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TransporTaTion & LogisTics Trends

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he U.S. economy grew at a 3.2 percent annual rate in the last quarter of 2013, lead- ing to speculation that 2014 could see the strongest growth since the end of the cur- rent recession. Supporting that, a report by the Institute of Supply Management (ISM) says manufacturing revenues are expected

to increase 4.4 percent in 2014 and non-manufacturing revenues by 3.6 percent.

Respondents to surveys that make up part of the ISM report cited some challenges, however. Nearly a third (32 percent) pointed to challenges in obtaining domes- tic sales growth, and 18 percent see similar challenges in growing international sales. Overall, the ISM report concluded, “Expectations are for a continuation of the economic recovery that began in mid-2009.”

Indeed, recovery from the 2007-2008 recession has

been more gradual than most had anticipated. “The slow recovery from the recession is a reason why there hasn’t been as much opportunity to raise prices for goods,” says Chris O’Brien, senior VP of C.H. Robinson Worldwide Inc., a third party logistics provider. “When prices go up, more commitments can be made to trans- portation and logistics, and wages can rise.”

In the face of this, respondents to the ISM survey reported that their goals were to improve their overall supply chain management practices in 2014 — with a focus on strategic sourcing and supply base rationaliza- tion; process and information systems improvements; supplier relationship management; inventory manage- ment and control; and improved cross-functional plan- ning and scheduling. Part of the effort is committed to improving corporate performance in areas like transpor- tation and logistics.

Changing TransporTaTion: From Drivers to Data

As businesses recover from the recession, part of their focus is on improving transportation and logistics performance. by mary shackLeTT

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What does this portend for transportation and logistics?

“The trend is shifting from supply chain modeling with optimized distribution centers and vendors to a new frontier where the supply chain is made safer,” says O’Brien. “Included in this initiative are efforts to make supply chains more redundant, and to locate inventory in different areas of the world so that a worldwide event like a tsunami occurring in one area of the world doesn’t shut down an entire supply chain.”

O’Brien continues, “Examples of areas where com- panies are striving for greater efficiencies in their supply chains and logistics include looking at routings of goods, and which routings are most effective. The goal for tran- sit times is that they should be as short as possible.

“Inventory is also being optimized so that it is strate- gically located in areas of the world where maintaining an inventory is critical. Companies are also looking at which individual SKUs are needed in inventory instead of stocking all inventory items. In this way, they are reducing their inventory carrying costs.”

Changing Times in Transportation Like their shipper customers, transportation and logis- tics providers also look for efficiencies in operations and effective methodologies that move goods from point to point on a timely basis and at least cost. After this shared goal, however, the shippers and logistics providers diverge because there are individuated challenges that each must focus on.

“We consider trucking company bankruptcies, which accelerated in the third quarter of 2013. If they do the same in the fourth quarter, things could get a little more interesting in 2014,” says O’Brien. “At the same time, the cost of new truck equipment mandated by regulators has

gone up. This has made it a tough environment for truck- ing companies. We’ve seen an inflection point between supply and demand. Pricing is up in the long term and this should help the marketplace limit bankruptcies.”

In trucking, as in the overall transportation sector, con- solidations and mergers are likely to continue in 2014. It is a way that individual organizations can achieve greater scale and also position themselves as players in a global economy. Ultimately, this consolidation process reaches far beyond the simple fact of companies merging.

Shippers will continue to see their transportation and logistics providers present more “merged” (or inter- modal) shipping models for the transport of goods that meet delivery times with a combination of shipping by rail, ocean, air and truck. To facilitate the “best practice” shipping of goods, logistics providers will rely on end- to-end, highly integrated transportation management systems (TMS) that are capable of globally managing all of their traffic and also of assisting them in provid- ing shipper-customers intermodal truck-rail-air-ocean alternatives that yield the best routings at the best cost in order to attain specific delivery times.

From the logistics provider’s standpoint, especially if it is heavily concentrated in trucking, the focus on inter- modal transport could not come at a better time. This is because there is, and will continue to be, demand for truck drivers, brought on by an aging (and soon to be retiring) workforce of truckers, coupled with the inability of truck- ing companies to attract a new corps of younger workers, who see other employment options more appealing.

One way to address the driver shortage is to look at shorter routes that allow drivers to be at home at night. Operating close to home is also an area where truckers can capitalize, because of the continued demand for effective “last mile” transportation that gets goods to the

Technology Roadmap: The Internet of Things

Te ch

n o

lo g

y R

e a

ch

RFID tags for facilitating routing, inventorying, and

loss prevention

Surveillance, security, healthcare, transport, food safety, document

management

Locating people and everyday objects

Teleoperation and telepresence: Ability

to monitor and control distant objects

Demand for expedited logistics

Cost reduction leading to diffusion into 2nd wave of applications

Supply-Chain Helpers

Vertical-Market Applications

Ubiquitous Positioning

Physical-World Web Ability of devices located indoors to recieve geolocation signals

Miniaturization, power- efficient electronics, and available spectrum

Software agents and advanced sensor fusion

Source: SRI Consulting Business Intelligence

2000 2010 2020

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doors of consumers and retailers. “Last mile” services will continue to flourish for smaller trucking companies with a local presence, since the larger carriers don’t always fully participate at the local level.

Greater Visibility and Better Results From the shipper’s perspective, all of these logistics focuses are good — provided they can produce the best shipment options at the least cost while facilitat- ing supply chain efficiency, reliability, agility, safety and reduced risk.

“This means modeling your supply chain network so you always know where freight is coming and going between your various supply chain points of origin and destination, and obtaining granularity in your visibil- ity that goes all the way down to the SKU level,” says O’Brien. “This is where all of the larger companies are focused with their supply chains. They continue to opti-

mize their supply chains and their orders. These internal corporate initiatives, together with the advancements we have seen in TMS technology that can now easily facili- tate efficient routing decisions, have made a difference.”

O’Brien notes that he is often asked by clients to describe the “shipper of choice,” and what this ship- per’s attributes are. Among the attributes cited are the ability to let carriers in and out in order for carriers to maximize their capacity, favorable payment terms, and driver amenities. “Smart shippers have specific strategies for transportation and logistics, and also value that they expect,” says O’Brien. “Many of them use scorecards for their transportation and logistics providers to ensure that they meet their goals.”

Sears is one company that opted to build a transpor- tation scorecard system several years ago. “Globally, we were using almost 700 reports, generated from Access to Excel to legacy systems, you name it,” says Sears spokes-

A t its 5th Annual Transportation and Logistics Conference, analysts of Stifel Research Department’s transportation

and logistics practice offered insights on industry developments and direction.

A good starting point for any discussion of the transportation industry is the impact of the direction of the U.S. economy on freight volumes. Here, the analysts found differing, if not contradictory, views.

They reported many in the industry viewed a tighter supply-demand dynamic as an indi- cation the economy was on the rise. Others were more cautious, saying the combination of lower inventories, a shorter holiday shop- ping window, weather, and an acute driver shortage were factors in the supply/demand balance and these would dissipate once the winter season began to fade and inventories were replenished.

Other factors affecting the truck sector included intermodal diversions. The analysts did not offer an opinion whether these too would melt away with the snow. If the experi- ence of 2013 Alliance Award recipient Macy’s is any indication, it will not (see “The Right Dialogue,” World Trade 100, January 2014, pg. 24). The retailer successfully introduced intermodal into its transportation mix and has seen its use grow based on performance metrics and cost benefits.

There is room for con- tinued growth of rail inter- modal. While shippers like Macy’s are changing their attitude based on improved service, truckload carriers are openly embracing rail intermodal and becoming some of the railroads’ big- gest customers. For those who remember J.B. Hunt announcing that company’s adoption of rail intermodal, his vision was clearly on target, and many who were his critics at the time have now followed his lead.

Among all of the cau- tion expressed by the Stifel analysts, they admitted two strong categories are hydraulic fracturing-related shipments and cross-border trade among NAFTA partners.

For investors, railroads and specialty carri- ers are probably the bright spot. Shippers may take a different view of the pricing optimism there. The Stifel analysis pegged railroads at “inflation-plus pricing” while temperature- controlled truckload indicated an expected 3 percent to 5 percent rate increase likely in 2014. Dry van truckload and less than truck- load (LTL) suggested more modest levels of 3

to 5 percent and 2 to 3 percent, respectively. But, even with these cautious views, the

analysts and the industry seem unsure of the pricing picture for 2014. Much will depend on the economy taking any dramatic swings up or down and the actual impact on produc- tivity of federal regulations. And that leads right into the ongoing discussion of labor supply. Solutions to a tight driver supply are both expensive and slow. Increased pay, more training, better working conditions and oper- ations changes — the proposed solutions are now as well known as the issues they address.

Eyes on the Consumer WT100 analyzes the analysts and finds much to be optimistic about. By perry a. Trunick

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man Brad Fisher. According to Fisher, this ultimately led to a first phase scorecard that condensed all of the transport information into a single, summary dashboard that allowed users to get an immediate view of how their logistics providers were performing.. Using a scorecard system also equips shippers with metrics that they can use in their discussions about performance with their logistics partners.

Logistics providers see the importance of results- oriented scorecards, too. Companies like DHL speak about “balanced” scorecards that take into account the entire enterprise logistics and supply chain network, balancing results by assessing areas as diverse as finan- cial performance, perspectives of the customer, internal business processes, and learning and development. In its Discover Logistics course, DHL notes, “Conven- tional systems of key indicators generally relate to past events and concentrate on short-term financial value

creation. The balanced scorecard, on the other hand, goes a step farther. It is designed to help determine the critical factors of a company’s long-range success. With the balanced scorecard, strategies are implemented in the operational business.”

Central to the process is an integrated network that can see end-to-end across supply chains and their sup- porting logistics. To attain this, shippers and logistics provides alike must look to technology as both a strate- gic and an operational enabler.

Technologies Facilitating Change To attain more integrated supply chains, greater ability to use analytics and the ability to intervene in supply chain and logistics situations before they escalate into crises, shippers and logistics providers are employing new technologies that are capable of overcoming age-old barriers to visibility, performance measurement, time to market and system resiliency and agility.

Technologies with key transformational roles in trans- portation and logistics are:

Cloud-based solutions A growing number of software-as-a-service providers are selling supply chain networks that give organizations expanded visibility of their end-to-end supply chains, and the ability to rapidly onboard new suppliers as they diversify their supplier bases as part of their overall risk management strategies.

These supply chain networks in the cloud feature common data repositories that all parties use, which prevents the propagation of different types of data that describe the same thing differently, thereby creating confused communications. Logistics providers also participate in these cloud-based networks, so there is integration of transportation and logistics into other day-to-day supply chain business functions.

Some of these cloud solutions are TMS’s, and others are offerings that come directly from the logistics provid- ers. The logistics cloud offerings give companies the ability to monitor their goods on a step by step basis throughout the entire shipping process, down to the level of monitoring (and receiving) alerts on environmental and safety factors regarding containers and other types of packages.

Modernized TMS’s New TMS capabilities better position shippers and their logistics providers to use informed logistics with a high

Collaboration, an overworked term over the last decade, seems to be developing as an actual strategy, or at least a tactic; Stifel’s analysts report more shippers collaborating with each other and more carriers doing so as well. The result is better efficiency (which includes cost in most cases), but it also has a consequence of driving deeper relationships. In their own recounting of verbatim comments, the Stifel analysts reflect industry views that more companies are reducing the number of suppliers as they go deeper with their core logistics pro- viders. Even smaller companies are getting into the act as they increase their outsourcing in order to achieve some of the same efficiencies.

The Stifel analysts have offered a multitude of invest- ment recommendations based on their view of the econ- omy, the logistics industry, and the factors affecting both. Looking at their report from the perspective of the customers or users of the transportation and logis- tics services provided by the well-managed companies they monitor, there is little “extreme” in the comments. There are no dire warnings about fuel cost volatility or dramatic regulatory action. These and the other major factors they have highlighted still need to be watched, but for now, it appears, all eyes are on consumers. If consumers stop buying, the economy slows and the transportation supply/demand equation shifts to supply. If consumer demand gains strength, all of the drivers affecting cost and availability of transportation and logistics services get amplified.

If there is a conclusion from all of this, it is that the issues aren’t going away, nor should the efforts to develop and implement long-term solutions. The Stifel report cites a lot of collaboration. It’s important to note that these trends are strongest at the best- managed companies — the ones Stifel monitors — and at the top customers of those companies. This is a view from the leading edge of the bell-shaped curve. There is plenty of opportunity (and a lot of work) to move these best practices to the center of the bell-shaped curve.

The slow recovery from the recession is a reason why there hasn’t been as much opportunity to raise prices

for goods. – Chris O’Brien

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degree of visibility into logistics processes “Since the last four or five years have been about bringing down costs, shippers also want ‘single point’ visibility from their pro- curement technology solutions,” says O’Brien. “To get this, they are bringing in smart systems.” One fairly new capability TMS’s are delivering is mapping technology that connects to the TMS system, and is able to auto- matically track and report on where everything is at a given point in time in the supply chain.

Researcher ARC Advisory Group reported in 2013

that TMS’s have been growing at double digit rates over the past few years, with the trend set to continue. ARC notes freight planning and execution were delivering strong ROI (return on investment) to companies.

“The simple, bottom line is that TMS can save com- panies money by lowering their freight spend,” says Steve Banker, who heads ARC’s supply chain manage- ment as service director. Banker reports that the ARC survey revealed over 40 percent of respondents felt that if they were forced to give up their TMS and go back to

more manual processes for planning and execution, their total freight costs would increase by 5-10 percent. “In fact, 23 percent felt their total freight costs under the control of the TMS would increase by over 10 percent if they were to stop using it,” he adds.

TMS also now has automated pro- cesses that assess how transportation efficiencies can best be gained. These processes feature real-time dashboards that give “live” visibility of transportation performance. The dashboards enable quicker and better decision making. They also automate many communications tasks that can’t be adequately addressed with traditional methods like phones, faxes, and spreadsheets. These TMS’s are designed for the global market. They are able to automate many areas of logistics planning and tactical execution.

Analytics As a central part of system automation and informed decision making, business analytics and the use of big data will play a major role in supply chain and logis- tics management. Today, the Internet of Things (IoT), with its sensors recording information along the points in the supply chain, can alert managers of situations requiring immediate attention. A case in point is a shipment that moves in a sealed container which must be maintained at a certain temperature. A sensor inserted into the container can transmit the status of the various environments and issue an alert if the seal on the container is broken, or if the container’s temperature controls fail, or if the container is opened.

From supply chain and logistics risk management standpoints, business ana- lytics can also be used to assess suppliers that are risky to deal with (e.g., they have appeared on a country restricted trade party list), or areas of the world where the weather conditions are likely to be extremely volatile.

This advance intelligence enables companies to avoid regulatory penalties, threats to reputation, and failure to deliver

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Source: DHL

goods because of a climate disaster that strikes in a par- ticular area of the world where the company is heavily dependent on its suppliers.

“Shippers are using predictive analytics that tell them which products and components are most depended on in their supply chains so they can better manage risk. From here, they can look at where these products and components are sourced from, and if they have enough diversity in their supplier base to survive a disaster in a particular part of the world where these goods are usu- ally sourced from,” says O’Brien.

In transportation and logistics, logistics providers monitor IoT data to assess driver habits and the fuel con- sumption and upcoming maintenance needs of vehicles. They also use analytics to determine best routings for goods, and the correct combination of intermodal trans- port options required to deliver goods on time.

Resiliency, Recovery and Risk Management With a global economy, global supply chains and global logistics, shippers and logistics providers alike recognize

the urgency of operational resiliency. This is central to their risk management strategies.

Accordingly, more are establishing secondary (and in some cases, more than two) data centers so that supply chains and logistics networks can be failed over to if a disaster strikes. Many companies are choosing to imple- ment these backup data centers with cloud providers that provide the necessary hardware to support their systems. In other cases, they are opting to co-locate their systems in leased data center space at points around the world.

Final Remarks In 2014, economic growth is still anticipated to be grad- ually upward. This will continue to influence corporate spend on transportation and logistics.

In this environment, new technologies that are now online are likely to inspire shippers and their logistics partners to address as many day to day logistics concerns electronically as they can.

More automation for time-consuming logistics work- flows and better logistics network monitoring and alerts for problem intervention and risk prevention, hold great promise and are quickly being adopted into standard practice.

Meanwhile, logistics providers will continue their focus on fuel economy, route economy, capacity optimi- zation and cost savings for their shippers and the exten- sion of logistics best practice to shippers that address the everyday challenges of running a global supply chain as simply as you can. wt

The balanced scorecard is designed to help determine

the critical factors of a company’s long-range

success. – DHL

For reprints of this article, please contact Cindy williams at [email protected] or 610-436-4220 ext. 8516.

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