E-commerce pushing US trucking to up its game

E-commerce pushing US trucking to up its game

A truck travels on a US highway.

The most significant new pressure driving change in the industry, in my opinion, is the e-commerce and traditional retailers who have quietly and substantively rewritten the industry’s playbook overnight. Photo credit: Shutterstock.com.

Transportation in 2018 was a year of continued upheaval. To those who feel the trucking market is a living and breathing entity, it validated that, and we’re beginning to be able to identify some of the predictable, recurring conditions.

The industry witnessed the ongoing migration of drivers joining smaller fleets or becoming owner-operators at a pace of more than 2-to-1 — companies operating 100 trucks or fewer have gained 345,925 drivers since 2012, while fleets with 501 or more trucks have snagged only 169,467 drivers. That trend has contributed to the biggest carriers’ inability to add capacity.

Simultaneously, the biggest shippers’ strategy of using brokers only as a backup to their asset-based providers swelled the spot market to a peak last summer. The results? High prices, late shipments, and blown budgets, to name a few.

These market inefficiencies, combined with slow-to-react transportation buyers, caused an abnormally large spot market, which was a mirage, destined to fade.

I’ll stop short of boldly predicting capacity for 2019. Data from Truckstop.com, SONAR, and DAT Solutions all point to a softening in the spot market during the last half of 2018. There are many possible contributing factors. Has the market overcorrected, like markets often do? Did the addition of more than 555,000 drivers to for-hire fleets, bringing the number to just under 2.5 million, change the capacity equation? Have the impacts from the Trump administration tariffs halted trade enough to let the steam out of the market? In preparation for those tariffs — the latest round of which have been pushed from Jan. 1 to at least April 1 — have shippers overstocked in 2018?  

Any one of these factors is enough to prick the capacity shortage bubble, and restore pricing power, at least temporarily, to buyers.

What is certain is that the industry is evolving faster than ever. Exorbitant — and often foolish — investment in transportation technology and startups is spurring new ideas, which are often borrowed as quickly as they’re learned and incorporated into existing businesses and software. “Digitalized freight” is the latest buzz phrase, which will start to come together as technology providers consolidate.

Most significant new pressure

The most significant new pressure driving change in the industry, in my opinion, is the e-commerce and traditional retailers who have quietly and substantively rewritten the industry’s playbook overnight. The various compliance fee regimes imposed by most major retailers, grocery chains, and drugstore chains — sometimes referred to as “OTIF” or “on-time and in full” — have turned trucking into a precision sport, with massive financial consequences to the product manufacturers.

With their bottom lines at stake, manufacturers are turning the screws on their transportation operators, which isn’t the answer. The US economy is consumer-based, with retail being the largest segment. Over the past two years, retail has changed trucking, probably forever. Pricing models simply haven’t caught up.

Technologies that enhance the customer experience are always front of mind. But to succeed in 2019 and beyond, the transportation industry will rely more on services that improve on-time pickups and deliveries, while providing visibility into all shipments to better coordinate with retailers.

With profit margins on the line for manufacturers, the old procurement line at bid time, “we assume all service is equal,” is Stone Age talk. Service matters more than ever, and certainly not all providers are equal. Transportation providers that can harmonize service, capacity, and technology will lower costs and achieve results for their shippers.

Attend any transportation technology event, and you’ll hear “digitalizing” the supply chain and “democratization” of big data 86 times before lunch. (Has anyone else noticed that they’ve stopped talking about how 3D printing will change transportation?) Attend technology expos and expect to see 101 of the coolest ideas you wish you had in your transportation management system — from 101 providers.

However, you can’t leave a fully functioning, thorough transportation management system (TMS) because one provider has a cool trick in one small area and an inadequate TMS otherwise. Nobody’s put it all together. It’s impossible right now.

Long road before sector achieves digitized supply chain

Electronic logging devices (ELDs) were the watershed moment in trucking, but there are many ELD providers, and some are easier than others to extract usable data to increase supply chain efficiency. Certain carriers will share their data, but some inevitably won’t. Others simply can’t. TMSs, even the same providers for different shippers, are usually customized for the specific shipper, with different inputs, outputs, and objectives.  

There’s a long road ahead for the industry to reach the utopian digitalized supply chain. I believe the first step will entail a consolidation of technology companies to begin to streamline and organize the data, the fields, the sharing, and the platform. We need to see consolidation of ELD providers and/or better availability of that data. Blockchain can help here, but even that’s further in the future than many believe.

Our company, like many sophisticated providers, has dozens, even hundreds, of customer-specific tech customizations programmed in our TMS. Our service procedures are specialized to each customer, based on each customer’s business needs. We predict we’ll see an even higher degree of customer specificity, and technology plays an integral role.

To succeed in this new landscape, you’ll need to incorporate emerging technology into your budget. One of the biggest challenges you’ll face is prioritizing where to spend technology dollars to get the most bang for your buck. Make systematic, small changes that pay dividends.

This pace of change may be uncomfortable, but there will be clear winners and losers over the next few years. And remember, transportation is simply a matter of delivering on time. It’s just more important than ever.

Jeff Tucker is CEO of Tucker Company Worldwide. Contact him at jeff.tucker@tuckerco.com.