down competitors. Cobots will likely give way to the next generation of robot which will largely replace humans if not entirely.
On-demand warehousing has been around for a while. Now it has become more sophisticated in both space design and geographical placement all based upon big data. Warehousing and DC centers need to be placed in strategic locations to meet the incredible delivery demands of today's consumers. Terabytes of data are being analyzed to decide exactly where to build strategic on-demand warehousing offering flexible utilization terms and easy highway access. Users want flexible warehouse space and supplier contracts that allow manufacturers to take advantage of the service as they scale and remove the services as they downsize. Third-party firms are offering up smart warehouses to manufacturers and suppliers at a fraction of the cost for the businesses to make the investments themselves. This means that even the most modest of startups can benefit from the use of the latest automated technologies, giving emerging businesses the opportunity to compete with the big guys on fulfillment time and accuracy.
Advanced Inventory Scanning Techniques
Fully automated warehouses have been a hot topic as of late. Trailblazing companies, like Aquifi, have already found a way to automate the task of bar code and label scanning, eliminating the need for handheld scanning tools and the people who operate them. This technology is accomplished through a sophisticated smart dimensioning and 3D identification function that processes a warehouse’s items with more precision than ever before. It’s big news for operations that take advantage of tried and true asset tagging and bar coding. While these materials will not be replaced, the very scanners, and the people who use them, may soon be deemed obsolete.
3D printing has been around for a few years now. It utilizes the 3rd dimension to not print, but build a particular item. Most 3D applications are designed for simple replacement parts made out of basic materials. As printers become more sophisticated, the applications have expanded. The sneaker industry is just one example of 3D printing technology application. In the old days, making a customized piece of footwear meant a disruption in the everyday processing of the manufacturer’s movements and a much higher price tag for the customer. Ever since sneaker behemoth, Adidas, invested in 3D printing powerhouse Carbon, the once-fabled affordable customized sneaker is now a reality. In fact, consumers are so completely on board with this 3D-printed footwear option that Adidas is projected to sell millions of units in 2019 alone.
3D printing is also a powerful tool for plenty of other manufacturers, particularly those who are in the positions to take advantage of additive manufacturing according to the operation’s precise needs. This is a big win for manufacturers, as it reduces material waste and shortens processing time in one fell swoop. As technology continues to evolve, so does the variety find in the world’s smartest, most cutting-edge warehouses. Always pay attention to emerging automation technologies and the companies who are making them a reality. These are the very actors who will be dictating how we manufacture, distribute and consume goods in the years to come.
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The most recent edition of the Cass Freight Index Report issued this week by Cass Information Systems highlighted another month of freight transportation shipment and expenditure declines in September. The Cass freight index is widely considered the most accurate barometer of industry activity and trends.
September shipments, at 1.199, were up 0.8% compared to August and down 3.4% annually, marking the tenth consecutive month of annual shipment declines.
Shipments initially turned negative in December 2018 for the first time in 24 months, when it fell 0.8%. January and February were down 0.3% and 2.1%, respectively. As previously reported, the December and January shipment readings were up against respective all-time highs reached in December 2017 and January 2018, coupled with stabilizing patterns in nearly all underlying freight flows.
The culprit is generally considered to be weakness in spot market pricing for many transportation services, especially trucking, which is consistent with the negative Cass Shipments Index and, along with airfreight and railroad volume data, strengthens concerns about the economy and the risk of ongoing trade policy disputes. This weakness and decreases in the prime lending rate are supporting arguments for a looming recession.
The CASS report highlighted concerns regarding inflation and concerns about contract pricing and cancellation of transportation equipment orders, with four key factors playing a role, including:
1. Almost all modes of transportation used their pricing power to create capacity, which first dampened and has now killed pricing power.
2. Spot pricing (not including fuel surcharge) in all three modes of truckload freight (dry van, reefer, and flatbed) has been falling for 15 months. Spot pricing, using dry van rates as a proxy, fell dramatically from its peak in June 2018 (more than $0.50 a mile) to at one point in May falling to more than 30.0%below contract pricing (a level Cass declared unsustainable). The highly discounted pricing available in the spot market has attracted an increased amount of demand, which has deteriorated pricing in the contract market (which is down $0.20 a mile or -9.7% in the last 14 months), and has begun to close the gap between contract and spot.
3. The cost of fuel (and resulting fuel surcharge) is included in the Cass Expenditures Index. Since the cost of diesel has been negative over the last 4 months on a YoY basis (down -5.4% June, down -5.8% in July, down -6.6% in August, down -7.9% in September), it is increasing the negative amount of pricing reported.
4. Whether driven by capacity addition/creation or lower fuel surcharges (or a combination of both, which is our best guess) the Expenditures Index has continued to decline: the September 2019 Index is down -4.5% from its peak in September 2018.
What To Expect
In the first half of 2019, around 640 trucking companies went bankrupt, according to industry data from Broughton Capital LLC. That's more than triple the amount of bankruptcies from the same period last year — 175.
The slow down in trucking has especially affected small carriers, who operate largely on the spot market. Trucking loads can either be picked up on demand through the spot market, or through a pre-arranged contract. The contract market comprises the vast majority of the trucking market, according to the American Trucking Associations. Trucking has been in a recession since the first half of 2019, according to ACT Research. That fact doesn't surprise truck drivers, dozens of whom have seen their earnings slashed this year.
Spot market rates have crashed in 2019, while contract market rates haven't seen the same dip. According to the most recent Chainanalytics-Cowen Freight Indices report, dry van spot rates are down 16.1% from the same period in 2018. Contract rates in dry van are down 8.1%.
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