ELDs and e-commerce have brought to light time-related issues within the supply chain
Panelists on the opening session of the 44th Annual Transportation & Logistics Council meeting here in Charleston, SC, this week all seemed to agree on the current issues facing the industry – lack of drivers, not enough capacity, and the “Amazon effect.” They also agreed that time is a dynamic that has become ever-more precious in today’s supply chain.
“I think we’re in what we can call the new reality,” said William Cassidy, senior editor of the Journal of Commerce. “This is likely to be, perhaps not as [quickly], but just as transformative as deregulation.”
Cassidy explained that there are more accessorial charges being applied than ever before, and he had even heard about a “trailer repositioning” charge for relocating trailers. The Trans Logistics North America Truckload Rate Index annualized is up between 17% and 25% based on 14,700 lanes, he said, and that is leading to another change that is happening.
“When we talk about capacity, we talk about trucks and drivers … but the thing we rarely talk about is time,” Cassidy said. “Over the years, we sucked the time out of the supply chain … and what we’ve done is dump that time on the weakest part of the supply chain - the driver.”
That pain is now being brought to the fore in part due to the electronic logging device (ELD) mandate and the continued strength of the economy. It’s particularly acute along the “tweener” lanes, something that FreightWaves has reported on previously. These lanes (Cassidy described it as 450 to 550 miles) have seen a 16% extension of in transit times. As the time it takes to run this lane increases, Cassidy said that carriers are turning down more loads.
“We’re going to have to look at ways to make time within the supply chain and that may mean better forecasting or … working with carriers,” he said.
While available time is a growing issue for carriers and shippers, the Amazon effect is radically changing the industry, not just in e-commerce, but in the way existing retail stores develop their supply chains.
“We’ve lost thousands of retailers in the last 10 years and the guys that have survived are trying to build out their omnichannel networks,” Robert Lieb, professor of supply chain management at Northeastern University explained.
The growth of e-commerce and is leading to “large groups of companies joining the market for last-mile services.”
Lieb is still unsure about where the current e-commerce trend is heading. “Amazon uses profits from its Amazon Web Services to support its retail and that is not sustainable in the long term,” he said, noting that “free shipping is not free; somebody has to pay for it.” Amazon spent $21.7 billion on transportation costs in 2017, he said, and now the company is looking to build out its own delivery service. He contrasted that with the Alibaba approach in China, which does not own any logistics operations. “It will be interesting to see how this turns out,” Lieb said.
On the broader look at e-commerce, he pointed out that it places “a heavy demand on transportation and logistics companies” yet still only makes up between 9% and 12% of 3PL revenues. Amazon accounts for only 3% to 4% of that.
It’s not only the last-mile that is seeing this heavy change, Lieb says, as shorter delivery windows of goods moving to retail stores or from warehouse to warehouse adds complexity, as does the increasing competition in the space and a push by retailers for their carrier partners to scale quickly as orders increase.
“You’re dealing with a marketplace that has intense pressure and you’re getting squeezed by retailers,” he noted.
With all the talk about the challenges facing carriers, brokers and shippers, one speaker, Marianne Rowden, brought an interesting and perhaps welcomed impact from e-commerce: trade.
Rowden, president & CEO of the American Association of Exporters and Importers, said that e-commerce can be viewed as more of a “free trade system” than the current World Customs Organization (WCO).
“The WCO is not a free trade system, it is a managed trade system,” Rowden explained. “I would argue that e-commerce is much closer to a free trade system because it’s based on consumer supply and demand.”
Rowden said that current trade issues include the “location by location” process used to clear goods, mostly containers, through Customs. That needs to change, she said, as the “de-containerization” of the global marketplace develops because of e-commerce-related trade that involves moving much smaller goods in much smaller packages across borders.
“I think e-commerce is not an end to globalization, but a shift in globalization,” she noted, pointing out a global group she is a part of that is working to write global Customs standards for e-commerce trade. There are two models developing, she mentioned. One, as exemplified by China, requires the e-commerce supply chain to be handled separately with separate regulations, insurance requirements, documentation, etc. The other is a more open and holistic approach.
“In the U.S., what we are trying to do is say a package is a package. It’s not distinct. What’s different is the risk management,” she said.
E-commerce and ELDs are two of the largest impacts on the supply chain today, all the panelists agreed, and data is helping navigate this changing time.
“ELDs changed the equation and it gave more power to the trucking company and the driver,” said the panel’s moderator, Robert Voltmann, president & CEO of the Transportation Intermediaries Association. “I don’t think there was widespread cheating before, but I think if you got stuck in traffic for 3 hours in Chicago, you might only record [1 hour of it as on-duty driving time]. There’s no fudge factor anymore.”
Cassidy went back to the idea that the change needed is about time.
“Trucking companies now have the data they can take to shippers and tell them they to [change] or their consignees need to change their ways,” he said. “Shippers now need data. It’s an operational change [needed] to put time back into the supply chain.”
Stay up-to-date with the latest commentary and insights on FreightTech and the impact to the markets by subscribing.