Monday, March 12, 2018

6 Supply Chain Terms Creating the Buzz

0
March 12, 2018 | Gary Frantz
Tags: Logistics, Supply Chain

Word! Brush up on the latest supply chain and logistics terms so you can hold your own at the next industry conference. 
The business of logistics and supply chain has always been characterized by a full complement of interesting, unique, sometimes confusing, and now and again mind-boggling terms to explain the fundamental process of moving goods from Point A to Point B.
Over time, this laundry list of terms logisticians use to describe what they do, and how they do it, has proliferated, particularly as technology takes a front and center role in how we plan, execute, and analyze logistics.
Every year, more definitions and descriptors enter the logistics lexicon; 2017 was a banner year for technology-related terms.
We saw a year where "software in the cloud" helped to accelerate the "digitization" of supply chains. Meanwhile, "the Amazon effect" forced retailers to rethink the need for "brick- and-mortar" stores, and the "Internet of Things" connected everything to everybody over the "last mile." And we know all this happened because "big data" analytics told us so.
Phew!
What does 2018 have in store? Inbound Logistics asked several industry watchers what topped their list of terms that will dominate conversations this year. Some answers were serious, others tongue-in-check. But the consensus of our unscientific poll is that the supply chain community in 2018 will see the following six terms continue to emerge and gain traction in our conversations:
1. Blockchain. This was by far the biggest vote-getter. Known more as the foundation for crypto-currencies such as Bitcoin, blockchain jumped into the supply chain vernacular with the formation of two global alliances, the Dutch Blockchain Coalition and the Blockchain in Transport Alliance.
In January 2018, IBM and Maersk turned up the volume, announcing a joint blockchain-based venture to develop a "global trade digitization platform built on open standards and designed for use by the entire global shipping ecosystem."
Blockchain is a distributed ledger technology that establishes a shared, immutable record of all transactions that take place within a network and then enables permissioned parties access to trusted, accurate data in real time. The technology holds promise for digitizing global trade processes and enabling participants, in a privacy-secured environment, to collaborate and execute end-to-end global shipping transactions with real-time visibility.
The concept is gaining traction, and the technology will be disruptive, but full development could take five to 10 years, according to a recent Gartner Inc. report co-authored by Bart De Muynck, research director for transportation technology in Gartner's supply chain research group.
"Right now, the reality is hyped," noted De Muynck in an interview. "For transportation, blockchain is much more applicable if you can embed it around exiting technologies and processes. It won't replace an app or database, but it can elevate transparency, visibility, and security."
2. Simplicity as a Service (SaaS). The increasing complexity of supply chain operations and the technologies upon which they rely has dramatically raised the stakes as businesses struggle to successfully deploy solutions. What have been massive enterprise software deployments can be months and sometimes years in the making, and once fully operational, not deliver anywhere near the value originally promised.
The complexity and time-to-value problems have been key drivers behind software developers' shift to an original SaaS model: software-as-a-service, or software "in the cloud." The updated definition: Simplicity as a Service.
It's described succinctly as "enabling customers to achieve their desired outcomes in an ever-changing business environment with less time, effort, cost, risk and resources," writes Adrian Gonzales, president of supply chain consultancy Adelante SCM. This new version of SaaS "goes beyond making user interfaces more intuitive and easy to use and deployments faster and simpler," he says. "It's about helping companies respond more quickly and intelligently to changing customer requirements, competitive threats, regulations, and other market forces."
It's also why business models for third-party logistics providers, software vendors, and consultants are converging.
3. Augmented Reality. Virtual reality (VR) headsets are all the rage with video game players. Augmented reality represents applying this technology to supply chain business processes, particularly in warehouses.
Virtual reality headsets or other wearable technology, such as Google glasses, aid order-picking operations and work such as assembling products on pallets. These wearables use sophisticated software to blend digital imagery and information with the user's environment to help workers visualize and perform tasks more accurately and efficiently.
4. The Bi-Modal Supply Chain. This is a big topic for 2018, according to De Muynck. As the transformation to a digital business ecosystem matures, companies will find themselves running both "analog" (Mode 1) and "digital" (Mode 2) supply chains—or bi-modal.
An analog supply chain is the traditional model, where product is physically placed in a store and displayed for customers. They walk around the store, find and pick the product they want, pay for it, then carry it out of the store.
In the digital supply chain, customers find the product and place the order online. The system directs the order to the nearest warehouse. Robots and other automated systems pick, pack, and label the order, sending it on a conveyor to shipping.
In the fully digital supply chain of the future, a drone or autonomous vehicle would then take the shipment and deliver it to the customer. In this automated process, human hands do little or no touching. And customers can go online at any time and view the status of the order.
Today, "retailers have to support both, not one or the other," says De Muynck. People still physically handle and move the product in the warehouse, while incorporating more automated systems, such as robotics and other automated picking equipment, as the business of fulfillment becomes increasingly digital.
"This is where new technology comes in, supported by artificial intelligence and machine learning," he adds. "It helps workers process more volume more efficiently and quickly."
5. Electric Trucks and autonomous vehicles. Both these developments made great strides in 2017 and will continue to dominate conversations as they move closer to broad commercial adoption.
Following its introduction late last year, Elon Musk's Tesla Semi electric truck has drawn orders from the likes of Anheuser Busch, Walmart, Sysco, and PepsiCo, as well as fleets including J.B. Hunt and Schneider.
And Tesla is not the only player. Truck manufacturers such as Daimler Freightliner and Navistar also are well into the development of both electric trucks and those with autonomous operating systems. With a projected battery range of 300 to 500 miles pulling a typical 80,000 pounds of trailer and freight, it's likely these soon-to-come electric tractors will see initial deployment in short-haul runs and city pickup and delivery routes.
6. Autonomous vehicle (AV) technology is expected to be deployed for both traditional diesel-powered trucks as well as electric. The National Highway Safety Administration defines five levels of vehicle automation, from zero (no automated operating features) to five (fully automated operation).
Most of the truck-platoon demos rolled out last year were Level 1 applications; automation that still has some level of driver assistance and/or intervention. At Level 2, trucks would operate with automated steering—accelerating and braking while driving on the highway—but most likely still with a driver in the cab.
As vehicle-to-vehicle communications and other enabling technologies such as adaptive cruise control are further refined and developed, and regulatory issues are ironed out, the prospect of "platoons" of two or more trucks running close together in sequence, particularly for long stretches of less-crowded highways between cities, will arrive.
This technology development offers great promise for improved fuel efficiency, safety, and quality of life for the driver.
Other terms, such as the Uberizing of freight brokerage, the "gig" or shared economy, predictive analytics, disintermediation, and the ever-growing influence of e-commerce will continue to redefine how we talk about what's happening in supply chain and logistics.
One thing is for sure—the supply chain thesaurus will be adding a lot more pages.
Posted by at No comments:

Friday, March 9, 2018

2018 Less-than-Truckload Market Expecting Substantial Growth

Buoyed by surging demand, less-than-truckload (LTL) carriers are revving up for 2018, warning that tightening capacity means sharply higher rates in a new era of pricing.

March 9, 2018 · By John D. Schulz ·     
After nearly a decade of so-so profits, the $36 billion less-than-truckload (LTL) sector of the trucking industry is poised for impressive - if not spectacular - growth in 2018.
Nearly all trucking analysts agree that consistently steady industrial and retail demand, the tightening of overall trucking capacity throughout the industry, and LTL’s special operational niche all are factors in creating sparkling market conditions unseen in that sector in at least 10 years.
As Stifel analyst David Ross recently summed it up to the investor community: “Structurally, LTL still is set up really well for success.”
For example, unlike truckload (TL), there are few new entrants in LTL because of the steep initial economic outlay to replicate most carriers’ complex hub-and-spoke, brick-and-mortar terminal networks. At the same time, shortening supply chains, more emphasis on smaller and lighter loads, tighter capacity throughout the entire trucking industry as well as the e-commerce boom all point to more business for LTL carriers.
In the meantime, LTL carriers have certainly realized additional leverage from the tightening TL market. Recently, some large TL carriers started rejecting lighter loads of 5,000 pounds to 10,000 pounds, and that freight is now in the LTL space.
However, this era of tightening capacity is bad news for shippers, who stand to face another year of sharply higher rates - perhaps 5% or more. 
Even with higher demand prospects, LTL carriers are weathering a blistering rise in costs - not just for drivers, but also for equipment and insurance. And while ecommerce demand is attractive for some LTL carriers, that additional business comes with sharply higher costs to reach remote locales with very little freight density in those markets.
In this article we’ll take a deeper dive into what LTL shippers can expect and all the factors that are forcing market analysts, as well as carrier executives, to predict stiff rate hikes for shippers in 2018.

Explaining the Capacity Crunch

Because of steady demand and tightening capacity, this is probably the best freight market for truckers in at least a decade. But this has repercussions for shippers, as regulations have tightened regarding driver hours of service.
This tightening of capacity is coinciding with booming freight demand while e-commerce continues to soar, meaning more freight for all carriers - even those not specifically chasing that market.
Pitt Ohio president Chuck Hammel
“Because we’re not an Amazon or Walmart carrier, we haven’t seen the surge that companies that do business with them have seen”Chuck Hammel,
President, PITT OHIO
On a scale of 1 to 10, Pitt Ohio president Chuck Hammel calls today’s LTL market conditions “a 6 or a 7. Our capacity is tight, but we have room for some more business,” he says. “Because we’re not an Amazon or Walmart carrier, we haven’t seen the surge that companies that do business with them have seen. I consider this a good thing.”
According to Wayne Spain, president and COO of Averitt Express, the current market “is an 8 out of 10.” He cites the recent mandate for electronic logging devices (ELDs), the tight driver supply and the overall economy as the key drivers for this high score.
“While the ELD mandate may lead to more tightening of capacity after the April 1 leniency deadline, another factor to look for is the effect of the new tax law,” he says. “We may also see a surge in companies ramping up production as they seek to grow their market share in 2018,” he says. 
Darren Hawkins, who assumed the role of president and COO of YRC Worldwide on Jan. 1, says that having three straight quarters of GDP growth in excess of 3% was a sure sign of a great freight market. He adds that this is the strongest U.S. industrial market since 2008.
“We’re a reflection of the economy,  a leading indicator,” says Hawkins. “Overall economic fundamentals are the big thing. Our customers have more balanced inventory with constant replenishment needs. That keeps freight flowing consistently, without the ebbs and flows.”

Drivers, drivers, drivers….

According to Myron “Mike” Shevell, chairman of the Shevell Group, parent of New England Motor Freight (NEMF), one factor working against the carriers is the growing lack of qualified, available drivers.
The tight overall labor market is crimping supply at the same time that tighter driver regulations are serving to limit their pay - as most drivers are paid by the mile, not the hour.
“The driver situation is just pathetic, says Shevell. “And it's going to continue to get worse. Drivers continually are under tighter scrutiny whether it’s for drug use, terrorism protection or the government continuing to crack down on fatigued drivers.”
Wayne Spain, president and COO of Averitt Express
“We may also see a surge in companies ramping up production as they seek to grow their market share in 2018”Wayne Spain, president and COO of Averitt Express
Shevell’s advice for shippers to better manage this situation is to “work with your carriers” to take costs out of their networks, reduce waiting time at docks and other facilities and realize that truckers have to make a profit as well. “Ninety-nine percent of our industry is just making pennies on the dollar as far as profits,” he says.
“In the meantime, we’re making huge investments in trucks, drivers, and facilities.”
Finding drivers in LTL wasn’t always as much of an issue as it’s been in the TL market. With shorter line-hauls and average lengths of haul, LTL carriers could nearly guarantee most drivers could be home every few days - unlike TL drivers who hit the road for weeks at a time.
“It’s becoming a problem in the LTL industry too,” says Pitt Ohio’s Hammel. “As an industry, we need to start recruiting young employees and train them as drivers. Our industry has mostly baby boomers and they’re beginning to retire.” He adds that most trucking companies merely “poach” drivers from other trucking companies, “and that is not sustainable.”
Giving new drivers sign-on bonuses - as much as $10,000 after one year - is all the rage, adds Hammel. “However, that’s not helping the overall supply of drivers. What we need more than anything is to increase driver pay substantially. In fact, I could argue that truckload driver pay needs to increase at least 40%.”
LTL drivers can make in excess of $60,000 annually, substantially more than the average TL driver. In truckload, driver pay starts around $40,000 and peaks around $50,000-$55,000, depending on experience.
Rick O’Dell, president of LTL carrier Saia, says that indeed, the driver market continues to be challenging. “But in the long-term, in order to achieve an economic return on capital, rates will increase in order to compensate for continuing driver wage pressures, benefit costs, and the substantial equipment and technology investments required to meet customer expectations.”
Satish Jindel, the principal of SJ Consulting, a firm that closely tracks the LTL sector, says that LTL carriers ought to use the well-publicized driver shortage as ammunition in rate negotiations with shippers. “Drivers are a factor in terms of capacity, but everybody is facing it,” he says. “It’s an opportunity to raise prices. It’s simply supply and demand. If you’re not making money now, maybe you should get out of the business.”

Last-Mile Conundrums

President & Chief Operating Officer at YRC Worldwide
“Our customers have more balanced inventory with constant replenishment needs, and that keeps freight flowing consistently, without the ebbs and flows”President & Chief Operating Officer at YRC Worldwide
The boom in e-commerce has created a surge in demand for home delivery of everything from diapers to dishwashers, and most LTL carriers have a unit and more than a few trucks and drivers reserved for this business since rates are higher generally for home-delivered goods than general freight. 
However, carrier costs are much greater to fulfill this demand due to the many remote delivery destinations with little freight density in the area - and rarely a backhaul. “We’re not chasing this market at all, but by default, we are getting a lot more of this business anyway,” says Pitt Ohio’s Hammel.
“I’ve heard some horror stories about service problems with Amazon carriers due to the tremendous surge that Amazon creates.”
So LTL carriers face a conundrum of sorts. How badly do they chase the last-mile market? Executives are wrestling with that question, weighing the benefits of all that ecommerce freight with the additional costs that last-mile deliveries have in remote locales.
“It’s good business, but it’s too soon to make a judgment,” Shevell explains. “It’s going to be part of the LTL process, but it’s very costly. In New York, with all its crazy regulations, the politicians want everything delivered in the middle of the night. I got news for them: They’re not going to get drivers to work in the middle of the night delivering small packages, it’s just not going to happen.”
Analyst Jindel adds that e-commerce should be a boon to volumes, revenue, and profitability, the bottom line depends on how that freight is priced. “When you boil it down, that’s a function of pricing discipline,” he says.
Jindel’s advice for carriers: “Don’t bring on a customer because it’s a big name,” he says. “It doesn’t matter when you go to the bank whether it’s Amazon or some small XYZ company. Amazon can be a great customer but that’s up to the carrier and how it prices its freight. In the end, that’s not Amazon’s problem, it’s the carrier’s problem.”
As Hammel alluded, even carriers that aren’t chasing e-commerce are benefitting because it’s adding volume they never thought would affect them. “And LTLs should take advantage of that,” says Jindel.
Rick O’Dell, president of LTL carrier Saia
“Rates will increase in order to compensate for continuing driver wage pressures, and the substantial equipment and technology investments required to meet customer expectations”Rick O’Dell, president Saia
LTL executives are trying to do exactly that, but they say they must guard against promising too much in the e-commerce space without getting adequately compensated. NEMF’s Shevell says that e-commerce giants like Amazon have to be treated like any other large shipper.
“If they need you, they’ll be your friend,” he says. “At end of the day, Amazon needs carriers just like everybody else.”

Rates Up, up, up…

Taking all of these factors into consideration, LTL shippers should brace for rate increases of 5% or more this year, but that’s only part of the bad news. It’s not just the base rates that are rising, experts say.
“There is better dimensional pricing and charges for accessorials such as Saturday deliveries, inside deliveries and other special needs,” says Jindel. “And shippers should realize this environment is not temporary; in fact, it should continue for most of 2018.”
Pitt Ohio’s Hammel says that most shippers are “very aware” of the new environment for LTL freight. “They realize it, however, they still fight to keep their rates from increasing too much. Some are putting their business up for bid elsewhere and receiving rate increases anyway.”
NEMF’s Shevell says that savvy shippers realize if more companies exit the business - more than 7,500 have done so since deregulation in 1980 - that means fewer choices and probably higher rates.
Shevell, who’s been in the industry for 60 years, recalled that in 1935, when regulation started, it was because the carriers were beaten up due to the Depression and couldn’t make a decent return on investment. He emphasizes that he doesn’t want a return to the regulated environment, but the situation with some carriers recently has been very dire.
Jindel adds that his analysis shows the operating ratios of the LTL carriers he tracked in 2017 showed a decent profit - an operating ratio of around 90%, collectively. “Pricing discipline has improved since the Great Recession 10 years ago,” he adds. “They need to maintain that. Once you get that discipline in place, you never let go.”

Posted by at No comments:
Subscribe to: Posts (Atom)