Here’s a recap of transportation news stories throughout the month:
Werner Increases Driver Pay. Effective January 1, Werner Enterprises Inc. is increasing pay for almost 1500 drivers. The drivers hadn’t had a pay increase since August 2014. President and COO, Derek Leathers said, “Pay increases are one piece of our multi-faceted approach to attract and retain the best in the industry and make Werner the employee of choice.” Read more:Drivers Enjoy Pay Increases, Shippers Pick up the Tab.
Volvo Endorses Renewable Fuel. The company said it concluded testing on renewable diesel fuel and found it has potential to improve environmental impact. Renewable diesel fuel is a second generation alternative fuel and is derived from biomass feedstocks, including oils or animal fats. The availability of renewable fuel is growing.
DOE Predicts 2016 Diesel Average. The Department of Energy expects the price of diesel to average $2.67 a gallon in 2016 and gasoline to average $2.36. The US average diesel prices are at the lowest level they’ve been in 6.5 years. Oil has plunged 39% since June and may keep falling after OPEC lifted the ceiling on its crude oil production. Read more: How Do Low Oil Prices Affect Different Transportation Modes?
FAST Act and its Impact on CSA Data. A five-year, $305 billion legislation was passed to improve the nation’s surface transportation infrastructure. The bill reforms and strengthens transportation programs and maintains a strong commitment to safety. Since FAST Act passed, FMCSA announced that it has removed CSA scores from public view. A provision of the highway legislation mandated that FMCSA review the CSA program and scores. Read more: Should the New CSA App be Available to the Public?
The ELD Mandate is Final. The FMCSA announced its final rule that requires carriers to switch from paper logs to electronic logging devices to record drivers’ hours of service. Carriers have 2 years to comply with the mandate. ELDs will reduce paperwork for the driver and keep a dispatcher up-to-date on a driver’s status.
The transportation industry, specifically the trucking sector, is at a crossroads. Threatening conditions loom at a time when several technologies are positioned to disrupt traditional operational processes. It is up to carriers to plan ahead for the future.
A Brief Look Back at 2015
After a year of tough weather conditions and tight capacity in 2014, 2015 was a great year for trucking companies. By July 2015, truck tonnage rose to its second highest reading on record and trucking employment reached a nine-year high.
Carriers made improvements in 2015 in an effort to cut costs that have been rising due to driver pay, and now those cost cutting efforts are proving even more profitable as oil prices fall. Carriers saw little to no service reduction as slow industrial production masked the effects of the driver shortage, and there was sufficient capacity to meet demand.
A new highway funding bill, the FAST Act, was passed and addresses the poor state of U.S. infrastructure, which, when fixed, will further boost productivity for carriers who have long suffered inefficiencies from congestion and bad road conditions.
The cost of diesel fell throughout 2015 and provided great benefits for motor carriers. The lower cost of diesel reduced operating costs and allowed carriers to increase their revenue stream. Also, carriers got a short reprieve from strict equipment-related regulations as the low cost of diesel allowed them to delay investing in expensive, fuel-efficient equipment that would not be profitable in the short-term.
However, this short-term thinking can be dangerous for carriers. The transportation faces threats and disruption from things like: the driver shortage, driverless vehicles, the state of infrastructure and the cost of diesel. But, 3D printing might be more disruptive than any of these trends, and all carriers should at least think about what 3D printing could mean for the industry.
3D Printing May Change Transportation Forever
The long haul trucker may be a thing of the past. 3D printing’s biggest impact on transportation may be the way it changes what goes into a product and where that product is made.
Usually, manufactured items have dozens or hundreds of parts that are produced and delivered separately, as opposed to 3D printing, where there are generally very few parts that make up a product, reducing the need for transport.
Take for example, the Strati, a car designed by Phoenix-based Local Motors. Typical cars have tens of thousands of parts, but the Strati has fewer than 50. Everything except the motor, transmission, wheels and steering column are 3D printed. Material shipping makes up a large portion of transportation. The ability to manufacture fewer parts significantly reduces the need to move freight.
Not only will 3D printing drive the trend of less component and material shipments, but transportation of materials and products will become more local. With 3D printers, there’s no need to manufacture products across the world; companies will bring manufacturing plants closer to the U.S. Additive manufacturing will boost the rate of near-shoring.
Near-shoring affects transportation, too. Instead of manufactured products entering the U.S. through West Coast ports and then being transported across the country, products come to the U.S. from the south and need to be transported north. Different freight moves could eliminate the need for the long haul trucker who spends two weeks driving across the width of the country, but could also make trucking a more appealing career since drivers wouldn’t have to be on the road as long. Near-shoring, driven by 3D printing, could drastically alter the regular flow of transportation in the U.S.
The Industries Most Affected by 3D Printing
Aerospace and medical equipment are the most affected by 3D printed items. Pharmaceuticals, metals and perishables will be much less affected. Generally, anything low-volume, slow-moving, high-cost and/or customizable will see great benefits from 3D printing. Items that can be manufactured in great quantities cheaply, with no need for customization, will not see much benefit from utilizing 3D printing techniques.
The takeaway for carriers: understand the industries you’re involved in. Transport companies who serve an industry that is likely to be affected by 3-D printing may not need to take action immediately, but it is best to keep this trend in mind going forward, and to be ready for disruption in the transportation industry.
Having a powerful, scalable transportation management system (TMS) is necessary for effective transportation operations. Omni-channel commerce is much more difficult to handle than every day operations from a transportation perspective, and visibility into the supply chain is the key to success. A TMS can provide detailed reports to improve omni-channel functions.
A TMS with advanced reporting features will be able to:
Send alerts regarding disruptions. A TMS provides automated alerts when a shipment is delayed, damaged or unable to be delivered. Because of this alert, a customer can be notified of a delay or a new product source can be identified and dispatched immediately.
Track total transportation spend. TMS software has to ability to aggregate and find the total cost of transportation for a company, which is typically much higher than expected. This information will allow a company to begin making improvements and track progress.
Provide on-time delivery metrics. A TMS provides on-time performance results to a DC, store or supplier. This information can be used to determine where inefficiencies arise in logistics processes. It can also help uncover the most efficient routes and what combination of DCs and stores will enhance service such as the buy online, pickup in store model.
Create inbound shipment visibility. TMS software offers real-time information on inbound shipments. This allows a company to prepare for unloading/loading to keep operations moving smoothly and to plan appropriately for labor needs.
Reduce shipping costs. A TMS creates cost saving opportunities, first through visibility, which allows identification of the problem, and then through tracking the progress of the solution. A TMS helps find the most operative lanes, consolidates shipments, picks out the most productive carriers, and even helps keep inventory moving smoothly through warehouses.
Omni-channel logistics is extremely difficult to manage and will only get more difficult as e-commerce grows in popularity. The reports a TMS provides are invaluable for transportation optimization, and in turn, customer satisfaction.
Companies implement supply chain management (SCM) strategies in order to meet customer expectations like fast delivery. Delivery time is the sum of fulfillment time and transport time. Companies are emphasizing the importance of fast fulfillment in order to reduce overall delivery time. Creating a SCM strategy includes aspects of logistics management and demand planning that work in tandem with a transportation strategy. It is a crucial step in reducing freight costs.
More people are shopping online. This year, US online sales are expected to increase 12% to $371 billion. On Black Friday, Americans spent $1.7 billion online. As the number of online consumers grows, so does the demand for quick delivery; 65% of buyers want next-day delivery. In our instant gratification culture, where customers want everything as quickly as possible, expedited shipping would be the best transportation service. With expedited shipping, shippers can guarantee a product will arrive on schedule.
But, fast shipping depends heavily on the warehouse fulfillment process. According to a recent Inbound Logistics article, Amazon continues to set the standard for fast fulfillment. Many other companies are forming fulfillment and transportation strategies in order to satisfy customer expectations. A recent Logistics Management survey finds that the use of warehouse management system (WMS) software and warehouse technology has increased.
A WMS is capable of releasing orders to a voice-directed picking system, which tells the picker what products to get and from where. Then, it chooses the best packaging, and instructs the operator to pick items directly to that box. Warehouse technology and automation has cut the time it takes to process orders in half.
Fulfillment processes must connect to the transportation strategy. Carrier pick-up and delivery times have to be scheduled according to the DC processing time. Once the product is packaged for shipping, companies with a transportation management system (TMS) gain more time and savings, as the technology reveals information on the fastest, cheapest way to move freight.
A TMS provides shippers with visibility into the fastest shipping route and carrier, while a WMS improves the speed and efficiency of order fulfillment. Together, these technologies reduce the need of expedited shipping.
Shippers can enhance the fulfillment process through new technology. According to Don Derewecki, senior consultant with St. Onge Co., “the pressures on operations are intense and complex. The encouraging thing is that companies are getting things done by employing more technology.” Amazon uses robots to transport racks of products to human pickers. Other companies are experimenting with new transportation methods like drones and Uber-like services.
5 ways fast fulfillment benefits companies:
Gain more customers/ increase market share
Lower inventory costs
Eliminate excess safety stock/reduce capital expenses
Lower transportation costs
Customer demand for quick delivery doesn’t mean rushed delivery. Technology enhances the supply chain, and ultimately, the customer experience.
The over-the-road (OTR) trucking industry faces numerous regulations that are controversial within the industry. Due to the current state of the economy and the crucial turning point it is at, these regulations have the potential to worsen the capacity crisis, increase transportation rates and harm carrier productivity at a time when carriers expect financial difficulty.
What Role Does the Economy Play?
In 2016, economists believe that industrial activity, which had started to decline at the beginning of 2015, will become even more sluggish. This economic recovery was one of the first industrial-led recoveries in history, and many economists are not sure what will happen once industrial activity slows.
In 2016, consumer spending is supposed to increase faster than it has since the Great Recession, due to low fuel prices. What’s uncertain is if the uptick in consumer activity can make up for slow industrial activity and continue pushing the economy down its path of recovery.
Two things could happen: the economy could slip back into another recession, or the economy could continue its slow but gradual recovery. If the U.S. slips into a recession, even a minor one, many carriers would go bankrupt, drivers would gravitate towards large carriers who could keep them busy, and drivers would leave the industry for more profitable work. This would severely aggravate the driver shortage. Capacity would become very tight and shipping costs would skyrocket.
On the other hand, if the economy continues its recovery and there’s a slight uptick in freight volume, it could still spell trouble for the OTR transportation industry. It is likely the first half of 2016 would run smoothly in this scenario, but after that, capacity would reach or pass its threshold and the effect of the driver shortage would be in full swing. There would be insufficient trailer space for all the freight that needs to be shipped and transportation rates would rise rapidly.
Not to mention, in both scenarios the average age of a truck driver is 49, so drivers will be retiring at faster rates every year no matter what happens. Carriers anticipate difficulty, but there are several regulations that could make these looming problems even worse.
Which Rules Could Aggravate these Trends?
There are many regulations that could be harmful for carriers, and ultimately, for shippers too. Emissions requirements, equipment requirements, drug testing drivers and fuel-mileage regulations all contribute to reduced productivity and higher costs for OTR carriers. But the most restrictive regulations are the Compliance, Safety, and Accountability (CSA) initiative, the electronic logging device (ELD) mandate, and the hours of service (HOS) regulation.
The CSA initiative was designed to ensure carrier compliance with all regulations. It also provided a safety performance scoring program for all OTR carriers so that shippers can see who is reliable and who is not. As it turned out, these scores weren’t accurate.
A recent study found that heavy duty truck crashes that could not be prevented were affecting CSA scores. This means that carriers were being punished for incidents out of their control and potential customers had seen them as a poor service provider. The scores hurt carriers’ productivity and can even strain capacity further if shippers are unwilling to use a carrier with a poor CSA score.
Representative Bill Shuster (R-Pa.) made sure reforms were passed in the recent long-term highway funding bill, FAST Act, to fix CSA scores. These scores are being adjusted and are not available to the public, but if they are not fixed properly the transportation industry will continue to be hurt by it, and shippers will have to pay for the extra costs.
The ELD mandate, which was passed in December 2015 and will become effective in December 2017, has met some resistance in the industry. Many large carriers already use ELDs to cut down on administrative time and costs, but small and medium sized carriers say the regulation will cost them 5 to 8 percent in lost productivity.
The rule was made in response to years of heavy lobbying efforts from the American Trucking Association, who believe ELDs are necessary to combat owner-operators from cheating on their hours of service. The day after the final ELD rule was published, the Owner-Operator Independent Drivers Association (OOIDA) filed a suit against the FMCSA because they believe the rule is unjust. OOIDA says the regulation creates unnecessary harm on carriers’ productivity and profits, while also invading privacy by acting as a monitoring system for law enforcement.
Having to invest in new technology and processes can be financially stressful for small and medium sized carriers. Implementing ELDs not only involves purchasing the equipment but also creating internal processes to manage information. Also, as with all new technology, there will be a learning curve for drivers and other employees which will further hurt productivity and affect a carrier’s ability to make a profit. Once again, decreased efficiency and increased operating costs will lead to higher shipping costs.
The HOS regulation has by far been the most controversial regulation in the industry. In particular, it is the 34-hour restart, including two periods of 1 a.m. to 5 a.m., which has caused unrest. Safety advocates say it is a step in the right direction but not far enough, while truck drivers say it is overkill and keeps them away from home longer than necessary.
The regulation was initially made because driver fatigue played a role in approximately 10 percent of all highway-related fatalities, but heavy duty trucks only make up around 2 percent of highway traffic. It is now under study by the FMCSA, who must prove that the rule improves highway safety.
The major problem with the HOS ruling is that it’s bad for driver productivity and also the driver’s experience. With the serious driver shortage we are currently facing and its resulting capacity crunch, it’s extremely important to keep drivers moving so they make money and get home as often as possible. HOS rules could strand a driver on the road who is perfectly alright and alert enough to drive, keeping him or her away from home and off the road. Not only could this regulation increase operating costs for carriers, and in turn raise shipping prices for shippers, but it could keep new drivers from entering the industry and worsen the effects of the driver shortage. Large truckload fleets say the rule costs them between 3 and 4 percent in lost productivity, which in turn forces them to hire more drivers and use more trucks. The HOS rule has not yet proven effective at improving safety, and causes widespread inefficiency and increased operating costs, and even has the potential to turn people away from the industry and exponentially worsen the driver shortage.
There are an array of challenges when it comes to successfully applying an outsourced transportation management strategy. Companies want to make freight moves as efficient as possible, which means centralized systems, qualified carriers, managed schedules and visibility. Realizing opportunities for transportation efficiency starts with identifying challenges. Below, we examine different challenges from 3 companies and how PLS solutions created and maintain notable results.
Steel Manufacturer Challenges:
Decentralized transportation across multiple plants and DCs.
Unmanaged truck movement and scheduling.
Excessive use of expedited shipping.
Sub-optimal carrier use.
Integrate systems and apply web-based dock scheduling.
Tactical execution and control of carriers.
KPIs defined and measured. Reports generated monthly to track lane analysis, performance, volume trends, costs and trends.
Manage emergency shipment requirements.
Maintained on-time delivery above 95%.
Automated shipment status notifications, gained visibility for effective freight management.
Increased capacity to support shipment surges by adding carrier and modes.
Eliminated need for unnecessary expedited transport.
Consumer Goods Manufacturer Challenges:
Not carrier-friendly facilities.
Acquired additional costs at delivery.
Missed pick-ups and scheduling conflicts.
Poor LTL freight management.
No visibility into shipment status.
Manage LTL freight moves (from shipment tendering to delivery notification).
Incorporate centralized TMS and EDI systems.
Generate monthly reports based on company KPIs.
Continue analysis for shipment consolidation, new DC locations, and supply chain enhancements.
Improved pick-up and delivery times due to centralized technology and visibility.
Automated BOL and load tendering.
Reduced fines and chargebacks from improved freight management and carrier performance.
Streamlined billing and invoicing.
Discovered significant cost savings on LTL freight.
Industrial Manufacturer Challenges:
Unmanaged logistics process.
Manual transportation management.
No time to manage moves outside core inbound and outbound needs.
Integrate PO verification
Create dedicated account management team for inbound, MRO and outbound moves.
Optimize different modes.
Gain control and visibility through TMS.
Buyers gained time to concentrate on negotiation costs.
Increased visibility to automate rules, schedule loading times and track shipments.
Transportation solutions are often applied after data analysis. Click here to downloadPowerful Reporting Improves Insight. This ebook illustrates examples of PLS’ standard and customized reports, outlines the importance of big data in the supply chain industry and how explains how shippers can leverage the information to enhance operations.
Freight transportation is a subset of logistics management. Transportation involves moving goods from one location to another by any mode (air, rail, barge, maritime or road).
Transportation is an expensive and emission-heavy process, making it an ideal target for carbon footprint and cost reductions, but many companies overlook the importance of transportation management.
Moving freight has far reaching impact. 5 benefits of transportation management include:
Proper transportation management begins with a transportation management system (TMS). A TMS will automatically tender loads, track shipments, and gather and analyze historical performance data. This data, often referred to as big data, allows a company to see what’s happening in its shipping operations. Once visibility is gained into transportation operations, changes can be implemented to increase efficiency and customer satisfaction, reduce transportation spend, and optimize packaging or storing procedures that are harmful to overall supply chain goals.
Effective transportation management keeps a company’s whole supply chain running smoothly. With successful transportation execution, inventory can be kept lean and can be moved in and out of a warehouse quickly and efficiently. This improves warehouse efficiency, reduces overall lead time and saves money on storage. Supply chain disruptions can be costly, while hurting customer satisfaction and loyalty. Creating effective inventory flow through transportation avoids damage caused by disruption.
Consumers are more and more aware of what it is they’re buying and what ideals a company subscribes to. As was mentioned earlier, transportation is an emission-heavy industry. Customers want to buy from companies who take social responsibility seriously and work hard to reduce its carbon footprint and minimize its energy consumption. Having inefficient transportation processes increases these environmentally-hazardous processes and can make a product unappealing to a customer due to the harm that comes with it.
Preferred Shipper Status
The ATA estimates the transportation industry is currently short 48,000 truck drivers. This shortage is expected to grow to 239,000 by 2022. A truck capacity crunch is due to the significant lack of drivers. Since there is much less trailer space to go around, shippers must compete to secure capacity. A company that has optimized transportation processes, such as short dwell-times and long tender lead times, will be a preferred shipper and have an easier time finding capacity because carriers will want to work with someone who boosts their efficiency. Having access to reliable capacity in the coming years can save a company significantly on overall logistics costs and can continue to provide a high level of service for customers.
The processes in between procurement and shipping can be long and complicated, but out of all of these processes, transportation is the one where a company has direct contact with a customer. The point of delivery reflects the competency of the entire organization – if a company is constantly delivering products late, the customer will have a very negative view of this company and will likely not use their services again. Last mile logistics, the last stretch before delivery, is complicated, costly, and it is often this part of delivery that causes disruptions and delays. Proper management of transportation can ensure high delivery performance and consistent customer satisfaction.
Inbound freight accounts for an average of 40% of total freight spend, and 90% of shippers say they are not prepared to manage inbound freight.
Over 80% of companies have inbound freight.
75% of companies report that inbound freight management is a key focus.
Not controlling inbound transportation means you are most likely being overcharged.
“Buy Delivered” means the cost of transportation is included in the cost of the product. You don’t have to worry about choosing and managing the carrier, and you can blame the vendor if any problems occur.
Problems with the “Buy Delivered” method:
You don’t know when the product shipped
Don’t know the mode or specific carrier
No tracking information
You cannot properly schedule receiving
Companies that control inbound freight eliminate inefficiencies of inbound flow, supplies, equipment and information. Managing inbound freight reduces freight costs and maintains on-time pickup and delivery.
Suppliers risk losing customers if inventory/parts cannot be supplied as needed.
Moving over dimensional machinery, hazardous products and required equipment to natural gas processing plants and compressor stations on- or off- highway can present safety problems. Every shipment is a large risk for midstream oil companies because the penalty for an accident or non-compliance is enormous.
Oil and gas companies, especially midstream companies, face more risks as transportation becomes more competitive. In order to maintain high safety standards, companies vet and choose reliable carriers, create routing guides and track work activity. However, these activities become harder as capacity dwindles and reliable carriers are less available.
A temporary lull in oil production has loosened capacity for the time being, but truck capacity is generally trending tighter. The price of oil will not stay below $50 a barrel forever, and when prices begin to rise and production picks up again, capacity will be extremely tight.
Midstream companies do not have time to continuously search for and assess new carriers to find the most reliable companies. Focusing on daily operations, optimizing productivity and concentrating on gas flow dates are the top priorities for midstream companies. As transportation has become more costly and time-consuming, risk management is disregarded.
Risk management refers to the analyses and reaction to any potential risk in the supply chain process. Mitigating risk is usually a concern for high level executives, but those in the field are more concerned with operations and shipping cargo as quickly as possible. This misalignment of goals adds to the difficulty of ensuring safe shipment of goods.
Many midstream companies rely on third party logistics (3PL) providers to minimize risk. In order to avoid great loss, a 3PL pre-qualifies carriers, checks carrier CSA scores and vets drivers. 3PLs can actively track movement and request that historically high-performing carriers move more loads. A 3PL also saves a lot of unnecessary time spent on transportation. When a midstream company works with a 3PL, there are more benefits than risks.
A 3PL provides value through management programs such as MRO, inventory and inbound. These programs create visibility and data to a supply chain that’s typically impulsive and manual.
Other than 3PLs, a good resource for safety instruction and data is the Federal Motor Carrier Safety Administration (FMCSA). The FMCSA is dedicated to improving the safety of commercial motor vehicles and saving lives by developing, educating and enforcing regulations to drivers, carriers and the public. For more information on regulations, safety resources and technology for safety, visit its website.
For the complex supply chain of midstream companies, compliance and safety have to be managed effectively in order to generate accountable transportation schedules and a controlled supply chain.