In my previous blog, I tried to capture some of the Major Freight Transportation Stories of 2013 (http://www.dantranscon.com/index.php/blog/entry/the-top-freight-transportation-stories-of-2013). In this blog I will look ahead to 2014 and beyond. Here are some of the emerging trends that transportation professionals should monitor closely in the coming years.
1. The 10 Miles Per Gallon Truck
Heavy-duty trucks consume 1/5th of the fuel consumed in the United States. The world’s freight transportation requirements are expected to consume 70 percent more energy in 2040 than they did in 2010. As demands for freight transportation rise in developing countries, this is also increasing the level of fuel consumption.
A recent HOS study suggests that the changes made in 2013 in the USA are having an impact on driver productivity. New measures may further erode productivity. An electronic on-board recorder (EOBR) mandate is also slated to be rolled out in the next year or two. It will likely eliminate log book falsification across the board and could easily clip another 2% to 5% of industry productivity. Mandatory speed limiters would be next and would eliminate some additional productivity. New drug testing procedures are also being considered and would eliminate those drivers who are able to pass the current urine-based test despite habitual drug use. Taken together, this influx of regulations will reduce the number of drivers in the overall pool and will reduce the productivity of those remaining in the pool.
At a time when most truckers are striving to operate their fleets at 6 miles per gallon, talk of 10 MPG may seem like science fiction. The good news is that fifteen industry manufacturers have joined together in the 21st Century Truck Partnership. Led by Daimler, Navistar and Peterbilt and a joint venture with Cummins and Peterbilt, they plan to have working prototypes within two years. The four projects that fall within this initiative are experimenting with engines and heavy duty hybrids, vehicle power demands, idle reducing technology and new lightweight materials such as carbon fibre and high strength steel. With driver recruitment being such a major challenge, improved vehicle productivity would be of major benefit to the trucking industry.
2. Omni-Channel Distribution will Transform Retail Shipping
Every 25 or 50 years there is a major change in retailing. Mass urbanization led to the creation of big box stores in downtown urban areas. As manufacturing and urban city dwellers moved to the suburbs, shopping malls became the norm a half century ago. More recently, a combination of technologies is transforming retail shipping. Smartphones, E-Commerce and mass fulfillment centres are driving major changes in retail shopping. More changes are on the way.
Major retailers are experimenting with a variety of different retail/distribution models to serve consumers today. Amazon is adding to its network of 89 distribution centres and is creating the local transportation services in large urban areas to serve these markets. It is opening Amazon Lockers in certain retail establishments so consumers can choose the option to pick up their merchandise at locations that are convenient for them. It is launching Amazon Fresh to sell produce to consumers. Most of these moves are designed to increase the volume of products, particularly its higher margin items that are purchased by consumers. This improves the economics of serving consumers (e.g. increases the contribution per delivery) and also enables Amazon to take market share from other vulnerable retailers (just as it did in books and other product lines).
Retailers are also experimenting with the size and design of local retail outlets. Some are opening stores with smaller footprints. While still offering a range of merchandise, they are also serving as local distribution centres for consumers wishing to stop by for a pick-up and as E Commerce fulfillment centres. This is the Omni-Channel approach – – – offering buyers a range of shopping and delivery options.
On a recent 60 Minutes program, Amazon displayed its Amazon Prime Air drone service that theoretically could deliver parcels from a DC to a home within 30 minutes. While it is questionable if such a service could ever handle a high volume of parcels, this reflects the changes being contemplated in the retail sector.
3. Shipper-Shipper and Shipper-Carrier Collaboration
This has been a popular theme for the last decade or more. The trouble has been that the theory has not matched up with reality. Over the past decade, the pendulum has swung back and forth between shippers and carriers. During the early 2000s carriers leveraged the strong economy and their ample capacity to increase freight rates from their preferred clients. The market took a major turn during the Great Recession. Shippers leveraged the failing economy and excess capacity to drive down freight rates.
We are now in a “new normal.” Carriers have removed excess capacity from their fleets and terminal networks. Shippers are seeking to find adequate capacity at a fair price as the economy slowly recovers.
At the recent 2014 Surface Transportation Summit, the President of Meyers Transport made an impassioned plea for shippers and carriers to collaborate. The post-Summit survey results indicated that this message resonated with the audience and the time is ripe for a more unselfish collaborative approach. This message seems to be hitting home.
In NASSTRAC’s inaugural shipper survey, 32.4 percent of respondents collaborated with their trucking partners and 3PLs. A surprising 54.9 percent said that they collaborated with other shippers.
Despite “the steady drumbeat” in the media about a looming capacity shortage, few shippers are experiencing this. There are several possible answers for this. Shippers are starting to make good use of TMS systems and brokerage networks to find the capacity they need. Through co-loading and collaborative shipping, they are able to “create capacity.” In a pilot project, Kimberly-Clark and Colgate were able to achieve savings of 18 percent on line haul and fuel costs. Watch for more shipper-shipper and shipper/carrier/3PL collaboration in 2014.
4. Moving from Re-Shoring to Right-Shoring
Much has been written in recent years about the expected re-shoring (aka near shoring and insourcing) movement. Some industry observers have speculated that with the increase in worker salaries in China and the long lead times on moving goods to North American markets, the time was right to see a shift of production back to the United States or in some situations, to Mexico with its lower wage costs.
Recent research by Tompkins International seems to suggest that this somewhat simplified analysis misses some key points. First China, with its rising wages and growing middle class represents the second largest market in the world for many goods. This begs the question as to whether it makes sense to shift production back to North America in situations where large segments of the consumer market remain in China and where many vendors are located.
Can North American factories produce low value-added goods at a lower cost than one finds in China? While one can point to certain manufacturers that have committed to move some production back to the United States (e.g. Apple), the reality is that for many low value goods, it makes economic sense to continue to produce them in China or other low cost Asian companies.
In other words, many companies are employing a “Right-Shoring” model. They are weighing the size and location of the consumer market, the location of key vendors, distribution costs, the time to ship to market, the level of manufacturing skill required, currency factors and other items and making a thoughtful determination as to the one or more locations where their factories should be located
The following scenario appears to be evolving. There is value in maintaining or locating production to China or other Asian countries, for certain low-value goods, to serve Asian markets. There is value in shifting some production to the U.S. where high-skilled, value-added manufacturing skills are required. As a result of proximity to North and South American markets and its low cow cost structure, it makes sense to move some production to Mexico and Central America for certain low value goods. In 2014, look for manufacturers to adopt a more balanced manufacturing and distribution process that is more in line with the requirements of various markets around the world.
5. Supply Chains in the Energy Sector are going through Major Change/Transportation Systems Must Adjust and Improve the Safety of their Operations
Alberta’s Energy sector growth has largely been influenced by new capital investment. One mega-project has followed the next mega-project. These expenditures have dominated the supply chain with “new” material, construction, products, people, etc. The imperative has been time. Owners commit billions to a given project and the sooner the project can begin to generate revenue, the better for shareholders.
Within the next year or two, the level of capital investment supporting new development of the Energy sector will be surpassed by MRO (maintenance, repair and operations) expenditures. This will affect supply chains and the future growth of industry in Alberta and across Canada.
Quality – not quantity, will dominate how successfully the supply chains function. There is a strong upswing of recognition in the business community that the pursuit of lowest unit cost in procurement activity is dangerous. More and more there is increasing interest in collaborative activity all through the supply chain: Owners, EPC’s, Manufacturers and Logistics services.
In the next 25 years, the potential investment (new and MRO) in Oil Sands development alone, is projected at almost $1.8 trillion. Considering that only 49 of the 178 mega-projects are in operation, the imperative to develop world-class energy supply chains is dominating efforts at supporting business growth in this region. The next couple of years could be transformational for supply chains and the carriers that serve the energy sector.
Much has been written this past year about the flexibility of moving crude oil and other energy products by rail. But the Lac Megantic disaster highlighted a number of safety issues. The danger of derailments (that are apparently significantly underreported by the rails), the highly flammable nature of the product, the construction of the tanker cars, and the risk of human error as was the case in the recent NYC derailment, indicate that there needs to be a “full court press” on rail car safety with respect to the movement of energy products by rail in 2014. One can only imagine the scope of the devastation of the next rail car derailment, carrying crude oil, if it takes place in Chicago, NYC or Toronto.
6. “Designed by Me” will change Manufacturing and Freight Transportation
Since at least the early ’90s, we’ve been hearing that Mass Customization was going to change the consumer landscape. With the exception of custom-crafted luxury goods like bespoke tailored suits, most of our purchases are still very standardized, and “customization” means picking the 256GB hard drive over the 128GB, or selecting the Sport Package for your new car.
But despite the slow progress, we may finally be on the cusp of a new era in product design, in which truly “designed by me” products will be available in a range of categories. The most successful manufacturers of the next ten years will be those that seize this opportunity before their competitors do.
This shift is being brought about by three developments. First, we’ve seen dramatic improvements in flexible automated fabrication, exemplified by innovations like Tesla Motors’ robot-heavy car factories and Nike’s revolutionary Flyknit process. Second, rising labor costs and stronger currency are reducing the appeal of high-volume Chinese manufacturing, and nudging more companies to move operations closer to their headquarters or their customers. Third, the demand for more personalized experiences, nurtured by our highly customizable digital devices, is on the rise. Combine these three, and you have a future in which companies offer customers fine-grained control over their manufacturing output, and earn loyalty and competitive advantage in return.
Tesla Motors is building entire electric cars — from sheet metal to finished product — in just four days. This young company only produces one vehicle at the moment, the Model S, but in a way that defies traditional inventory-based manufacturing.
By populating the factory with over 160 robots, programmed to perform tasks from welding and painting to seat installation, Tesla has fit its entire operation into a fraction of the plant’s total space, and reduced its dependence on outside vendors. This makes it possible to replicate the factory in other parts of the world, closer to customer demand – something Tesla has already begun doing. It also lets the company modify its manufacturing line in a matter of days, not months. So far, Tesla has used this flexibility to improve efficiency and engineer its own electric-specific car designs, but an easy next step would be to give customers a level of control over their purchases that competitors cannot touch.
The tools to do this on a bigger scale are already here. Besides the highly visible example above, other technologies are evolving to make fabrication more nimble, including low-cost, high-accuracy 3D printing, CNC milling, and laser cutting. Once written off because they didn’t fit into the high-volume world of offshore manufacturing, these processes are increasingly suited to a more automated future that prizes the flexibility of shorter runs over rock-bottom labor costs. These changes would have significant impacts on freight transportation and need to be watched in the years ahead.
7. Digitization, Miniaturization and Packaging Improvements will be Game Changers
We have all witnessed the digitization of music, books and movies. We are seeing other products shrink in size as we move from desktop computers to laptops to tablets. Some products are merging together as a smartphone now becomes our camera, calculator, GPS device and sound system. While this movement is taking place, there is a push to reduce the size of the packaging through less corrugated and less water.
These are all game changers for freight transportation. Trucks are now hauling loads of tablets rather than PCs, sound systems and cameras. Better packing means better cube utilization and fewer trucks. For those folks trying to figure out where the freight is while the economy recovers, don’t look much further than your smartphone and tablet to better understand the shrinking volume of freight.
8. Asset Light Companies, Networks and Partnerships to Increase in Importance
In my Top Transportation Trends in 2013, I highlighted the evolution of asset light companies. I expect this evolution to grow in several directions. First, the asset light LTL carriers (e.g. Roadrunner) offer a flexibility and nimbleness that the large asset based carriers don’t have. Carrier partnerships in all sectors are likely to increase as asset based companies seek to open new markets without adding assets. Whether on a local, regional, or national/international basis (e.g. Reliance Network, Landstar), this model should grow in prominence. It is also easier now to share “Best of Breed” technologies with partners than ever before.
In addition, the asset light model works well for 3PLs and freight brokers. Once of the big trends of the past year has been the increase in LTL and intermodal revenue that we are seeing within the freight broker industry. The opportunity to remain non-asset based but offer a diverse services portfolio should make this a trend to watch in 2014.
9. Data Mining comes to Freight Transportation
Supply chain data is often stored in disparate systems that don’t interface with one another (e.g. financial systems and shipping systems). As TMS systems, whether owned by the shipper or 3PL, gain widespread use, they are affording shippers the opportunity to manage their freight much more effectively. We are living in the era of Big Data.
Shippers are starting to better understand the impacts of density, product description, packaging, weight per shipment, lane balances, seasonality, loading and unloading times on their freight rates. They are gaining an understanding of shipment consolidations, pooling, collaboration and other tools to control freight costs. Good freight data is the key to taking advantage of cost saving opportunities, of maximizing cubic capacity and of optimizing modes and carriers.
Leading companies are successfully segmenting their products and customers and developing tailored supply chain solutions for each segment. Firms are changing the game by sharing and linking together masses of information from multiple sources and interpreting the data using business analytics expertise.
10. Last Mile Deliveries to become the New Battleground for Freight
Omni-channel marketing and same day deliveries are pushing warehouses and retail outlets closer to customers. Miniaturization, product customization and improved packaging are resulting in smaller products, manufactured and distributed closer to the end consumer.
This all adds up to a very attractive scenario for last mile, small package delivery services. This may or may not include FedEx and UPS that may not be nimble enough to adapt to the local needs of each market throughout North America. These developments should create great opportunities for local entrepreneurs who create partnerships and alliances with local retailers and are able to bring customized last mile and same day delivery, when required, to their core markets.
In 2014, we will have more compact products that perform more functions but are more customized (e.g. though selection of the apps and features of most interest to each of us) and we will now able to acquire these products through more outlets and delivery systems than ever before. Asset-light transport companies, particularly those specializing in last mile deliveries from local fulfillment centres, will rise in importance. Watch for the rise of a new group of Same Day Delivery Carriers and 3PLs. There is so much to look forward to in 2014.
Happy Holidays to the readers of this blog. Thank you for your continuing support. I wish all of you good health, prosperity and much success in 2014. To stay up to date on the latest trends in Freight Transportation, free subscriptions are available to Dan’s Transportation Newspaper (http://paper.li/DanGoodwill/1342211466)or join the Freight Management Best Practices (http://www.linkedin.com/groups?gid=4357309&mostPopular=&trk=tyah&trkInfo=tas%3Afreight%20management%20best%2Cidx%3A1-1-1) group on LinkedIn.
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