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.
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.
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.
To stay informed on this topic and others, subscribe to our blog.
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%.
To stay informed on this topic and more, subscribe to our blog.
UPS announced this week that it is the first to receive the official nod from the Federal Aviation Administration (FAA) to operate a full “drone airline,” which will allow it to expand its current small drone delivery service pilots into a country-wide network. Obviously, it’s a huge win for UPS Flight Forward, which is the dedicated UPS subsidiary the company announced it had formed earlier this year to focus entirely on building out the company’s drone delivery business. There’s still a lot left to do before you can expect UPS drones to be a regular fixture, or even at all visible in the lives of the average American.
The Transportation industry has evolved dramatically in the last several years all thanks to the smartphone. Without it Uber and Lyft would not exist, nor would Uber Freight. It seems now you can request a Uber helicopter in New York City. Uber is adding regular helicopter air service to the heaviest users of its platform with Uber Copter; a new service line launched this month that will provide on-demand transportation from Lower Manhattan to JFK airport for, on average, between $200 and $225 per person, which includes car service to and from the helipad at each end. A ground transportation ride to the same destination is less than half the helicopter ride but the convenience and thrill may be worth it. Given the NYC traffic it may be worth the extra fare to not miss your flight. Plus, this isn’t something just anyone can access: It’s reserved for Platinum and Diamond members of Uber’s Rewards program, which means you’ll have to already be dropping a lot of cash on rides to even qualify for whirligig service. If you qualify, the rides are available either on-demand, or bookable up to five days ahead of time. Each helicopter has room for up to five passengers. In time the service will be available to anyone. The depths of service which technology has opened up is truly staggering.
Safety Is Always A concern
In the non asset world of transportation providers, we all depend upon equipment providers. Vetting these providers on behalf of our shippers is a primary responsibility. This is only one of the values of contracting with a 3Pl. A helicopter crashed this week in NYC which had previously dropped off passengers. The weather turned foggy over Manhattan that morning. Turns out the pilot did not have the required certificate that would have allowed him to legally fly when the visibility was less than 3 miles and where he could use the instruments on his chopper to guide him through the gloom and rain that enveloped the city. So the question here is who is vetting these helicopter pilots, weather private or for Uber. I question whether Uber, which is a mere child in the transportation industry at 7 years old, is schooled in the transportation vetting process which is necessary to provide safe cargo and personal conveyance in both inter and intra state transportation. It seems technology is setting such a pace that safety cannot keep up. Speed and convenience seems to have taken a back seat to safety.
How Much Risk Are You Willing To Take?
With the convenience of transactions comes risk. Sure you can hail a car, a helicopter, or who knows, even a boat to transport you or your loved ones. But how much do you know about who is picking up your precious cargo? It is also possible to hail a truck to transport your freight through Uber or several other apps...same question applies. Are you seriously going to trust your brand equity to some trucker you assume has been professionally vetted? While all of these conveniences have their acceptable levels of risk you must consider your options when the stakes are high. When you need a quick ride downtown or your late for the airport and want to take a helicopter ride that's your risk. But when you freight shipment is of high value or the client satisfaction is of great importance you need to consider everyone's risk. That's when you need to go with the experienced and proven freight transportation providers like Land Link Traffic Systems. We will provide the most reliable assets available and track the shipment throughout its journey. Satisfaction is guaranteed. Give us a call today for more information. We look forward to hearing from you!
The transportation and logistics industry are currently going through some major transformations. The current metamorphosis is creating opportunities as well as challenges. Successful shippers are looking for ways to adjust to the challenges and take advantage of the opportunities. The economy, labor, and I believe, most dramatic, is the technology component which will be the game changer. Astonishingly what seemed like an unrealistic idea ten years ago, today, is now plausible because of technology. From robotics to radio frequency identification technology to block chain applications, the possibilities are intriguing to say the least. The challenge for supply chain professionals is how to stay current on these applications and how they can give your business the competitive edge that often makes the difference between black and red on the financial statements. Here are a few key areas in which every supply chain professional should have a firm understanding.
Everyone is enjoying a robust economic environment at home even with the Trump administrations tariff threats. The domestic manufacturing economic forecast is a practical place to start in planning your logistics budget both operationally and financially. It's not all about the dollars. Shippers need to assure themselves of available assets to deliver and receive goods. The driver shortage is real, there are no significant players entering the asset-based transportation industry so capacity issues will be a common challenge. Existing carriers can only add as much capacity as drivers available to operate the equipment. Online retail spending is estimated to increase up to 20-30% over the next 3-4 years. These growth estimates will impact future freight distributions and patterns by creating additional density for retailer’s networks. Crowd sourced delivery options, much like Uber, will become a significant pool of delivery drivers. Automated trucks will become more increasingly in demand as soon as the technology can be trusted.
The Labor Outlook
Driver positions are not the only area in logistics that are suffering shortages. Qualified warehouse personnel are also in demand. Particularly, as warehouse and distribution centers evolve into a more complex and technology driven environment. There are many reasons why labor is a problem, but two hurdles stand out. First, trucking has historically paid less than other business’ competing for the same potential employee. Second, the nature of the job requires drivers to be away from home in some cases for weeks at a time. As freight volume continues to grow labor will become an even bigger issue. To attract more recruits, some experts have proposed establishing more enticing industry standards such as a higher base pay and a flex time policy. Neither idea has yet to gain much traction. The simple fact is that truck driving as a career does not appeal to today's young people. On the operations side colleges and universities have historically offered somewhat limited programs in logistics as a science. I would expect the training options should improve as demand for these services increases.
Technology and Big Data
There is little doubt that data and the technology which allows us to interpret and leverage that data will be the future of supply chain management. It is well known that many transportation and logistics companies are late adapters of technology. Some are starting to be shut out of contracts if they cannot provide the data and technology required by customers, especially cyber security. Larger customers are adding minimum levels of cyber security to their contracts; this requirement will eventually become SOP.
Many carriers are even more behind in using analytics to make smart operational decisions. They do not understand the competitive edge analytics can give them even the simplest terms like route maximization. Successful shippers are thriving by seeking the guidance of logistics professionals who are trained in and equipped with the latest technology that mitigates risk to their supply chain and brand value. We are in the middle of a paradigm shift in the way transportation and logistics is executed. Adapt accordingly or die.
Count on the logistics professionals at Land Link Traffic Systems to navigate your company through what is certain to be some challenging supply chain waters in 2019 and beyond.
In a bid to keep pace with their number one competitor, Walmart announced yesterday that they will offer free one day shipping on many items. Starting May 14, Walmart customers in Phoenix and Las Vegas who buy more than $35 worth of goods enjoyed free one-day shipping. The offer, which Walmart had hinted was in the works and will be applied to as many as 220,000 items, will extend to Southern California in the coming days and will reach about three-quarters of the United States by the end of the year. The $35 minimum was set with the expectation that the average Walmart at that price point would include several items thereby reducing individual unit shipping cost by sending the entire order in one box. Walmart's e-commerce business has not been profitable. In fact, management expects to lose more this year than they did in 2019. Amazon expects to spend $800 million this quarter to cut their shipping costs. Walmart's same day shipping is available to all customers without any membership fees. Amazon's service, on the other hand, is available only to Prime members at an annual cost of $119.
One thing is clear. The big package companies don't have enough capacity to handle the expected volume of same day deliveries from the big retailers. They may not even want the business. You can expect Target to be adding to the volume as well as other retailers. Same day delivery from UPS or Fedex would be cost prohibitive. You'll find a range of about $27 to $55 at FedEx and about $30 to $63 at UPS which is clearly not a viable option. So what is Walmart's strategy for this same day service? Walmart is using a surprising strategy on free, next-day shipping that doesn't involve any of its 4,700 US stores. Instead, orders will be filled and shipped from 6 fulfillment centers across the U.S. Walmart plans to further drive down the costs of next-day shipping by making "aggressive investments" in automation and boxing technology. Fulfillment centers are better equipped for those kind of investments according to Walmart CEO, Marc Lore. Walmart will be utilizing its stores for same day order pickup.
Who Is Gonna Make All These Same Day Deliveries
The big retailers will have to utilize additional resources to UPS and FedEx. Dozens of start up companies are already in business offering same day delivery. The boom in e-commerce sales has lead to a surge in package volume and shippers don't have the capacity or network to quickly deliver parcels. This has created a new market and presented a significant opportunity for last mile delivery startups to emerge.
Capital investment and labor are the deterrent to most companies entering the parcel market. For that reason, Deliv.com, Rodie and many others have opened up across the country with limited capital investment. They depend on private van and car owners to make the deliveries as contract workers which is very much like the Uber platform. With the driver unrest Uber has been recently experiencing, these start ups may find some new, willing drivers. The companies won't last if the drivers are not making an adequate wage and one also can't help but wonder when everyone became in such a hurry? To keep informed on this and other industry news, subscribe to our blog.