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Drayage is opaque, inefficient, and ripe for digitization

Drayage is one of the most opaque, inefficient segments in the American trucking industry, dominated by small, undercapitalized carriers using yesterday’s technology.

What is drayage? It typically refers to the transport of freight a short distance between ports and warehouses as part of an intermodal network.

The lack of visibility into this market contributes to inefficiency and hinders the matching of capacity and freight, driving prices up and asset utilization down. Steady growth in inbound container volumes and external capacity constraints—including the ELD mandate, port congestion, and an intermodal chassis shortage—have only exacerbated these issues. In our view, digitization has an important role to play in this market providing visibility, enabling optimization, and creating platforms for multi-party collaboration. 

“Digital platforms and applications now enable true end-to-end visibility to shipments and inventory across all participants in the supply chain. Networks of trading partners, combined with IoT devices, can capture, cleanse and make sense of vast volumes of operational data – and provide visibility to authorized parties so they can better plan resource allocation for drivers, transportation, assets, gate throughput, and labor crews,” said Steve Dowse, senior vice president products, Blume Global.

Disruptions from the U.S. – China trade war have made port traffic more unpredictable: Susquehanna analysts found this year that inbound container volumes to West Coast ports increased 8.3% from September to October, a period that sees contracting volumes in most years. In the current trade policy landscape, drayage capacity must be flexible and responsive to unexpected surges in demand. To achieve that flexibility, partners throughout the supply chain will need the ability to share data seamlessly, preferably on secure platforms that offer each party real-time views. By eliminating manual, email-based communication processes, information will flow faster, without human error.

The ELD mandate, imposed on the trucking industry a year ago, is estimated to have effectively removed 5-6% of trucking capacity from the roads, creating an inflationary market sensitive to even small demand shocks. Some drayage markets have been even more drastically affected. Drayage carriers working the I-16 corridor between Savannah and Macon are now mostly limited to two round trips per day instead of three, a capacity reduction of 33%. These constraints on supply make asset utilization more urgent, which will encourage AI-assisted load matching, route planning, and adoption of predictive analytics to more accurately forecast dwell times and ETAs.

Several interlocking market forces are pressuring intermodal service providers to move freight transparently and quickly.

Demand is rising against these negative supply trends: on a national basis, intermodal volume grew 7% in 2018, about twice as fast as the overall economy. Although East Coast ports have poured billions of dollars into infrastructure improvements like additional railroad capacity, modern cranes, and dredging, throughput velocities are still understudied. An economic backdrop of rising interest rates is increasing the cost of carrying inventory, which will have the overall effect of tightening transit times and delivery windows.

In a recent report on Amazon, Morgan Stanley analysts said that e-commerce accounts for about 20% of U.S. retail spend, and is expected to take another 2.5% next year.  E-commerce is driving average warehouse size down and locations closer to urban cores; the proliferating network of small distribution centers surrounding population centers will further complicate intermodal moves and require increased visibility into asset and shipment statuses. 

“In an environment where providers have limited resources, they want to work with customers that are easy to do business with every day. Digital platforms enable ease of doing business between customers and vendors, large and small, by sharing information more easily, openly monitoring performance, automating processes and ensuring parties can reliably settle for services with minimal friction,” said Dowse.

North America’s intermodal network is already quite complex. There are potential choke points all along a shipment’s path to its final destination, from port congestion caused by labor disputes to snarled trains in Chicago and sudden trucking capacity crunches at inland drayage markets like Memphis. To optimize moves on a cost and time basis, large amounts of data must be generated all along the supply chain, aggregated on platforms that provide realtime multi-party views, analyzed by continually improving algorithms, and acted upon by human operators. 

Cost is already important, but has started becoming an even more crucial factor in supply chain planning. For the first time in decades, the cost of transportation and logistics is growing faster than the Producer Price Index; once again, transportation and logistics expenses’ share of GDP is rising. Recent transportation cost inflation has reversed a deflationary trend that began in the United States with the deregulation of trucking in 1980 and in the global economy with the introduction of containerized shipping in the 1960s. Transportation managers at large shippers are facing increasing pressure to budget accurately while also sourcing logistics services that are reliable, efficient, and transparent. In our view, digitization in drayage and throughout the intermodal chain of custody will allow transportation providers to differentiate themselves in both pricing and service.

According to Dowse, “This is an interesting time in the supply chain industry. Those that don’t embrace digitization could find themselves left behind.  Collaborative technologies can help companies successfully execute all aspects of logistics across the supply chain including visibility to match supply/demand for capacity, streamlined invoicing, better visibility and control over transportation spend, and improved customer service and vendor relations.

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.