| The transportation analysts at investment firm Stifel as usual relased at the beginning of the new year a list of what they call “game changers” – the top 10 major strategic changes occurring throughout the freight transportation and logistics universe.
This week, we’ll summarize game changers one through five, then handle the second half the following week.
1. Automation and reduced regulation not occurring fast enough to keep pace with growing blue collar labor shortage and demand growth: Stifel notes the irony that with all the talk of automation potentially eliminating millions of jobs, one of the biggest issues many businesses have is a chronic inability to find enough blue collar workers.
Trucking firms continue to struggle to find enough drivers and mechanics, for example, while the squeeze is equally tight in the search for distribution center employees.
In the end, automation must play a role is solving this issue, Stifel says.
“As the cost of scarce labor rises, the cost of automation is declining,” Stifel notes. “And, after many years of indifference, technologists are turning their attention to the heretofore largely overlooked freight transportation and logistics space.”
However, while noting the progress in autonomous truck technology is advancing rapidly, it says its view is that over-the-road trucking automation will take a long time to reach commercial scale “as these over-the-road trucks share the highway right-of-way with unautomated vehicles operated by individuals whose behavior, shall we say, is difficult to model. Plus labor unions, railroads, and highway safety lobbyists are likely to put up a significant amount of opposition to autonomous trucks as these trucks are, at a minimum, perceived threats to organized labor, rail intermodal growth, and highway safety.”
As a result, Stifel adds, “We are not holding our breath for the autonomous truck revolution to occur anytime soon.”
So, while technologies advance, they are unlikely to have much impact in the short term.
As a result, “the labor shortage, increased demand, and capacity constraints, related to well-meaning safety regulations, will likely combine to create a capacity shortage which will most probably drive up freight rates for the foreseeable future,” Stifel concludes.
2. Ecommerce changes the playing field and raises the bar: With the growth of ecommerce, the dominant, brick and mortar store-based distribution model is gradually being replaced by
a less forgiving e-commerce-based fulfillment model that provides less buffer inventory, that requires faster transit times, and that demands more precise pick-up and delivery times, Stidel says.
Stifel further notes that no dominant last mile delivery model has evolved, and it is unclear among existing parcel carriers, Uber-like services, Amazon.com, drones, etc. what the mix will really be in coming years.
Stifel also says there are many questions about the forward positioning of inventory to support efulfillment, such as does sufficient warehouse space exist to facilitate the forward positioning of inventory? And if not, does sufficient real estate exist to create incremental fulfillment centers at reasonable cost? And, can inventory contained in the forward positioned, smaller footprint fulfillment centers be replenished frequently enough from regional distribution centers and, on high turnover items, directly from manufacturers?
The key point to remember, Stifel says, is “that the traditional vendors of services and the traditional distribution infrastructure are often difficult to repurpose for effective use in the rapidly evolving ecommerce world.”
3. Amazon’s insourcing tendency could prove problematical to carriers, over the longer term: Amazon is increasingly supplementing its transportation services vendors with its own capacity, for example, the $2 billion air hub the company is building at the Cincinnati airport, combined with the leasing of some 40 freight aircraft.
 What’s more, Stifel says “We have heard from unverified sources that Amazon will soon purchase its own truck tractors and will soon contract with major railroads for its own double stack intermodal train(s).”
The fear, on the part of outside service providers, Stifel says, is that the company will skim off the base load volume and leave the end of week, end of month, end of quarter, and/or holiday surges to its outside service providers – who are investing heavily in their own networks on the premise that base load volume will cover fixed costs and that the surges will afford the opportunity to make a profit.
How this plays out should be fascinating and high stakes for Amazon and the carriers.
4. Electric vehicles are coming: While there are still many technical challenges, primarily with sufficient battery power and storage, the electric trucks are indeed coming, Stifel says.
Electric vehicles will most probably appear first in the shorter haul delivery and dedicated trucking markets and will extend their reach as battery capability improves,” Stifel notes – and believes a lot of progress on battery technology is being made.
Stifel also notes progress in the development of the hydrogen fuel cell powered electric trucks, but says there are currently refueling challenges and no real infrastructure to support the vehicles is available yet.
5. Technology is transforming the industry at an accelerating rate: Interest in investing firms in technology for the freight market was historically low, Stifel says, but that has changed in a big way now, with billions coming into the industry, beyond investments in autonomous trucks.
Stifel says rapid research and development is occurring in areas such as automating labor intensive processes such as freight matching, rating, billing, network optimization, fleet management, dispatch, maintenance planning, driver management, making the industry safer, improved fuel efficiency, etc.
And as investors increasingly look at the carriers themselves, Stifel notes that “Professional venture capital and private equity investors often are capable of pushing management teams beyond their comfort zone to grow faster and to innovate more vigorously in order to create what hopefully, for the investors, becomes a sustainable competitive advantage.”
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