Stifel’s logistics panelists: ‘Amazon effect’ hitting B2B

( Photo: Wikimedia Commons )

Toll Group: Driver shortage is international

Uber Freight: you can spend on tech, but are you focused on tech as a first solution?

FreightWaves’ coverage of Stifel’s annual Transportation and Logistics Conference in Miami Beach continues.

Yesterday morning David Ross, CFA, a research managing director at Stifel, moderated a logistics panel to get leading 3PLs’ perspectives on their industry. Panelists included Michael Byrne, Managing Director and COO of Toll Group, Joel Clum, COO of Worldwide Express, Bill Driegert, Director of Uber Freight, Todd Everett, President and CEO of Newgistics, and Mark Yeager, CEO at Redwood Logistics.

After introductions, the conversation began with a brief discussion of how the driver shortage affected the logistics side of the transportation industry. Most 3PLs, of course, see better margins in tight capacity markets, but their customers bring them more urgent problems to solve. Mark Yeager said, “I’d be lying to you if I said I wanted the driver shortage to end. I didn’t think ELDs would create the disruption they have. It’s not likely to be resolved at any time in the near future and we’re going to be seeing an underlying theme of driver shortages for the next several years at the minimum. We’re trying to help shippers shift their strategy—massive RFP as a primary sourcing strategy is outdated—because shippers need a different kind of relationship with their carriers. We’re trying to connect shippers and carriers in a unique relationship and help them figure out what’s causing capacity issues, and trying to create visibility for customer and carrier so yards can be more effectively managed.”

Michael Byrne, from Toll Group, a large Australian 3PL that does a lot of air freight business, was able to put some international perspective on the driver shortage. Byrne said that the driver shortage extends to Japan, Germany, and every OECD economy Toll Group does business in.

Then Ross got into some of the most perplexing transformations in transportation and asked the panelists how e-commerce was affecting their business. The takeaway here is that even for 3PLs who don’t do a lot of retail or e-commerce business, the ‘Amazon effect’ has crept into the B2B sector. Just as consumers have been spoiled by free next or two day shipping, visibility into tracking, and painless returns, now business customers demand the same perks. 

Yeager said, “We’re not heavily reliant on retail, so we don’t have as much disruption. Nonetheless, it’s definitely impacting our business; the biggest change is the expectation of the shipper—the level of visibility, connectivity, data and insight they expect. The age of monthly transit reports is antiquated at this point—shippers expect much more interactive relationships.”

Todd Everett from Newgistics emphasized the creativity 3PLs need to optimize supply chains that are increasingly strained by intensifying e-commerce. Everett said, “Positioning of inventory continues to change, getting closer and closer to the consumer… it’s driving increased rates for warehouse space, less access to warehouse space, and the labor force for those markets is getting tighter and tighter. The expectations are off the charts—in most cases the shippers themselves are building very strong analytics focused on the supply chain, and as a 3PL if you’re not keeping up, they’re calling you and saying there’s a problem before you even know… and that’s no way to operate. They expect a new level of creativity… shippers are calling us and saying, ‘Jeez, what if we shifted the network this way, and did the stops in this sequence instead of this sequence?’ And it’s coming from thousands of customers at basically the same time, and it’s quite challenging.”

Joel Clum from Worldwide Express also cited the Amazon effect’s infiltration of B2B relationships. Clum said, “We’re less directly impacted—B2C is a single digits percentage of our business—but the biggest thing overall that we’re seeing is the shift from the way things were to the new environment of how you have to operate. It’s the Amazon effect, but it’s the innovation that’s happening in the industry… if you don’t change, you’ll get left behind because that’s where the market is moving. The Amazon effect on consumers is creeping into the B2B space. That’s the more profound effect that we see—this shift of mentality. A lot of the carriers we work with on LTL are doing tremendous work with Amazon—that’s gonna have an interesting effect on overall rates in the marketplace because they’re sucking up capacity.”

Michael Byrne from Toll Group chimed in with the Asia-Pacific perspective. “[E-commerce is] a very small part of our business… not our core, but we’re being forced into it in Australia and New Zealand. If you look at Asia and the subcontinent, the changes there are 280M people a year move into the middle class, every year. You’re seeing the Chinese economy growing at 6.6% every year. You’re seeing enormous changes in these megacities—11M people in a city. Tokyo is 12M people, with another 12M people commuting in and out every day. Bangkok is a terrible city to do business in, and every day, 5-6M people moving up country. We’re seeing a huge change moving from wet markets in India to first stage retail—those changes are altering supply chains and where our customers are positioning inventory. There’s pop-up factories.”

Then Byrne transitioned to the particular challenges air freight faces in these rapidly growing Pacific Rim cities. “It’s difficult in Asia—people are getting wealthier, traveling, flying more, we’re getting kicked out of the big airports,” Byrne said. “When we charter—say we’re moving mining equipment… the problem first of all is to find where you can land or take off. Most Asian airports want passenger freight. We’re planning that we’re getting kicked out of more airports—Hong Kong airport doesn’t want freighters. That will continue as Asia gets wealthier. This is the first time this century the 3 big trading blocs—Europe, North America, Asia—are all doing really well simultaneously… unemployment in most countries is at record lows. Hold on tight and we’ll see what happens.”

Bill Driegert from Uber Freight seemed less ruffled by e-commerce’s explosive growth. “We were born into this market,” Driegert said. “I spent 2 years at Amazon. Purely e-commerce, which means shorter length of haul, higher density… is still such a small percentage of the market from a truckload perspective. On the Amazon question, I do think that they have intentions to step into the market and provide services. It’s an open question as to what that will look like… they’ll always prioritize their own customers before external customers, before they challenge everyone else in this room. In 5 years Amazon will have continued to expand their services and do more and more direct shipping within their own ecosystem.”

The conversation shifted to information technology when Ross asked how the 3PLs were investing in digital solutions and why. Third party logistics providers are leaned on by both shippers and carriers to manage large amounts of data and make sure that all parties have the information they need in a format they can use, and the 3PL representatives on the panel spoke of their struggles to identify which technologies would make a difference to their customers. 

Michael Byrne complained, “We’re investing far too much in IT. We’re spending a bit over $400M over the next few years, and I’m told that’s not enough. A lot of that is around our data integrity: we do munitions, cyanides, explosives, so security has to be done properly.”

Worldwide Express’s Clum said, “When you’re a franchise company, you don’t have a lot of excess capital to spend on IT. We realized we needed to change the way we thought about investing in our businesses. CTO candidates from outside transportation were amazed at how antiquated logistics tech is. Now that we have more investment opportunity for tech, how can we take pieces that exist in all these different industries to create something new and exciting for our customers?”

Predictably, Bill Driegert from Uber Freight had some insight into how best to leverage technology, distinguishing between companies with a heavy tech spend and companies who actually view technology as a first solution to their problems. “The interesting thing with technology in this space is that it’s not just the tech,” Driegert pointed out, “it’s company-by-company how they view tech as a leading driver of change. Even for Uber, the app isn’t what’s complex—it’s the operation behind it, and the belief and vision of how the industry can change. For us, the big focus is autonomous… we’re not that far out from commercial operation of AVs. That’s going to be the most significant change agent. Beyond that, there’s a lot of tech out there that’s more supplemental, more back-end… it’s good to have those competencies and be able to execute. More companies are creating tech solutions and leading with that as what’s going to drive change in the market. Just because you spend $100M a year on tech doesn’t mean you are actually tech-focused and focused on tech as a first solution.”

Mark Yeager made the point that tech investments should be driven by the imperative of solving customers’ problems. “Technology is terrific,” acknowledged Yeager, “but it’s really how you apply it, what you’re focused on and what you’re doing. We can take tech and try to lower our cost, but is that really bringing value to our customers? Are we helping them solve issues they confront every day? As an industry we’re behind the curve and as a result our customers are making un-informed decisions? As 3PLs we have to help our customers make order out of chaos… we need to apply our expertise to constructively use tech to solve real problems. Just because we can do something doesn’t mean we should—it has to be customer-centric. We like to think about applying a very human element to our tech capabilities… tech has to be much more nimble and used in a way that meets our customers’ expectations. They don’t have two years to install a massive TMS system—they need our help today.”

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John Paul Hampstead

John Paul conducts research on multimodal freight markets and holds a Ph.D. in English literature from the University of Michigan. Prior to building a research team at FreightWaves, JP spent two years on the editorial side covering trucking markets, freight brokerage, and M&A.