FRISCO, Texas — Logistics executives came to the Transplace Shipper Symposium here this week hungry for solutions to what seem to be intractable problems of tight capacity and rising prices. They’re grappling with the “new normal” in transportation, said Frank McGuigan, CEO of the global logistics company, with headquarters here near Dallas and Fort Worth. McGuigan sat down with JOC.com Senior Editor Bill Cassidy at the symposium for a discussion of the surface transportation market, technology, and the road ahead for shippers.

JOC: Your first speaker at the conference, consumer behaviorist Ken Hughes, talked about the need to stay relevant as technology and consumer expectations change rapidly. He talked about the “blue dot consumer,” the consumer that expects things to come to them, rather than to go out and find them. How do you see that applying to the supply chain world today?

CEO Frank McGuigan: I talked to a couple of shippers about this. His presentation was so focused on the end-use consumer, the person who’s sitting on the couch eating pizza. You might ask what does that have to do with trucks.

First, you could logically take it up upstream and think about the supply chain implications, but the other thing you have to remember is you’re dealing with humans in your everyday business interactions. Forget about the supply chain implications, you have to think about the person you’re sitting across the table from. Increasingly, they’re getting used to getting things shipped to them.

There’s a whole new buying philosophy that parallels the industrial supply chain. People want speed, they want digitization. When we talk to our customers about blockchain and control tower, they know that’s out there. But that’s not what they’re pressing us for. They’re pressing us on speed and visibility. That’s what’s most important to them right now. They know that when all this technology matures, we’re going to bring it into our logistics platform.

Take real-time status updates. We understand your business situation and might recommend a visibility solution from one of our partners. But we know one size doesn’t fit all. We have to understand they want a bundled solution. They don’t want to deal with 25 software companies sitting on top of the platform. That’s what we’ve evolved to do over the past four years.

Visibility – shippers want to know where the problem is

JOC: When you look at the visibility marketplace, what type of change do you see occurring there in terms of what customers really want?

McGuigan: We debate this internally. Twenty-five years ago, I was working at a trucking company called Matlack when they first bought Qualcomms for their trucks, and a member of the senior management team asked, ‘Remind me who in a customer’s office is looking at our 5,000 trucks on the road when we’re delivering 98 percent on time? Who actually has time to do that?’ The point is the ability to deliver that real-time status update has been around forever. Being able to deliver it in a carrier market that is as diverse and dispersed as ours is today is the more difficult challenge. The shipper doesn’t really want to know where the truck is, they want to know where the problem is. We’re doing this for shippers with thousands and thousands of shipments a day, and right away we focus on anything that got a late start. Anything that missed a checkpoint, we’re watching. Instead of watching everything, we’re directing our focus and these tools bring us the ability to focus. So it’s a smarter engagement. Then the question becomes at what point in the cycle when you realize something is going to be late do you do something about it?

JOC: When do you automatically make a decision?

McGuigan: Correct. Just say I’m shipping a truckload of water and I realize it’s going to be two hours late. What’s the real downstream impact of that? It might be nothing, or it might be something. And how do you know the impact of that truck [being late] versus 150 other trucks. Ultimately, to your point, you’re going to use machine learning to automatically release another truck or take other steps once you hit a certain point. But more importantly, for the shipper, they just want to know it’s going to be late, so they can make a phone call or we can make a phone call, automatically generate a message to somebody. I’d love to say it’s significantly more than that. Certainly we have customers that are fulfilling to real-time manufacturing processes, so there’s a J-I-T component, and we have to keep that in mind, but still it’s the same concept. You’re watching the exceptions, you’re managing the exceptions. That’s it. I’d love to say the market was looking for much more than that, but that’s not what we’re hearing.

Automation – it’s time for the next level of machine learning, automation

JOC: Maybe over time, as the technology proves itself, we’ll see more steps toward automation using real-time data?

McGuigan: Automation — we fully expect that. Our expectation is that Transplace associates will spend less time chasing exceptions and more time adding value to the network. Chasing exceptions is very important, staying on top of the network is very important, but ultimately those are very manageable, automatable tasks. And when you think about the core of our business, our job is to automate all of that. The only time we really get engaged outside the analytics and continuous improvement layers is when something’s not working. It’s now time for the next level of machine learning and automation. There are so many humans doing status checks, and updates, etc.

JOC: Coming into this conference, what’s the mood of your shipper customer?

McGuigan: We like to say that transportation is in the boardroom this year. Transportation generally isn’t in the boardroom, but it should be. Logistics and supply chain are already there, but the specific component of transportation is in the boardroom this year because people are running high on their budgets. It started, obviously, when they felt pain in the back half of last year. They said, okay, I’m going to take an increase this year. But no one’s network is ever static. For every new OD [origin and destination] pair you have, if you have to go out to the spot market, the spot market is 20 to 30 percent higher than a year ago, and that’s on average. Think about our industrial manufacturing base and where they make stuff. That year-over-year increase could be 100 percent. Those are the pain points. It’s not the general procurement in the routing guide that occurs every day, it’s a slippage of a few points on tender acceptance because carriers are chasing higher prices, and shippers have to scramble to plan for new origin points in OD pairs and the freight is more expensive. That costs them and that budget impact is painful.

Our job is to protect them. That’s part of the Transplace value proposition. If we were just a pass-through company that said, ‘Here’s a technology for you, I’ll have some people make some calls when an exception happens,’ we wouldn’t have anything to add. We wouldn’t be able to create real differentiation in the market. Our job in a market like this is to protect our customers. They’re going to feel a little bit of pain, but for the most part they’re we’re going to sail them right through. This is a hard year for us. I mean, read some of the first quarter reports. We’re working our tails off, we are running. And if we can’t find enough relief for them in rates we’ve got to find it through mode shift, and if we can’t find it through mode shift, we’ve got to find it in optimization. We’ve got to find it for them somewhere.

Transport networks – still characterized by inefficiencies

JOC: Do you get a sense customers are still looking at this as a cycle? There’s always a demand cycle, but you throw in electronic logging devices (ELD) and the expansion of e-commerce, and the wheel may still turn, but it seems that wheel is going uphill.

McGuigan: [Cycles are] very difficult to predict. This is a very capitalist country, so when there’s an increase in demand, people scurry to create supply. But I still think there’s gross overall inefficiency in domestic transportation to begin with. We’re working on that problem within our own network, to try to take better care of capacity when it’s in our own network.

JOC: What are the big pain points you see in terms of inefficiencies?

McGuigan: You look at the operating ratios of carriers, you look at their fleet utilization rates, you look at all these trucks that pass each other in the night. There’s real opportunity. You had carriers a year ago taking lanes that weren’t really good for their network and we can make them whole. The driver hiring problem is a real thing, but you have to continue to believe in American problem-solving as well. We’ve had these cycles. You’ve seen them, I’ve seen them. So there will be a better balance. There might even be a better balance by the end of the year. We say this all the time. Our job is not to save you money on the backs of the carriers. We want the carriers to be wildly successful. They’re an integral part of the North American supply chain. Just coming in and saying I’m going to squeeze your carriers is not adding real value, you’re just taking margin out of that business. You have to find a way to make the entire network more efficient, so the carriers win and then we win as well. And by we I mean the entire shipping community. Transportation isn’t a ubiquitous commodity you can turn on and off like a faucet. You have to have a strategy not just around cost but around service. All that talk about costs and rates goes out the window when service stinks. I’ve had calls this year from CEOs we help with bidding who say, “Go easy [when trying to restrain rates], because I don’t want to go beneath a certain service line.”

JOC: When you look at domestic and international networks, what difficulties do you see in the fit between those two. One issue that comes to mind is the bunching of containers at that part not helping with the flow of goods inland. Do international and domestic have to be better aligned?

McGuigan: We actually control inbound and outbound North America for some of our customers.

JOC: So you’re handling containerized imports for BCOs.

McGuigan: TEU, FEU, we will do less-than-containerload consolidation at the origin port and bring that in. You know and I know that there is more capacity from an ocean standpoint than you could shake a stick at. And East-West TEU costs over the last 20 years, we’re not seeing real inflation, we’re seeing a little bit of deflation. And they all come in through just a few areas, and obviously, just to take the West Coast as an example, that causes equipment imbalances for the rails, for any asset owner. Those are things you have to work through. We’ve done the math on different ports, whether in the Northwest or coming through Panama and through Houston or Savannah.

Truck transport – not a capacity shortage, a capacity imbalance

JOC: I’m more and more convinced that what we have in the US these days is not a capacity shortage, but a capacity imbalance.

McGuigan: I think that’s really well said. I remember visiting a major food and beverage producer a decade ago, looking at their control tower and looking at the empties in their network and asking, ‘What are those lanes?’ The answer was, ‘We bring potatoes from those regions to make potato chips and [trailers are] going back empty because there’s nothing [going] there.’ We had one food and beverage manufacturer in an eastern part of a Midwest state, and we set up an inventory node for them to get them into the mainstream of traffic and to build up that inventory because whenever things got touchy in the market they weren’t paying 20 percent more, it was like 100 percent more. So that was ‘derisking’ their network. But balance is very important and it’s incumbent upon us to find it. We’re doing more cross-customer consolidation. It’s very successful for us from a less-than-truckload standpoint. We also do dedicated where we can have an asset relationship with a trucking company, put it in our network and keep it running. Both of those services have doubled in size in the past few years, every single year, and they’re what our customers expect from us. We are getting more involved with automated intelligence, machine learning. Our network is this large, undulating ocean of orders coming in and going out every day, with significant scale. How do we leverage that scale to keep that capacity operating super-efficiently, so it’s not a network of 200 individual silos, but a network where all this capacity can work together for the benefit of the community. That’s the future.

JOC: That fits right into an area I’ve been thinking about and talking to people about — how to better manage time in the supply chain to create capacity. What you’re talking about on a large scale is one way of doing that.

McGuigan: It is. Time is a really interesting thing. Most orders are within a 48-hour run. So when you’re trying to create the network to utilize that capacity, you don’t have that great of a time window for maximum utilization. That’s where AI [artificial intelligence] will come into play, to predict that demand. I may not have the order yet, but the AI will know that every Friday morning a customer is going to put something out that generally flows in a certain direction, and the system will tell the carrier to expect it without even having the order yet.

JOC: Based on historical data?

McGuigan: Not just historical data, but with the AI, based on 65 different inputs. Day of the week, time of the year, data patterns. You’ll see the big companies like us really leaning on data and information on time in the network to offer predictivity, if there is such as word, to create value differentiation going forward with smaller players that just don’t have the scale.

JOC: Do you see any other areas in the supply chain where we can actually take time and convert into capacity in some way? It seems to me we’ve taken time out of supply chain processes before and after the transportation leg, J-I-T manufacturing, and OTIF, and we’ve relied on the driver being able to operate regardless time constraints. That’s gone now, and supply chains have become brittle.

McGuigan: There are, first of all, fantastic opportunities for better time management in the trucking community and there are untold billions and billions of dollars wasted every year on poor planning. The carriers, candidly, we’re seeing them adjust their freight time standards, saying, ‘This is killing us. We can’t afford to have that asset sitting around for free for two hours on the front end and back end.’ What they’re really giving away there is significant. It’s easier to manage time in some places than others, because you’re talking about precision. Think about the chokepoints. Dock doors. Inventory on hand. Last minute orders. Labor flows, labor planning. How much yard space you have. There are so many variables for better management there, and as you add scale it becomes more difficult. What the shipping community can’t expect is for the carriers to absorb all that pain.

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Note: Transplace CEO Frank McGuigan will speak at the JOC Inland Distribution Conference Oct. 22 to 24 in Oak Brook, Illinois. 

 

Contact William B. Cassidy at bill.cassidy@ihsmarkit.com and follow him on Twitter at @wbcassidy_joc