Rounding the Optimization Curve

What’s the state of the transportation industry? It’s all right here. 

By Mary Schacklett, World Trade 100

 

From all indications, it appears that the transportation industry is making an economic comeback, albeit sometimes slow and arduously. This is reflected in profits and capital investments in the railroad sector, and by increases in the tonnage that trucks are transporting.

To break it down:

In rail, business is booming. In trucking, the American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index rose 0.5 percent in February after falling 4.6 percent in January – but when compared with February of 2011, the seasonally adjusted index was up 5.5 percent. This was better than January’s 3.1 percent increase over results from one year earlier.

“Fleets told us that February was decent and that played out in the numbers,” said ATA Chief Economist Bob Costello, who noted that February’s month-to-month increase was the sixth increase in the last seven months.

At the same time, companies engaged in the carrier side of the supply chain understand that they just can’t “stand pat” and expect shippers to come to them, even in better times. Indeed, many shippers are scrutinizing their shipping decisions like never before. To be in the game, carriers have to be able to respond with agility to changing markets and the changing needs of their customers.

 

What Shippers Expect from Carriers

Shippers endured a prolonged and painful recession that forced them to rethink their businesses and their supply chains; they expect logistics providers to help them preemptively avoid pain in the future.

During the recession, this pain began with large inventories that sat in warehouses when consumers (and businesses) decided to defer their spending plans. This forced companies in retail, food/agribusiness and the industrial sector to rethink how much inventory they wanted to carry and, instead, to go in search of faster and more agile sourcing when it came to matching demand with supply.

In the process, carriers and logistics providers were engaged in price bidding wars for customer contracts and rapid response delivery expectations for carriers were also heightened.

The net result of these pressures on carriers was:

They had to find ways to deliver better pricing and delivery to shippers in a fiercely competitive environment. For many carriers, this meant pursuing sustainability initiatives constructed around fuel and carbon emission reductions, and changing operations to be more efficient.

When transporting perishable goods, it meant active tracking and protecting these goods, which might require refrigeration, tracking for potential contaminants and recalls, or a need to reroute goods in mid-stream because of changing market demand.

Customers were (and are) demanding end-to-end visibility of their supply chains, including those supply chains’ logistics. They want to know in an instant when a logistics problem is occurring and how to mitigate it. They also began to use business analytics allowing them to see which carriers were consistently late on deliveries.

Customers now expect all of their suppliers and business partners on the supply chain (including logistics providers) to participate in a supply chain social network so they can collaboratively solve problems by using the same source of information. There are still a significant number of carriers that keep their records on paper. It remains a daunting task to get everyone onboard a single data repository that covers every link of the supply chain.

At the other end of the spectrum, a number of shippers have already seen enormous benefits from the “single version of the truth” data repositories that they get their suppliers engaged with. Shippers save money because they don’t have to invest staff time to sort through multiple versions of what is happening when the supply chain goes awry.

New regulatory pressures accompanied by corporate initiatives that are driven by management, boards of directors and shareholders have focused a magnifying glass on sustainability. Major companies are being asked how they are “greening” their operations. Shipping companies also recognize that one of the keys to achieving favorable sustainability results that they can represent in their reports and scorecards is to go to their carriers. Carriers are well positioned to deliver favorable trends and results in the areas of fuel and carbon emissions reductions – along with cost savings.

In fact, in some cases, such as intermodal hauling using a combination of rail and trucking, logistics providers have delivered fuel and carbon emission efficiencies for decades.  It is no surprise that trucking companies are among the largest customers of rail.

Challenges for Carriers

While carriers are certainly making progress, shipper demands are also becoming more stringent. To address these new demands, carriers need to respond on several levels:

•  Agile shipping that can meet rapid shifts in market demands and customer fulfillment;

•  Collaboration and data sharing with customers;

•  Delivering fuel and carbon emissions economies; and

•  Streamlined operations.

A primary driver of agile shipping has been the rise of e-commerce companies whose customers demand instant order fulfillment. To respond to the need, shippers have implemented local inventories to serve specific geographies.

In the food and beverage industry, local market demands and food spoilage and contamination control are major issues. Shipping companies are expected to have technology that can track shipments from farm fields to grocery shelves while monitoring key environmental controls in refrigeration during transportation, and the companies are responding.

Trucks are also being equipped with communications to allow real-time route changes if market opportunities shift. In this scenario, a truck carrying lettuce to Atlanta can be contacted en-route and rerouted to Boston if there is either less demand in Atlanta or more in Boston. Shippers also want the ability to track and trace food products from farm field to store shelf in the event they need to execute product recalls.

Show Me the Freight

Carriers are responding to the on-rail and on-road demands, but a more difficult area to tackle is customer demand for greater visibility throughout the supply chain.

Delivering on end-to-end visibility is especially tough in trucking, which is still characterized by small company independent operators who comprise 75 percent of the U.S. trucking fleet, according to Wayne Schooling, C.P.S.A., president emeritus and CEO of the North American Trucking Association. “These operators run on very lean budgets and can’t always afford the technology investments,” says Schooling.

For larger shipping companies, there are also barriers to entry when it comes to sharing a unified data pool with customers and other participants along the supply chain. Most of these companies have their own ERP (enterprise resource planning) and supply chain systems. It is not always straightforward to integrate these systems into a common data repository.

Trucking and railroad companies additionally need to make continued improvements in fuel consumption and carbon emissions reductions – in turn passing on some of these efficiencies to their customers. Wal-Mart Stores Inc. www.walmartstores.com is testing carbon emissions in real time with a new analytics dashboard that can be used on trucks – and potentially extended to outside transportation suppliers as a best practice.

The goal is reducing carbon emissions. Pitt Ohio www.pittohio.com is also focused on reducing its carbon footprint, which Geoff Muessig, chief marketing officer and executive vice president, says was comprised of 12 percent infrastructure carbon and 88 percent rolling stock (trucking) carbon – thereby driving a corporate-wide focus for the past five years on improving the fuel efficiency.

But more difficult for both the trucking and rail industries is revising operational workflows and changing the behaviors of their drivers and engineers to be “soft on the pedal” in order to conserve fuel while staying on time on their routes. In these cases, a combination of monitoring technology in the cabs of trucks and locomotives and training provides drivers and engineers with real-time data on the timeliness and also on their operating habits.

The technology studies routes, grades and loads – and can tell operators when to accelerate and decelerate.

For the trucking industry, however, training drivers is even more challenging because of the high turnover rate in some segments. Turnover among large truckload fleets rose to 89 percent in the third quarter of 2011, the highest average since 2007.

 

Optimizing the Effort

Coming out of the recession, industry is at a turning point – and transportation is no exception. The length and the pain of the recession pressed many companies on all sides, forcing them to make permanent changes to their strategies and operational workflows that might not have been made as quickly in better times. These changes have manifested themselves in several ways, such as reductions in workforces and increases in automation, allowing companies to not re-hire laid-off workers.

There has also been a rethinking of inventories – and just how much inventory companies are willing to carry. Shippers are moving to having more distributed warehouses that are proximate to the geographical areas that their customers are located in. Carriers are adopting best route planning, real time tracking systems for vehicles on the road, and real time monitoring for safe and fuel efficient driving. Going forward, here are several other areas where shippers and carriers are focusing:

Automation Systems for Fuel and Carbon Footprint Reductions – Shippers and carriers are already using automation to improve workforce efficiency and to streamline their operations. But when it comes to tangible savings that drop directly to the bottom line and also make an impact on sustainability, few technologies top those that assist with fuel and carbon footprint reduction. Materials science is contributing new lubricants to rails that are able to reduce friction on the tracks and improve mileage. At the same time, new types of locomotives are being inserted at the end and in the middle of trains – not just at the front — to reduce energy consumption even further.

Business Analytics Capable of Dissecting Supply Chains – Predictive analytics can be used to pinpoint future issues that could grow into problems, and apply timely solutions. Best-of-breed companies will not only invest in great business analytics technologies; they will also seek out the brightest and most capable people to dissect the business and determine what the real drivers of supply chain success are – and how to apply analytics reporting in these key areas.

End-to-End Supply Chain Visibility Tying All Parties to Every Transaction – Customers, suppliers, business partners and others tie into a central network where they can work collaboratively on a single set of data. The old days of EDI (electronic data interchange) have grown increasingly cumbersome and labor-intensive in the 24/7 e-commerce era. While many transportation companies cannot afford investing six or seven figures into comprehensive ERP systems that they own and operate, there are now commercial software solutions that are cloud-based and affordable that can provide the collaborative network, a single database and the support teams that back them up. wt