Designed to help small and medium-sized business, Transportation Insight thought leaders offers advice that will help enhance your visibility to transportation activities – and their impact on cost to serve.
Quarterly updates highlight coming cost changes. Actionable tips offer advice that will help you adjust your plan, protect your performance and server your customers.
Of course, this requires easily accessible visibility to all those transportation activities. It also takes a keen eye focused on opportunities to improve your current managed transportation performance – and your service to customers.
To help small and mid-sized businesses identify the best support services available in a volatile freight transportation environment, we commissioned Forrester Consulting to complete a Total Economic Impact™ study of our Managed Transportation solution.
Forrester’s analysis identified some of the benefits our managed transportation brought one customer during a three-year period:
Freight and cost mitigation savings over $1.4 million; average annual LTL savings and cost mitigation of more than 10 percent of the annual transportation budget
Personnel cost savings exceeding $840,000
Transparency into freight costs allowing stakeholders to see all transportation spending in one place
Better on-time delivery to fulfill our customer’s specific shipping requirements, control costs and protect end customer experience
Technology tools supporting needs for specific capacity and special handling situations
According to the study, “Transportation Insight Managed Transportation provides managers with transparency into their total spend and allows them to see managed transportation not as a cost center, but as a source of competitive advantage.”
Let’s unpack some of the reasons the Forrester Consulting Total Economic Impact (TEI) study determined our managed transportation solution can deliver a 251 percent return-on-investment and $1.6 million net present value over three years. For an abridged version of the case study we commissioned, open our infographic.
Managed Transportation Customer Testimony
Using its TEI methodology, Forrester interviewed the senior vice president with a Transportation Insight customer that provides school supplies and educational resources to its clients. Forrester based a three-year financial analysis on this conversation.
As Forrester’s interview revealed, transportation visibility is important as our customer:
Compiles products from several inbound resources into large shipments for outbound delivery
Aligns delivery within specific schedules for on-site work crews that offload, install and remove packaging refuse
Requires specialized equipment or wide trailers and doors.
“We’re very watchful of freight costs as they continue to go through levels we never thought they would,” our managed transportation customer said according to Forrester. “… It’s always at the top of the list when we’re monitoring expenses, so it’s easy to understand the reason we need a third party to provide these services.”
Need-Focused Transportation Solution
Prior to our partnership, this organization worked with another third-party transportation service that utilized a broker model to send most freight tenders through one preferred carrier. According to our customer’s comments to Forrester, this left many decision-makers wondering whether their organization was getting the best price or quality of service.
Considering a change, the organization sought a managed transportation provider that:
Works with multiple carriers on a pure cost and quality-of-service basis
Offers technology that allows a better view into freight spend to support full understanding of the cost of goods sold (COGS)
Provides carriers capable of meeting specialized needs of its shipping and installation services
Identifies additional efficiencies to reduce transportation costs on an ongoing basis
Forrester’s TEI analyzed how Transportation Insight’s managed transportation solution has been meeting those needs for the past three years. Elements of our solution considered in the TEI include:
Named enterprise service team including single-focus account manager a customer can call any time
Consolidated electronic billing
Customer understanding and improvement of standard operating procedure for each customer
Continuous improvement projects
Network simulation and modeling
Proprietary tools including:
Insight Freight (our freight audit and payment portal)
Insight Fusion (our business intelligence portal providing business analytics and reporting for actionable insights)
Based on the customer interview and financial analysis, Forrester determined a total present value of our solution at $2.23 million over three years. Compared to a cost of $632,000 during that time, the TEI determined a $1.6 million net present value of our managed transportation solution to our client.
According to the TEI’s key findings, Transportation Insight’s managed transportation solution provides quantified and unquantified benefits. Both are significant.
Our proprietary technology and processes, combined with our expertise across the less-than-load and truckload transportation environments, achieved savings on freight costs and cost mitigation of more than $1.4 million.
Using our transportation management system (TMS) bid board functionality, our customers can route shipments with the optimal, low-cost carriers that we help identify through a rating system based on their feedback. We also helped this customer achieve the best transportation costs on inbound freight shipments from its vendors.
“We put our complete confidence in Transportation Insight to manage that process and provide us good carriers at the best market prices,” said our customer’s executive, according to the Forrester study.
It can be hard to quantify the benefit of technology applications like our TMS and our business intelligence and reporting tools. Still, transparency to freight costs and the cost of goods sold, as well as on-time delivery adherence delivers benefits across an organization, often in ways that mitigate future financial impact.
That said, implementing and managing a technology-enabled freight solution does come at a cost. And creating internal workflow efficiencies with easy-to-access reporting and streamlined execution realizes hard-dollar savings.
Forrester’s TEI determined that our managed transportation solution helped our client realize a personnel savings value of $847,214 over three years. That benefit represents the cost of personnel if our customer tried to develop and maintain an in-house solution to replace all the technology services and reporting we provide.
“The information that is in (Insight) Fusion can be combined with our company information, and we can look at margin by carrier, margin by customer, and margin by lane,” our customer told Forrester according to the TEI we commissioned. “I can’t even conceive of all the ways we can slice and dice [the information].”
Quantifying Benefits Against Cost
Transportation Insight commissioned a Total Economic Impact study of our managed transportation solution to help shippers understand the cost, benefit, flexibility and any risk factors associated with this service offering.
I believe that the costs and risk factors of our managed transportation solution are far outweighed by the benefits – and we scratched the surface of those benefits above. But I also believe that shippers should have a clear view to the costs they incur when partnering for a new beneficial solution.
Transportation Insight’s fees depend on the customer, and they are often a combination of fixed transactional fees, subscription fees and/or savings share. Within the context of this managed transportation analysis, Forrester Consulting identified our fees over the past three years.
According to the TEI study, the total benefit of our managed transportation solution for this customer over three years is $2.23 million, compared to $632,000 paid in fees to Transportation Insight during that time. In this case, those fees varied from year to year based, in part, on the freight volumes our customer shipped during the period. Forrester concludes the payback period on this cost is less than six months for this client.
That is an important benchmark for small- and medium-sized businesses. We know our customers often compete with larger shippers that possess the scale and capital to invest in a more complex transportation management platform. So we are focused on providing hybrid-digital solutions that make transportation control and visibility accessible to a broader market.
That is translating to managed transportation solutions that we are implementing in a matter of weeks and delivering return for our customer almost immediately thereafter. For this shipper, based on the TEI analysis, that Year 1 return was an $811,305 net value.
International shipping still bears the weight of global pandemic, exacerbating global supply chain disruption.
And fuel prices are driving up costs everywhere.
Serving your customers in this environment depends on your consistent visibility to transportation activities and costs. Moving freight requires strong partnerships with reliable providers, contingency plans – and patience. Controlling costs relies on ongoing analysis of strategy, compliance and performance, as well as agile course correction supported by experts.
Read on to understand the Q3 transportation rates trends that will affect your transportation management and get advice to help protect your performance.
U.S. diesel fuel prices have climbed 38.5% from a low in November. That is affecting transportation costs. Parcel carriers are escalating fuel surcharges, and fuel costs will be an increasing factor for over-the-road freight, especially during the traditional summer travel and shipping season.
The Energy Information Administration (EIA) forecast shows that the average diesel retail price per gallon is $3.29 as of June 21, the highest average since May 28, 2018. Diesel fuel prices averaged $2.55/gal in 2020. EIA’s updated 2021 forecast is an average $3.07/gal., an increase of 13 cents since Q2 estimates.
Economic Conditions: How Do Transportation Rates Affect Revenue for Goods Produced?
The Producer Price Index (PPI) measures cost trends for everything manufactured in the U.S. This custom performance index reflects the rate of PPI change compared to the rate of change in transportation costs.
Performance indices for Parcel, LTL and Truckload increased year-over-year and quarter-over-quarter as capacity constraints persist across all modes. Of note, the Truckload index increased 28.5% YOY and 12.8% since January 2021. LTL increased 9.1% compared to 2020, and 4.1% compared to January 2021. Parcel continues climb as well, rising 7.8% YOY.
First quarter 2021 e-commerce sales reached $215 billion, a 7.7% increase over Q4 2020. Year-over-year, the Q1 2021 e-commerce estimate increased 39.1%. While consumers’ return to physical stores may affect some e-commerce activity, analysts expect strong sales to continue.
One survey of more than 1,000 consumers in late March and early April by consulting firm AlixPartners LLP showed one-third of U.S. shoppers plan to continue buying clothing online, while 25% intend to keep ordering groceries that way.
Do you use poly mailers, shipping bags or shrink film? Ongoing domestic demand driven by e-commerce, pharmaceuticals, hygiene, food and home meal deliveries all pressure prices on polyethylene products used in your supply chain.
Resin prices up 87% cumulatively over the past 12 months.
Suppliers announced 5-7 cent per pound increase in June, following a 5-6 cent increase in May.
Supply is extremely constrained, and sales allocations or force majeures remain in place for most producers.
Upcoming hurricane season could exacerbate supply constraints as plant operations struggle to reach full capacity.
UPS continues to focus on value versus volumes. If a shipper’s volumes are not profitable to UPS, they could either be dropped as a customer, experience capacity cuts and/or higher rates and surcharges. FedEx is also embracing value over volumes and is implementing similar measures.
Large package shippers face additional problems with UPS surcharge increases, including a 50-cent hike on “additional handling” effective July 4. From Oct. 3 until Jan. 15, that fee increases to $6 per package, a jump of $3 compared to today’s cost.
FedEx is likely to follow suit with similar surcharge changes for holiday peak season.
Crowd-sourced delivery platforms such as Instacart and DoorDash are expanding their partnerships with retailers and services. Other logistics providers are moving into the parcel management space. We will likely see more moves linking freight brokerage and parcel management as a way to provide a one-stop-shop to manage freight and parcel capacity.
Q3 Action Advice: Parcel Transportation
Diversification of last-mile solutions will be even more important as more carriers limit capacity. Shippers need to quickly lock in capacity requirements with carrier partners for the peak holiday season and also have back-up plans just in case carriers cut shippers’ capacity. A contract will not necessarily save a shipper.
For the rest of this year and likely into 2022, shippers need to be creative in managing their last-mile strategies while keeping a careful watch on their costs. Those with storefronts will prove successful by offering alternative last-mile solutions such as curbside and buy-online-pick-up in-store (BOPIS). Shippers without a physical store may want to consider partnering with a storefront retailer or another operator.
Shippers will continue to struggle with higher supply chain costs, capacity constraints and delays for the foreseeable future. As a result, regular communications with supply chain partners and customers will be necessary as inventory stockouts, and delivery delays may become the norm versus the exception in the coming months
Transportation Rates Environment: Less-than-Load
Q3 is busy season for LTL transportation. This year, expect costs to increase and service to decline as capacity gets tighter and temporary targeted embargoes continue.
Labor shortages accompany the summer vacation season for LTL drivers and dock workers. Open positions with high wages and sign-on bonuses are difficult to fill.
Retail volume is moving in support of the Q4 holiday peak.
As parcel service levels suffer, shipment consolidation drives volume into LTL.
Many major carriers are not accepting new business, and others that are taking RFQs will not likely publish until later in the quarter.
National LTL fuel surcharge averages are consistently trending upward.
Expect some carriers to pursue out-of-cycle annual business reviews and implement transportation rate increases, especially if your shipping characteristics are cost-intensive.
Maintain skepticism for carriers’ announced “on-time performance” especially as service delay designations can eliminate shipments from that metric.
The FedEx Freight move to reduce outbound volume for 1,400 customers – and then rescind the service cuts following blowback from large retailers – is indicative of ongoing capacity challenges. Other carriers are asking customers to limit shipment sizes in certain lanes.
Potential Disruption: On July 5, FedEx Freight implements an unprecedented peak surcharge on LTL shipments to nearly 1,000 zip codes, about 2.3% of zip codes in the U.S. Th
Blocking a service provider only puts your committed capacity into the hands of another shipper.
When many carriers are not accepting new business, you might not find capacity elsewhere.
In the current environment, another provider is unlikely to improve service levels.
Allow for more time in transit and plan accordingly. Important steps to take include setting expectations with consignees, adjusting inbound material orders to maintain production and communicating with customer service to prepare for response.
Regional and deferred-service carriers, even local couriers, offer alternatives for small impact moves where there’s no capacity available or you are affected by an embargo (including FedEx Freight’s limit on volume). Expect a slower level of service. which is better than no service. Expect a slower level of service.
Transportation Rates Environment: Full Truckload
All indicators point toward a full truckload environment with tighter capacity, elevated contract transportation rates and astronomical spot rates continuing into Q3.
Food and beverage shippers moving freight into grocery warehouses continue to face chargebacks for missing delivery times or not fulfilling an order in full.
Expect a brief “breather” toward the end of July, potentially into August and September, but do not plan for a downward trend in rates and capacity demand ahead of the retail peak season.
Produce season in Q3 creates added strain on capacity in traditional patterns that vary market to market, but don’t expect it to be more than another aggravator in the cost environment.
International shipping disruption continues to waterfall into over-the-road transportation:
Smaller shipments are moving into LTL lanes.
Increased on-shoring of manufacturing is driving more freight into over-the-road capacity.
Intermodal transit times and rates are up, eliminating modal conversion as an option.
While some spot market rate relief may come in late July, do not expect contract rates to follow.
Q3 Action Advice: Truckload Transportation
Be flexible with pick-ups and deliveries – even within shipping hours.
Lead time goes hand-in-hand with flexibility, and it is paramount to tender acceptance.
Maintain a realistic understanding of your capacity consumption and carrier service levels.
Carriers are not chasing higher-dollar freight, generally, but they may be hauling an equal or larger volume of business than last year in a more cost-intensive, capacity constrained environment – especially if your sales are up.
For freight enduring added cost when moving into a facility with a chargeback program for “on time and in full” (OTIF), understand the cause and frequency of the charge and make a business decision of absorbing that cost versus penalizing your carrier partner. Penalizing your partner may mean paying more on every load.
Transportation Rates Environment: International
Coming into traditional peak season in the August timeframe, COVID-driven port closures in southern China are causing severe disruption in ocean shipping. This will have a long-lasting effect on supply and demand for containers, ocean and air capacity. Demand for inbound shipments will continue to surge.
Everything that is moving is moving at a premium and moving with surcharges. Shipping costs are at historically high levels. These costs are going to increase in a substantial way over the quarter, in some lanes by multiples of their cost prior to COVID.
Demand for air freight is increasing, driving up costs as capacity issues build, especially until passenger flights fully resume. This limits further your ability to contingency plan for international freight.
Port congestion on the U.S. West Coast is slowly improving. It is still a challenge, but throughput is gradually getting better. The opposite is true on the Asian side of the balance, but as ports re-open fully returning vessels could make West Coast ports a greater pinch point.
Expect ocean shipping disruption to continue through peak season. This not only affects significant volumes coming from Asia, it affects U.S. exports as well. Container demand in Asia is high and drawing empty equipment back to China without waiting to match with a U.S. export load. This will continue to have an impact into Q4 and 2022.
Q3 Action Advice: International Transportation
Acknowledge the reality, prepare for higher costs, and consider a unique approach. Larger companies with buying power are being extremely creative to solve challenges. Not every business can buy a container ship (like Home Depot), but small- and medium-sized business need to explore outside-the-box solutions.
Be prepared to quickly shift modes, going from ocean to air. Find ways to shift equipment, taking advantage of capacity where you can find it, even if it isn’t your typical container. Can you mix up how you are consolidating? Be flexible about your point of origin.
Strength of partnership is more important than ever. A lot of shippers are fighting for space, and it is not just a cost game. This is where it helps to have trusted providers in place.
Import planning and forecasting is difficult in this environment. Depending on your industry, planning and projections are traditionally complete for the coming peak season. This environment calls for extending that timeline forward where you can, working with vendors and planning on a longer time horizon. This can help avoid disruption and position you to better react when it does happen.
Examine your inventory planning as ongoing disruption strains just-in-time strategies. Conditions in the transportation marketplace may factor into the discussion around a different inventory approach that mitigates risk and buffers some of the impact on the end customer.
Transportation Rates Environment: Indirect Spend
Freight and labor costs, as well as demand, are up in recycled paper and corrugate markets.
Paper costs increased $100/ton cumulatively the past six months, but stability is expected until Q4.
Recycled paper demand was up 6% in Q1.
New grocery bag machines coming online adds additional pressure on kraft paper supply.
Two large lightweight kraft paper producers left the market, transitioning to alternate heavyweight kraft and linerboard products. Mills are “sold out,” and inventory is 75% of desired levels.
Box shipments were up 6-8% in Q1.
Linerboard costs increase $110/ton cumulatively since November 2020. Carton prices up as much 20%.
Box shipments were up 6-8% in Q1, and containerboard mills are unable to keep up with demand increases. Production was up 9% in March, year-over-year.
Old Corrugated Containers Prices increased in May for the sixth consecutive month.
Major office paper producers announced increases to take effect July 1 after 6-8% increase in March.
Pallet Prices are up +50%, and supply is very short. Manufacturers are urging shippers to find alternatives.
Fuel prices are part of the conversation again. EIA forecasts predict summer diesel prices will be higher than last year but then reflect a normal dip.
Most equipment types (van and reefer) are experiencing a drop in demand, but do not expect a dramatic effect on rates.
Short-term contracts will come at premium rates and so will spot market pricing, but tender acceptance will be good.
International Road Check may cause disruption May 4-6 and into the following week. Demand may increase due to reduced freight movement during the highway safety inspections.
Advice for Q2: Maintain consistency with your carriers, trying to contract where possible to avoid an elevated spot market. Careful procurement practices in the months ahead (contract vs. spot market freight) sets the stage to capture downward price trends in transportation rates during the second half of 2021.
Expect embargoes to continue in lanes affected by volume spikes and capacity constraints.
Carriers continue to scrutinize each piece of business, monitoring payables, escalating collections, limiting credit and diverting capacity to “shipper of choice” customers.
Pricing renewals are increasing and so are rates sought by LTL carriers, especially those emboldened by aggressive new price “right-sizing” promised by UPS Freight’s new owners, TFI International.
Q2 Advice: Rely on analysis – not rates – to achieve savings. There’s no ground to gain in procurement and rate negotiations, but routing decisions and least-cost carrier selection will maximize your transportation dollars.
Small Parcel Transportation Market Conditions
Both UPS and FedEx are taking a more intentional approach to pricing.
UPS “better not bigger” approach is emerging: evaluation of customer contracts, volume caps and negotiation of mid-term increases to certain customers.
Capacity challenges continue for FedEx, UPS and every major regional small package carrier, allowing each to be selective on the volume they accept.
Peak surcharges and certain suspended service guarantees spurred by COVID continue – but for how long? UPS and FedEx re-instated guarantees for some services, but we expect many others to be suspended until the country re-opens more fully.
The UPS move to zonal pricing for Additional Handling Surcharge and the Large Package Surcharge will have a material impact for many shippers.
Fuel surcharges are escalating quickly since the start of 2021.
Advice for Q2: Begin planning for Christmas 2021 today. Lessons learned through expert analysis of your 2020 data can help you design a small parcel program that protects your profit margin, controls cost and supports service to your customers.
International Transportation Market Conditions
Lingering effects of the Suez Canal disruption will continue for several months.
Port congestion has expanded beyond West Coast backlogs to include East Coast ports, and booking availability is sparse after an over-booked April.
Ocean transportation rates remain high, capacity is stillextremely tight and the challenges in the domestic logistics funnel (drayage and rail) remain high.
Tightening ocean capacity is driving up demand and rates for air freight.
Advice for Q2: Reassess your inventory strategy. Global supply chain disruptions highlight the weakness of lean, just-in-time practices and may emphasize your need for additional buffer inventory, especially if your e-commerce fulfillment relies on import/export activity. Contingency planning should be part of each strategic planning meeting as we go through 2021.
Indirect Spend Market Conditions
E-Commerce demand is growing faster than capacity and packaging costs continue to climb.
Corrugated prices increased 10-12% in March – on top of increases announced in November 2020.
Expect stretch film manufacturers to announce another increase in April.
Paper board tubes and cores are increasing at least 6%.
Lead times are expanding out to 4-8 weeks.
Costs are up 17% since November 2020 on recovered paper and old corrugated containers (OCC).
Two large office supply providers announced copy paper increases of 6-8% in March.
According to the ISM Report on Business, activity in U.S. manufacturing grew for the 10th consecutive month in March, reaching a PMI reading of 64.7 – the highest in 37 years. The U.S. Industrial Production Index registered 104.65 in February – up 13.38% since March 2020.
Economic Conditions: Diesel Fuel Prices Climbing
U.S. diesel fuel prices have climbed 32.1% from a low in November. That is affecting transportation costs. Parcel carriers are escalating fuel surcharges, and fuel costs will be an increasing factor for over-the-road freight. The Energy Information Administration (EIA) forecasts summer diesel prices will be higher than last year.
Average retail price per gallon was $3.18 on May 10, up 4 cents from May 3, but still below the March 22 peak of $3.19, the highest average since Dec. 3, 2018. Diesel fuel prices averaged $2.55/gal in 2020. EIA’s updated 2021 forecast, as of May 10, is an average $2.97/gal., a 3-cent increase compared to last month’s estimate.
The Producer Price Index (PPI) measures cost trends for everything manufactured in the U.S. This custom performance index reflects the rate of PPI change compared to the rate of change in transportation costs.
Performance indices for Parcel, LTL and Truckload increased year-over-year and quarter-over-quarter as capacity constraints persist across all modes. Of note, costs increased 13.85% YOY for truckload. LTL increased 7.85% compared to 2020, and 9.59% compared to Q1. Parcel continues to lead all indices, climbing 5.84% since last year and 6.52% since last quarter.
Total estimated e-commerce sales for 2020 reached $791.7 billion, an increase of 32.4% from 2019.
E-commerce sales in 2020 accounted for 14% of all U.S. retail sales, which increased 3.4% in 2019.
Fourth quarter e-commerce sales reached $245.3 billion, a 23.1% increase over third quarter 2020. Year-over-year, the fourth quarter 2020 e-commerce estimate increased 32.1% compared to the same period in 2019.
Looking ahead, expect Amazon Prime Day on June 21-22 to drive an uptick in e-commerce activity, as well as a bump in small parcel volume.
Resin prices continue to push up with major manufacturers Dow, Chevron and Exxon Mobil announcing additional increases in January 2021. Combined with the mid-year 2020 increases, costs of poly-based packaging products are up 20-25%.
Linerboard manufacturers pushed through a paper increase of $50 per ton in late November, driving up corrugate prices.
The ISM Report on Business closed December at its highest reading for manufacturers in 2.5 years, with a reading of 60.7%. The New Orders Index and Production Index was above 60% for the sixth straight month.
The best logistics technology offers you the ability to standardize and automate business processes, optimize transportation procurement and improve communications across your network.
Accessing those outcomes is likely to require some level of change, and we all know change is rarely easy. Whether we are talking about a new flavor of coffee, a simple shift in routine or a new technology tool, humans are naturally resistant to “different.”
With the right approach to managing a change into a new technology environment, you can minimize the impact on your people and your partners. At the same time, you can maximize the ability of your TMS to implement your business goals, manage those goals, and enjoy the results that drive ROI across your business.
Let’s highlight aspects of our proven process that helps business executives manage change across key stakeholders in a TMS implementation: the leadership, operational management – and your business partners.
Start at the Top, Drive Technology Adoption
Top-down sponsorship is big in any project. When it comes to implementing new transportation management technology, it is even more important. Leadership must articulate and communicate an ROI message that conveys how logistics technology empowers the organization to achieve its business goals.
The work begins when you start exploring the right TMS for your business. Involve the team members who will use the tool day-to-day. These are the people doing the work, help them understand the benefits – a “why” behind the change that is relevant to them.
It gives you more control to help automate repeatable processes, and, in doing so, it gives your team back additional time to be more strategic in their activities.
The why for the organization: you are able to control your business strategy, define your strategy in business rules and put those rules in a system that allows you to execute based on those rules.
Once you communicate the “why,” seek the input for your team.
Your logistics users know the challenges they encounter regularly, and they know the capabilities that will make their jobs easier. Seek their feedback. This creates a sense of ownership in a tool you need them to adopt – instead of discord around a burden mandated for use.
Utilization is paramount. So, too, is standardization, which is a significant benefit of a TMS. Does every user at every location accomplish the same tasks with the same steps? If not, there may be a level of SOP you can capture and implement throughout the design of your operational rules utilized within your TMS.
Then, set expectations that the program will be monitored and measured, including successes and failures. Keep the line of communications open. Encourage users to voice their challenges and concerns. As you refine the technology based on input, you foster greater openness to change. That goes a long way toward making sure your system is easy to use, while you drive compliance in support of the “why.”
Along with compliance measurement comes downstream reporting that is critical to your executive communications with leadership stakeholders. Often when these leadership layers back a logistics technology investment, they do so expecting specific, quantitative return.
Level-set expectations early: ROI is coming, but not until information moving through the TMS arrives in reporting. This is what illustrates savings and transportation performance.
Understand and Manage Technology Expectations
The tactical team is changing their work processes – from the old way to the new way – but functionally, not a lot should change for them. Built correctly around the right business processes, a TMS creates an immediate benefit for these users. Quick results ease a lot of change pain.
The work creates a different challenge for your operational managers. When theyenact the change they will need to have all those conversations about the “why,” earning adoption and compliance. The most challenging aspect is only having a partial adoption rate across your cross-functional user base.
If portions of your team do not adopt the tool, there is a risk for them to vocalize that to executive sponsorship. That is a big reason the users at this level must feel like they have a role in implementing the application. Creating a positive fact-based feedback loop to leadership based on the success of the program will be critical.
At the same time, your operational team must set expectations and bridge the gap to leadership by communicating downstream without creating pushback.
Operational leaders also must maintain alignment between tactical activities and strategic goals, where results are realized more slowly. While the first load booked in a TMS saves time for the tactical user, as I mentioned above, gathering information and building a data case for cost savings and efficiency gains is a longer process.
Just as a level-set for ROI timelines is important with leadership stakeholders, maintain a measure of patience with operational managers tasked with justifying the TMS. Once the best business rules are captured and applied into your organization, your technology platform will provide operational managers with reporting they need to demonstrate the value of the logistics technology to you.
Logistics of External Change: Carriers and Vendors
Be prepared to manage change with carriers and suppliers.
Your current transportation providers may raise red flags when a new party enters the conversation, especially if you enter a relationship with a technology partner. Naturally, they want to keep your business, and they may cite artificial concerns about lost relationships or diminished service.
The reality is, using a TMS means you execute your carrier routing dynamically based on the best cost and service. These terms dictate the relationships your business should maintain.
Meanwhile, your suppliers and other vendors will need to start providing information into the system and give you a new layer of visibility. This introduces change for your partners and their daily process. Some are resistant. Some are not.
For both your carriers and your vendors, communication is important. It often requires a new process to convey expectations, including additional standardization, to all your partners.
Your vendors may need to sign in to the system to report receipt or shipment, using all the correct reference numbers. Do you communicate these new needs in your purchase order, through the TMS or a direct letter?
Your carriers may be required to input freight movement updates manually. If they do not, they will be accountable. How does that communication occur, and who manages it? While you want to limit the amount of effort required for external users, someone still has to own the compliance management.
Along with these conversations comes the compliance monitoring piece. Any TMS inputs require a level of measurement and compliance that will drive adoption – whether it is internally, or with your carriers and vendors. To maximize the value of TMS in your business, you not only need compliance within your four walls, but also with your carriers and vendors.
Minimize the Impact, Optimize the Logistics Technology
Logistics technology can deliver benefits to your business. Combining that technology with change management support from an expert partner helps you get to those benefits faster and easier.
We have a proven process that includes different levels of stakeholders throughout the implementation. We not only capture your business rules and initiate improvement where appropriate, but also we allow your teams to be part of the overall deployment of the TMS.
We work with you to identify the “why,” help you communicate that across your organization, and implement the compliance tools required to insure adoption. Validate your business case for TMS with customized reporting that combines information from your TMS with our independent freight audit and payment solutions to paint a clear picture of performance.
We also work with your supply chain partners to make sure that they are supporting your initiatives and your success. For your carrier partners, that means protecting the relationships that provide best cost/service. If you need additional providers, we foster those relationships, coordinate meet-and-greets, and make sure expectations are outlined clearly before the first load moves. Importantly, our executive relationship with transportation providers across North America provides a secondary point of escalation that produces faster results than a terminal manager or regional sales rep.
You face a disadvantage if you have a TMS, but lack relationships with your carrier base or have an audit function to validate the compliance of your contracted pricing and routing rules. Because Transportation Insight is able to provide the additional service offerings, and we are involved in supporting the success of your business, we can help shape and affect change management in all the areas related to the technology. And since we have worked across a multitude of customers and industries, we know the best practices that work in many domains – including yours.
Deploying logistics technology into your business does not have to be a huge undertaking. We can help you ease the change by fostering relationships at the foundation of your success. Contact us today to put the power of partnership behind the behavior changes that give you the most return from your TMS solution.
During the past 20 years, I’ve seen logistics technology evolve significantly. A TMS login has become a powerful portal for improving transportation cost control. Accessing the technology is just the beginning of the work. In fact, while I’ve seen client shippers deploy TMS to enhance productivity and streamline transportation procurement, I also know that without an expert team supporting your TMS, you may be creating more challenges than you are solving.
TMS Power Relies on Complete, Accurate Information
Many of the TMS solutions we see today depend on Application Programming Interface (API) connections.
API enables the quick transfer of information between you and your carrier partner. It relies on rate information being loaded correctly from your current agreements. Remember, if the rate information going into your TMS isn’t right, optimal routing selections automated by your TMS may not be either.
Managing and administrating your own contracts, especially if you are working with dozens of providers, can become a burden. It creates additional layers of workflow from the moment you begin a bid event until you are monitoring compliance on the back end.
Secure the most market-competitive rates to move your unique shipment.
Aggregate rates across all your service providers.
Upload your rates with your carriers into your TMS instance.
Every time you log in, you access your rate table with accurate information from the optimal carriers for your shipment.
An effective TMS needs to be able to set its scope outside your contracted rates, too. Keeping an informed eye on spot market pricing offers additional flexibility to improve transportation cost and/or service. In today’s environment, we’re talking to a lot of shippers who are seeking visibility to rates across truckload, less-than-load (LTL) and small parcel. Multi-modal options are essential during fluctuations in capacity and network disruptions.
We all know these market dynamics are a common part of freight management. So are the corrections I’ve seen following sharp pendulum swings in cost and capacity. Since I joined Transportation Insight in 2006 as director of truckload procurement and outsourced execution, we’ve helped our shipper clients secure capacity, manage costs and serve their customers through a few of those business cycles.
Downstream TMS Data Fuels Corrective Action
TMS speed and automation are important to modern freight management. Business intelligence is, too. Does your TMS solution depend on strict downstream audit processes?
Many of the TMS solutions accessible to small- and mid-cap shippers rely on match-based audit. When the cost of a shipment does not mirror your established thresholds approved for payment, you should expect to be notified and tasked with resolving the refund.
Obviously, this creates additional workflow. More importantly, it also misses opportunities that arise during an audit of every invoice against a contract on file. Without a freight audit function that is driving efficiency with resolution, you may experience the same errors over and over. You could be losing money on every shipment. At the same time, it gets harder to determine whether the TMS tool you deploy is really achieving the outcomes you are seeking.
As we apply a load-by-load or shipment-by-shipment audit, depending on the transportation mode, Transportation Insight works to resolve problems and support corrective action. We compare invoicing back to the current contracts, validate for accuracy and handle any communications with the carrier on our clients’ behalf. I do not want to ask our clients to pay a recurring, incorrect amount to a carrier. I would rather work through a financial settlement process that includes sustainable corrective action – in addition to collecting a refund. That benefits our shipper clients, as well as their trusted service providers.
TMS Expectation After Login: Visibility, Control
The purpose of a TMS is to get as much visibility and control as possible, while accessing the full freight movement capabilities of multiple transportation modes. I believe a TMS should empower you to make critical decisions and pull levers to move freight from one mode to another. Utilize truckload, LTL or parcel depending on which makes the most sense based your shipment and the current transportation environment.
Working with thousands of shippers throughout my career, I’ve learned that there are things you need to support a TMS to get the most out of the technology. Your TMS allows you to execute transportation procurement and automate the right routing to move your freight efficiently. Do you have compliance and measurement components on the back end to make sure your transportation strategy achieves your goals?
With Transportation Insight’s TMS, we provide you with support for transportation procurement and contract management. We also deploy the solution you need to automate and standardize the process for loads and tenders to carriers. Then we deliver downstream visibility through our technology platform.
By collecting data from your TMS application and coupling it with data elements harvested from freight invoicing, you develop a much deeper understanding of trends and how they are affecting your transportation costs. Ultimately, that’s a primary goal any time we set out to help a manufacturer, retailer or distributor improve their freight management.
For many shippers we encounter, this solution provides much better control, standardization and scalability. It also empowers you to compete with larger, more sophisticated shippers that have the scale to invest capital in a more cost-intensive transportation management system.
At the same time, it is important to me that our transportation management offerings allow our customers to maintain as much control within their carrier network as they wish. By providing the tools utilized by larger shippers in an environment where you retain the power to decide, Transportation Insight gives you more than a TMS login. We help you achieve a competitive advantage.
Turning your TMS Login into a Cure-All
Many of the companies I have worked with over the years initially think a TMS will be a cure-all to existing challenges. Keep in mind there are considerations beyond the technology, including processes, utilization and support. When Transportation Insight designs and deploys solutions for our customers, we do that with those considerations in full focus.
Want a closer look at what comes with your Transportation Insight TMS login?
The Logistics Manager’s Index (LMI) showed a December 2020 logistics growth rate of 66.7, or about 12.7 points ahead of the 2019 rate. While a small drop from November’s 70.8, this may be more of a breather than a shift. The decline in growth rates are reflected in slight declines across all of the metrics of the LMI (except for the two freight capacity metrics which have increased).
Consumers show no signs of halting online shopping activity. In addition, the ramp-up of vaccine distribution, while it will hasten a return to some sort of normalcy, it will consume freight capacity. The upshot? Service challenges likely will remain at some level.
LTL Capacity Bears Weight of Freight Volume Growth
Nearly all – 87.9 percent – survey respondents to a JOC survey in September and October 2020 indicated that longer transit times were a challenge. In addition, 47.2 percent experienced increased shipment loss or damages, and two-thirds had labor shortages.
The sustained growth in shipments across the logistics industry during 2020 contributed to these numbers. Tonnage in the LTL sector in November 2020 showed a 6 percent year-over-year increase in growth, according to the Cass Freight Index.
A few regions were especially hard hit. The Port of Los Angeles processed 889,748 twenty-foot equivalent units (TEUs) in November 2020, up 22 percent from a year earlier. During the same time, at least one carrier suspended financial guarantees for time-critical services in California and Portland, Oregon due to spiking COVID-19 cases among its drivers.
The increases in shipment volume also meant many distribution centers were taking longer to accept shipments. That led to backups with carriers. Detention and storage charges, formerly unheard of in the LTL market, have become more common.
Consolidation in the market continues among both larger and regional companies. Among these moves, Cross Country Freight Solutions announced in January the acquisition of Midwestern LTL carriers, Price Truck Lines and Mergenthaler Transportation. In September 2020, Forward Air Corporation, an asset-light freight and logistics company, announced its acquisition of the assets of CLW Delivery, Inc., a privately-held, final-mile provider with annual revenues of about $20 million.
Many LTL carriers focused on effectively handling residential deliveries are exploring new methods, such as purchasing smaller trucks that can maneuver in neighborhoods and urban areas.
The LTL sector is steadily digitizing, with the formation in November 2020 of the Digital LTL Council, comprised of 20-plus transportation companies. Its goal is to establish a set of uniform standards that support the scalable automation and digitalization of LTL shipments.
Over the past year, some council members experimented with standards for electronic bill of lading (eBOL) solutions. Carriers that digitize could save up to 1.3 percent of costs. Digitization should also cut errors and allow all parties to quickly locate freight in transit.
Given ongoing tightness in the LTL market, carriers likely will be selective about the shippers with whom they partner. Shippers can make it easier for carriers by improving facilities where needed and facilitating efficient drop-offs and pickups.
Truckload Freight: Volume Up, Service Down
As in the LTL market, the truckload (TL) market is experiencing both sustained growth and service challenges. The American Trucking Association’s For-Hire Truck Tonnage Index rose by 3.7 percent in November, driven in part by robust e-commerce orders and strong single-family housing starts. At the same time, languishing restaurant, manufacturing and energy sectors remained a drag, the ATA noted.
Data from DAT Freight & Analytics shows another bifurcation in the truckload market. Dry van contract volumes were down 10 percent year-over-year, while spot market volumes were up 107 percent. Similarly, refrigerated contract volumes were down 21 percent, while spot market volumes had spiked 116 percent.
About 41 percent of carriers responding to the 22nd COVID-19 survey by Morgan Stanley, published in December 2020, indicated COVID-19 has hampered their ability to operate smoothly. The driver shortage was the most commonly cited reason, with varying emergency restrictions coming in second.
Freight Capacity Constraints Drive Up Truckload Rates
Given ongoing capacity constraints, the truckload market likely will see rates continue to increase for at least the first half of 2021. Transportation Insight expects contract rates to increase 3-5 percent, and spot rates to rise by about 5-7 percent.
However, some good news appears further out on the horizon. A smaller percentage of carriers responding to the Morgan Stanley COVID-19 survey – 36 percent versus the previous 39 percent – indicated the impact of COVID-19 would remain negative a year out.
In addition, truck sales are up nearly 197 percent year-over-year. As these come online, they will boost capacity, helping moderate the upward pressure on rates.
Several unknowns could affect the truckload market. They include the potential for another wave of shutdowns. Transportation has been considered an essential business, which should mitigate any impact.
Potential changes from the new presidential administration, as well as from newly elected state and local officials, are additional unknowns. However, as of early January, no proposed regulations that would significantly impact the truckload market appeared on the horizon.
Challenges to Truckload Digitization
Many shippers in the truckload space are interested in digitization, including electronic bills of lading, which would cut the time required to load trucks and reduce exposure to illness. However, given the thousands of carriers across the country, ranging from national enterprises to operations with a handful of trucks, this shift likely would occur incrementally.
Even as the volatility of 2020 abates, most carriers will continue to focus on contractual rather than spot pricing as a way of gaining further stability.
Shippers of Choice
In both the truckload and LTL markets, capacity constraints appear likely to continue.
Shippers who continually switch carriers to improve service may find their efforts fruitless.
Instead, by taking steps internally to remain shippers of choice and working with logistics providers like Transportation Insight to address challenges, you can mitigate rate increases and strengthen the service your receive and your access to capacity.
Download our First Quarter ChainLink 2021 for more forecasts and cost impact analysis from our freight capacity experts. Read this quarterly industry forecast for a multi-modal look at the trends that will affect your business in the months ahead.
In the international shipping marketplace, that translates to equipment availability issues, ongoing capacity pressure and motivation for the major shipping alliances to maintain record-high rates.
Although the Chinese New Year February 11-26 offers promise of a breather for vessel, port and intermodal operations, events of 2020 created enough congestion and imbalance that volatility will continue to affect supply chains reliant on international transportation.
Let’s explore factors that will affect price, capacity and service in the first half of 2021 and continue to contribute to international shipping rates challenges.
No International Shipping Relief in Sight
Signs of a unique year are already emerging. Freight capacity demands are at levels unlike we’ve ever experienced for this season. Bookings are at capacity through January and into February.
As a result, international shipping rates are not going down any time soon. Since the 3 major shipping alliances control about 85 percent of international shipping capacity, operators leverage their power more than in the past. A General Rate Increase has not been announced since September, but we are not seeing the typical drop in costs that normally accompanies a loosening of capacity that follows peak season. That will keep rates elevated.
Optimism is high that the Chinese New Year will afford two weeks of breathing room for the international shipping industry to catch up. Unfortunately, 16 days will not likely be enough time to alleviate several months’ worth of challenges that continue to affect services and cost across your end-to-end network.
Ripples Across Transportation Spend Clogs International and Domestic Supply Chain
The ripple of demand, capacity and equipment availability is felt across all transportation modes. Congestion on the rail stalls movement of freight. Full inbound containers detained by the rail are being stored off-site, requiring additional moves. When there is disruption to intermodal, expect it to occur across truckload and LTL and pressure cost management and service times as a result.
In this environment, global distribution of COVID-19 vaccine creates additional demand spikes, especially for the Air Freight mode that will fill a key role in the transportation of temperature sensitive materials. Likewise, expect to see impact across other domestic modes as medical supplies are prioritized, and, in the process, pushing transportation pricing up and capacity down.
On the trade compliance front, a new administration in Washington, D.C., has promised to bring regulation changes that will likely develop more slowly. Efforts to rollback tariffs, like China 301, get a lot of attention, and while the policy changes of a new president may not move quickly, expect some ripple in the complex rules for importing and exporting goods into the United States.
Consumer Behaviors Drive “Forever Peak” with Overseas Shipping
Problems challenging the international supply chain emanate from ongoing shifts in consumer behavior. E-commerce continues to fill buying voids left open by vacations and visits to the mall. Disposable income drives the online purchase of goods and the volume of consumable goods moving through transportation networks is creating an extended peak season across all modes.
Buyers are quickly becoming accustomed to the immediate purchase satisfaction that comes from an online order, and that is not ever going to revert. Raw material, component and finished good sourcing strategies as well as inventory management practices become increasingly complicated when buyers know they can take their cart elsewhere if you do not have the desired quantity available to fill their online order.
To make sure you protect that experience and secure every sale, it is critical to understand how every piece of the end-to-end supply chain puzzle – from foreign production site and overseas shipping, to trade compliance, domestic transportation and last mile delivery – fits together into a total landed cost of goods.
For more insight on multi-modal transportation trends that will affect your cost and service in 2021, download our Q1 Industry Forecast. It features a look at things to come for shippers relying on Truckload, LTL and Parcel transportation, as well as our international transportation forecasts.
Carriers are reacting to market changes in other ways beyond transportation costs, as well. One example: early in 2020, one national carrier indicated it would match any volume LTL quote from another carrier. Six weeks later, that carrier wasn’t accepting any volume shipments due to the dramatic shift in the market.
The LTL transactional market is seeing tight capacity and generally widespread delays, including with premium carriers. Driving this is a 10-12 percent growth in demand, several times the typical range.
Capacity constraints in the LTL markets may seem out of step with some of the economic news, which continues to reflect the pandemic toll on many businesses. The September 2020 unemployment rate (7.9 percent) was more than double the rate a year earlier. And while the gross domestic product jumped by $1.64 trillion in the third quarter of 2020, that followed a drop of $2.04 trillion in the second quarter.
One reason for the disconnect is the drop in the consumption of services, which dwarfs the drop in the consumption of goods. Between the first and second quarters, consumption of services dropped 13.3 percent, according to the American Trucking Association. The consumption of goods dropped by a more modest 2.8 percent, also according to the ATA.
Looking at LTL Transportation in 2021
Even as the economy slowly recovers, demand for goods likely will outpace demand for services, the ATA predicts. Until a vaccine has been broadly distributed and COVID cases drop drastically, consumers appear comfortable continuing to spend more time at home. As they do, newly formed online shopping habits probably will continue. Online purchases of furniture and appliances, apparel, and groceries, among other items, are likely to remain at least 10 percent higher post-pandemic, consulting firm McKinsey found.
This shift is contributing to expected ongoing capacity tightness. In turn, that likely will contribute to a favorable carrier’s market next year. The rate increases some carriers are imposing in high-capacity lanes likely will continue into 2021, until capacity corrects itself.
The level of those rate increase can vary. LTL carriers develop market-specific rate bases so the impact of increases passed along in 2021 can be influenced by carriers’ operating needs and your shipping characteristics.
Carrier mergers also appear poised to continue. Most take one of several approaches. Some companies join forces to pool resources and become more efficient. Others bring together companies in different sectors, allowing all to expand their range of services.
Shippers of bulky, low-density, non-dock-to-dock freight, along with shippers of over-dimensional freight that parcel carriers are trying to price out of the parcel network, may face additional obstacles. Some LTL carriers are trying to push these freight types to the truckload market and are raising rates accordingly.
Surcharges appear likely to remain and even increase. If some states, as predicted, add taxes, other LTL surcharges may appear.
Prior to the pandemic, some LTL carriers began investing in box trucks so they could more easily handle residential e-commerce deliveries. These efforts have slowed during the pandemic and capacity crunch. However, once demand and capacity rebalance, expect to see LTL carriers make another move into this market.
Managing Transportation Costs Through Capacity Constraints
While shifting from one carrier to another might seem like a way to improve service and transportation cost, jumping may not help. In fact, it’s possible service will further decline.
Several other steps tend to be more effective. One is to take a longer-term perspective, work with a carrier, and establish a partnership that benefits all involved. Another is to build lead time into processes and set realistic expectations with end customers.
Even within the past six months, many freight rates have spiked. For instance, in May, national dry van rates averaged $1.60. By October, they had shot up to $2.42 – a jump of more than 50 percent in five months. Similarly, flatbed rates rose from an average of $1.90 in May to $2.46 by October. So, while many rates appear to be holding steady, they’re doing so at high levels.
In addition, aside from a potential increase in demand for vans leading into the holidays, the typical seasonality in demand and rates appears to have taken a hiatus. Instead, pockets of higher demand are driving rates even higher in some areas, such as the Pacific Northwest and southern California.
Demand for flatbed trucks remains strong across the country. Demand for refrigerated truckloads is loosening but remains high in the Pacific Northwest and the Midwest.
Driving the Freight Rates Market
One reason for the rate increases is a drop in capacity. While overall shipping tonnage is down, the number of available drivers is as well. Many smaller trucking shops may have left the market, driven out by a challenging mix of COVID-19 and rising insurance premiums, some resulting from high jury verdicts awarded in the aftermath of accidents. And mid-sized carriers have been reluctant to add equipment and drivers in this turbulent time.
In some cases, drivers face prohibitions stemming from violations logged in the Federal Motor Carrier Safety Administration’s (FMCSA) Drug and Alcohol Clearinghouse. While the shipping and carrier community support safety in trucking, this does represent a significant decrease in available drivers. According to the American Trucking Associations (ATA) as of Oct. 1, As of Oct. 1, more than 34,000 drivers were prohibited from getting back on the road because they had registered a violation. Of those, close to 27,000 had not started the process required before returning to their jobs.
In total, about 74,000 transportation industry jobs have been lost or furloughed, or about 5 percent of the base, between late 2019 and late 2020.
Moving Into 2021
It might appear that the rise in Class 8 truck sales would offset the drop in drivers. According to J.D. Power’s October 2020 Commercial Truck Guidelines Industry Review, sales of the three most common sleeper tractors – those three to seven years old – has been generally rising throughout 2020, and then spiked in July. However, new truck sales equipment may not be available until mid- to late-2021. Moreover, many of these sales are for replacement equipment, rather than expansion. As a result, they are unlikely to add significantly to capacity.
The conclusion of the presidential and other elections, assuming they occur in a relatively straightforward manner, may spark consumer confidence. In turn, that might drive shipping volumes – a generally positive outcome, but one that may further constrain capacity.
The disruption in the small package market may mean some of those shipments move to the LTL market, and a percentage of those then head to the truckload market. Similarly, ongoing challenges and chaos in the international and intermodal market may lead to more shipments moving to truckload. All of these will, of course, further constrain capacity.
In light of the factors affecting the truckload market, Transportation Insight (TI) forecasts freight rates increase of 3-5 percent for our clients that contract with carriers. Rate increases in the spot market likely will be 5-7 percent.
In working on behalf of our clients to negotiate rates, we take a lane-by-lane and market-by-market approach. This targets those carriers whose rates appear out of alignment with the market, focused on our goal of leveraging relationships to help bring them into alignment. Shippers gain some protection from the overall increases that might not be available without those relationships.
More Truckload Change Coming
A couple of changes in the truckload sector may have a positive impact on shipments. One is the shift from some national carriers growing their regional presence to rejuvenating their long-haul network. Regional focus is an attempt to entice drivers with more time at home, but with specific market disruptions caused by COVID-19, some carriers are looking to diversify their lane mix. The flipside: this could pull additional congestion off the rail to feed these long haul fleets and add pressure to over-the-road capacity.
Another shift is the increasing use of data, such as score-carding and monitoring, by both carriers and shippers. Early in this shift to monitoring and managing, some carriers worried that data would replace the relationships they cultivated with their customers.
The opposite appears to be occurring. The data tends to allow for more dialogue and planning, helping to strengthen relationships. In addition, it allows quality carriers to quantitatively demonstrate they can provide the reliability and service shippers require.
Navigating a Changed Market
In the current truckload market, shippers that have taken steps to become shippers of choice tend to benefit with greater commitment by the carriers with whom they partner. This can mean, for instance, shippers provide longer lead-times and some flexibility on pickup times. Both enable carriers to schedule their routes more efficiently.
It also helps to keep in mind that the rate increases happening now will not last forever. The truckload market tends to self-correct; as freight rates increase, more drivers enter the field and supply and demand start to balance out. In the meantime, however, it helps to expect some volatility to continue.
To help you navigate that volatility across all transportation modes in your supply chain, we created the Rate Outlook 2021. It provides a forecast for transportation rates in Parcel, LTL and International, as well as truckload. Read it today for information that will help you mitigate risk and control cost across your network. Watch the webinar with our freight rate experts for more guidance on brokerage and carrier capacity planning in 2021.
Depending on the logistics outsourcing approach that your business deploys, make sure your provider’s skillset aligns with your organization’s needs.
In today’s environment, supply chain practices are taking central focus. Recovery will depend on adaptive response to global pandemic, economic turmoil and a sharp shift in buying practices and delivery needs.
A lot of companies don’t have a complete understanding of what their partners should be providing. Outsourced solutions supplement your internal response to these dramatic shifts. When your partner exhibits these 4 Outsourcing Must-Haves they have the buy-in to keep you in the game.
Your partner can’t deliver? Better understand why.
Outsourcing Must-Have No. 1: Responsiveness
If you are not with a responsive partner that is able to enact change quickly within your supply chain, you are setting up yourself and your company for failure.
What does it mean to have a responsive partner? Your broker or 3PL should have a regular cadence for response. This is more than a quick, timely email follow-up when there is a problem – although that is important.
More than that, a responsive partner lends an empathetic ear to what is happening within your organization. That is fundamental to internal communications within the partner organizations, and it streamlines the ability to enact change that delivers value back to you – and your customer.
A global pandemic validated the vital importance of having a responsive partner able to deliver value in the face of your individual disruption.
Outsourcing Must-Have No. 2: Visibility
Not long ago, visibility was on the wish list. Today, it is a must-have for doing business.
Global supply chains have become so complex with the myriad of partners that exist around the world. Even if you only have a domestic North American supply chain, it is still quite complex.
Whether you outsource logistics, manufacturing or human resources, your partner should be able and willing to provide you with visibility to your data. It is valuable beyond belief.
Accessing that data – as well as meaningful analysis of it – requires technology. You should have access and visibility to what is happening down to the SKU-level, in terms of historical trends in the shipping market with parcel, LTL, truckload and warehousing costs.
If you are trying to make a decision on outsourcing part of your business, there is data that is going to help you with those decisions. If you do not have access to that data – or if you cannot get it quickly, you are with the wrong partner.
Outsourcing Must-Have No. 3: Agility
Look back at the first half of 2020. How many supply chains were turned upside down? Right or wrong, so many risks for the future have emerged.
For example, what happens if, culturally, we decide not to continue doing business with China? What if a big portion of your market does not want to buy from a company that sources from China?
With strategic alignment to your business and operational agility, your partner has the ability to anticipate market changes and provide a response plan that mitigates any emerging threats to your profitability.
Whether achieved through their own technology stack or internal alignment, your partner needs to have the flexibility to adjust as your business changes.
Look at the retail world. In the early stages of COVID-19, every retail store closed apart from the essentials. That spurred panic for organizations still trying to figure out ways to sell products. It forced the traditional retail model further toward e-commerce.
Companies that have really thought about their supply chain were able to begin using their retail footprint to fulfill from stores. Ship-from-store strategies kept inventory moving without requiring moves from distribution centers scattered throughout the country.
That helped Levi Strauss expand its e-commerce business 25 percent during its second quarter, including a 79 percent uptick in May. About one-third of that online demand was fulfilled by stores. Doing that requires a massive change. If you do not have the internal resources of Levis, you need a partner that can support you.
Outsourcing Must-Have No. 4: Expertise
Global networks are complex, Technology is changing rapidly. Your supply chain drives many moving parts across your business. A world-class partner should provide expertise in managing each of these dynamics – in addition to its core executable value.
What does that mean? You need a partner that is delivering expertise around technology, process, innovation and their experiences in other industries.
If you are in a monitored outsourcing model focused simply on tactical execution, expertise has limited value.
However, if you are looking for a truly strategic, orchestrated relationship with a partner, expertise keeps your company moving forward in a disruption-filled marketplace.
What Sets Your Partner Apart?
If you have a responsive partner that is agile, flexible and able to deliver visibility and a deep bench of experience – hold on to it. These are prerequisite traits for a successful service relationship.
It also helps to know some of the traits that set a logistics provider apart in the marketplace. Three capabilities really elevate the performance of your entire supply chain. We detail these qualities during “The Logistics Dilemma: Insource vs Outsource.”
Watch the webinar today. Hear real world scenarios where our clients have realized elevated value from:
Your organization works every day to fulfill strategies focused on meeting the needs of your customers – and deliver additional value along the way. If your partner does not have alignment to and understand your strategy, how can you expect them to align and create more value for you?
Digging deeper into outsourcing options, the situation gets a little more gray – especially in the complex supply chain and transportation management environment where so many aspects of your business can be affected by diverse nodes across your network.
If you are reading this blog, you probably know what is involved with insourcing your supply chain management. Let’s explore three approaches to outsourcing. The model that best fits your business depends on your goals.
Complete, Monitored Control
If complete in-house operational management is at one end of the spectrum, monitored outsourcing is on the opposite end. This is the throw-it-over-the-wall type of outsourcing.
That’s the original equipment manufacturer that says, “Hey, I need to make this widget. Here are the specs. This is how many we need. This is when we need them.”
You might examine activity once a quarter, once every six months, maybe only once a year. If something breaks, it is very hands-off.
A lot of times in logistics management, there’s not a lot of differentiation in that monitored outsourcing. A lot of times, it is going to cost a lot less and yield a lot less added value. In this scenario, you don’t have the management resources or the people you need it to manage a business function, so you put that completely on your service provider.
With an insourcing environment, you have complete control, but you also face the most cost in the staffing of expertise, technology resources and all those strategic drivers in your supply chain performance.
In an orchestrated outsourcing approach you relinquish a measured amount of activity.
A lot of 3PL relationships today operate in an orchestrated model. You are relying on a 3PL, maybe it’s a broker that executes shipments, but you are still managing them. You have staff assigned to oversee their performance, track those shipments and make sure that 3PL is doing the things they need to do.
There is a lot more review, a lot more interaction, and of course, you are still driving that strategy piece.
You can often realize the most benefit through a hybrid approach. Here, you outsource key functions and access expertise-driven intelligence that supports ongoing improvement. You give up a measured amount of control, but develop a strategic trust that can help you determine service adjustments as business demands change.
In a hybrid approach, our logistics experts might be on site with you, right in there operating in your supply chain. As things change, minute-by-minute, hour-by-hour, day-by-day, as your partner, we are there ready to pivot our objectives as well.
This creates a strong strategic alignment, and it allows for a lot of trust and transparency. We operate as your logistics department, utilizing performance monitoring processes that help you hold our team more accountable for results.
What Outsourcing Approach is Best for Your Business?
Understanding your company‘s internal people, process innovation, technology, and culture helps you decide whether to insource or pursue orchestrated, hybrid or monitored outsourcing.
You can start with one model and adjust with emerging change – in business strategy, human resources, marketing or supply chain disruption. The challenge is, as we saw in the first half of 2020, things are changing at a pace we have never experienced before.