Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
There's a proverb that "there are no mistakes, just lessons." If that's the case, the less-than-truckload (LTL) sector has received a world-class education during the past five to six years.
After a terrible cycle that saw the LTL market shrink from more than $33 billion at the last peak (in 2006) to $25.2 billion at the recession's trough in 2009, carriers appear to have gotten their act together.
Market size has stabilized at about $30.6 billion, though that's still about 10 percent below its pre-recession high. Gone, at least for now, are the price wars that were largely designed to drive ailing YRC Worldwide Inc., the market leader at the time, out of business but ended up backfiring on the carriers that launched them. Volumes have returned as the economy has gradually improved, giving carriers the chance to restore sanity to their pricing and their bottom lines.
In addition, through network redesigns and tough operational pruning, carriers have sopped up a large amount of the excess capacity that plagued them through the downturn and in the early part of what has been a halting recovery.
"Capacity is now lined up pretty well with the needs of the market," said William J. Logue, president of FedEx Freight, the LTL unit of Memphis-based FedEx Corp. and the industry's largest player by revenue.
No carrier executive who survived the past six hellish years will get carried away with LTL's outlook. For them, just being able to string "LTL" and "stability" in the same sentence is an achievement.
"The industry is more focused and stable," said Logue. "The up-and-down swings are not there now."
"I'm a lot more comfortable with where we are today than where we were two years ago," said Jeff Rogers, president of YRC Freight, the long-haul unit of Overland Park, Kan.-based LTL carrier YRC Worldwide.
Rogers said pricing, while still competitive, is firm, stable, and consistent. "Everybody is being rational at this time," he added.
Old Dominion Freight Line Inc., considered by many to be the industry's best-run carrier, declined comment for this story. However, its executives were quoted in an analyst call to discuss first-quarter results as saying that pricing was "stable" and "good." Thomasville, NC-based Old Dominion did not cut its rates nearly as sharply as its rivals did during the downturn, a reflection of its pricing discipline and its already-strong financial position heading into the cycle.
Better days to come?
There may be further room for pricing improvement. According to an April 29 analysis from Morgan Stanley & Co., carrier margins can increase an additional 4 to 6 percent from current levels before they reach what would be considered normalized returns on invested capital. Provided a normal historical recovery takes hold, there is still opportunity for further pricing gains, according to the firm.
The firm noted that the margins of the most aggressive discounters during the down cycle, FedEx Freight and Con-way Freight, the LTL unit of Menlo Park, Calif.-based Con-way Inc., are still below the levels of the 2005 peak.
The Morgan Stanley analysis said improving economic fundamentals and an "oligopolistic industry structure"—10 carriers account for 73 percent of total industry revenue, by its estimate—"reinforce an already weak incentive to discount" among the carriers and are "supportive of price discipline."
In the past two to three years, truckload and intermodal rates have been rising, while LTL prices have remained largely flat to down. The LTL sector is now benefiting from that trend, as intermodal and truckload shippers start turning to the segment to get better pricing.
David G. Ross, transport analyst for Stifel, Nicolaus & Co., said the continued tightening of truckload capacity in coming years could result in "overflow freight" that will add all-important traffic density on LTL routes. Ross said LTL yields—excluding the impact of fuel surcharges—should increase up to 5 percent in 2012 and predicted carriers would enjoy pricing power through 2014.
A rising tide is not lifting every boat, however. ABF Freight System, the LTL unit of Fort Smith, Ark.-based Arkansas Best Corp., has, like its competitors, increased its rates. However, analysts said the resultant tonnage losses have put a unique hurt on ABF's network utilization because as one of only two unionized LTL carriers, it has the industry's highest cost structure. The company said that first-quarter 2012 tonnage fell 12.5 percent from the 2011 period, and the burdens of a high cost structure and unfavorable tax rates resulted in a higher-than-expected $18.2 million quarterly loss.
YRC, the other unionized carrier and one that faced insolvency in late 2009, has in recent years won a series of controversial cost concessions from the Teamsters union as a trade-off for its survival. ABF had sought similar givebacks from the Teamsters but didn't get them. It has also sued YRC and the union on grounds their pacts fell outside the national agreement governing labor relations with both carriers and are thus illegal. ABF declined comment for this story.
Flak over 'FAK'
Despite the marked improvement, LTL carriers still face two big structural problems. The first is that large shippers continue to use their volume clout to beat back attempts at rate increases; the second is that carriers regularly misprice "Freight All Kinds" (FAK) shipments tendered to them. As a result, carriers undercharge for shipments that weigh more than they realize, allowing shippers to pay lower rates than they should. Because of those two issues, pricing is "still not where it needs to be" to enable carriers to earn their cost of capital, said Ross.
Rogers of YRC Freight said the issue of FAK mispricing has been around for years but has become more prevalent with the increasing influence of third-party logistics service companies (3PLs), which tender a large percentage of loads that generate FAK rates. He said YRC tries to avoid 3PLs that are just "price shoppers" and works instead with those intermediaries "who bring us new business and take cost out of our pricing structure."
Logue of FedEx Freight said the sector needs to move away from "classification" pricing, where rates are determined by the characteristics of commodity classes, to a more simplified structure based on shipment distances, or "zones," and density. The latter approach, long used by FedEx's core parcel customers, would be a "game-changer" for LTL if adopted, Logue said. He added, though, that such a move would likely be a long and complex transition for shippers and carriers.
Satish Jindel, president of Pittsburgh-based consultancy SJ Consulting, said at a recent industry conference that the current classification rate structure "creates no incentive for shippers to adopt good pricing practices." Many LTL users have enjoyed a pricing windfall over the past 30 years, and the flip side of that can be found in the paltry increase in carrier yields, Jindel noted.
In 2011, LTL rates per hundredweight—the most commonly used barometer to measure carrier yields—stood at $16.71, according to SJ Consulting data. In 1983, they were at $14.08 per hundredweight. The annualized 0.6-percent gain has been dwarfed by the annualized 2.6-percent rise in the cost of labor and trucks, SJ data shows.
Slow road to recovery
As an example of the pricing needs of one carrier, YRC's rates would have to rise about 8 percent above where they are today to restore and maintain consistent profitability, according to Charles W. Clowdis Jr., a trucking executive for decades and now head of transportation advisory services for the consultancy IHS Global Insight.
Rogers of YRC Freight said an 8-percent across-the-board increase "is not going to happen" given current market conditions, though on some lane segments the carrier is securing increases higher than that. A key challenge facing YRC is that its customer mix is tilted more heavily toward high-volume corporate business than the company wants. Rogers said, however, that he's more comfortable than he's been in years asking large accounts for rate hikes. In the meantime, YRC continues to go after non-corporate accounts that would command higher prices for its services, he said.
Rogers said the carrier doesn't "need an 8-percent increase" to be consistently profitable and viable. He said, "getting to where we need to be will not be based on price."
The LTL industry, which lives and dies on freight density and network efficiency, knows that pricing actions alone won't return it to sustained profitability. The housing industry, which played a big part in LTL's performance until its own meltdown in 2007, remains unsteady. Without much future contribution from housing, Ross expects LTL tonnage to grow just 1 to 2.5 percent annually this year and next. Even a modest 2- to 3-percent increase in 2014 would depend on at least a moderate housing recovery, he added.
Ross said he does "not believe carriers should rely on pricing alone to restore necessary margins, as network efficiency and cost control remain highly important."
Warehouse automation vendor Locus Robotics marked the grand opening of its global headquarters facility in Wilmington, Mass., this week.
The state-of-the-art, 157,000 square-foot Locus Park facility “serves as the nexus for hundreds of Locus employees driving the company's mission to revolutionize global supply chains through advanced robotics solutions,” the company said in a statement Thursday.
The new headquarters boasts an expansive research and development, testing, and engineering space, and is home base to the firm’s nearly 200 New England area employees. The facility also handles all robotics manufacturing, shipping, and administration functions.
“Locus Park represents our commitment to innovation and our confidence in the future,” company CEO Rick Faulk said in the statement. “It's a launchpad for the next generation of robotics and AI solutions that will redefine warehouse efficiency and empower workforces worldwide. As we stand at the forefront of industrial automation, we're not just leading the industry but transforming it.”
Alongside the grand opening, Locus also celebrated surpassing four billion units picked across its customer deployments around the world.
Business leaders in the manufacturing and transportation sectors will increasingly turn to technology in 2025 to adapt to developments in a tricky economic environment, according to a report from Forrester.
That approach is needed because companies in asset-intensive industries like manufacturing and transportation quickly feel the pain when energy prices rise, raw materials are harder to access, or borrowing money for capital projects becomes more expensive, according to researcher Paul Miller, vice president and principal analyst at Forrester.
And all of those conditions arose in 2024, forcing leaders to focus even more than usual on managing costs and improving efficiency. Forrester’s latest forecast doesn’t anticipate any dramatic improvement in the global macroeconomic situation in 2025, but it does anticipate several ways that companies will adapt.
For 2025, Forrester predicts that:
over 25% of big last-mile service and delivery fleets in Europe will be electric. Across the continent, parcel delivery firms, utility companies, and local governments operating large fleets of small vans over relatively short distances see electrification as an opportunity to manage costs while lowering carbon emissions.
less than 5% of the robots entering factories and warehouses will walk. While industry coverage often focuses on two-legged robots, Forrester says the compelling use cases for those legs are less common — or obvious — than supporters suggest. The report says that those robots have a wow factor, but they may not have the best form factor for addressing industry’s dull, dirty, and dangerous tasks.
carmakers will make significant cuts to their digital divisions, admitting defeat after the industry invested billions of dollars in recent years to build the capability to design the connected and digital features installed in modern vehicles. Instead, the future of mobility will be underpinned by ecosystems of various technology providers, not necessarily reliant on the same large automaker that made the car itself.
This story first appeared in the September/October issue of Supply Chain Xchange, a journal of thought leadership for the supply chain management profession and a sister publication to AGiLE Business Media & Events’' DC Velocity.
For the trucking industry, operational costs have become the most urgent issue of 2024, even more so than issues around driver shortages and driver retention. That’s because while demand has dropped and rates have plummeted, costs have risen significantly since 2022.
As reported by the American Transportation Research Institute (ATRI), every cost element has increased over the past two years, including diesel prices, insurance premiums, driver rates, and trailer and truck payments. Operating costs increased beyond $2.00 per mile for the first time ever in 2022. This trend continued in 2023, with the total marginal cost of operating a truck rising to $2.27 per mile, marking a new record-high cost. At the same time, the average spot rate for a dry van was $2.02 per mile, meaning that trucking companies would lose $0.25 per mile to haul a dry van load at spot rates.
These high costs have placed a significant burden on the operations of trucking companies, challenging their financial sustainability over the last two years. As a result, 2023 saw approximately 8,000 brokers and 88,000 trucking companies cease operations, including some marquee names, such as Yellow Corp. and Convoy, and decades-long businesses, such as Matheson Trucking and Arnold Transportation Services.
More so than ever before, trucking companies need to get better at efficiently using their assets and reducing operational costs. So, what is a trucking company to do? Technology is the answer! Given the nature of the problem, technology-led innovation will be critical to ensure companies can balance rising costs through efficient operations.
One technology that could be the answer to many of the trucking industry’s issues is the concept of digital twins. A digital twin is a virtual model of a real system and simulates the physical state and behavior of the real system. As the physical system changes state, the digital twin keeps up with the real-world changes and provides predictive and decision-making capabilities built on top of the digital model.
DHL, in a 2023 white paper, suggests that—due to the maturation of technologies such as the internet of things (IoT), cloud computing, artificial intelligence (AI), advanced software engineering paradigms, and virtual reality—digital twins have “come of age” and are now viable across multiple sectors, including transportation. We agree with this assessment and believe that digital twins are essential to radically improving the processes of fleet planning and dispatch.
THE NEED TO AUTOMATE
Outside of attaining procurement efficiencies, trucking companies can achieve lower costs by focusing on critical operational levers such as minimizing deadheads, reducing driver dwell time, and maximizing driver and asset utilization.
However, manual methods of planning and dispatch cannot optimally balance these levers to achieve efficiency and cost control. Even when planners work very hard and owners strive to improve processes, optimizing fleet planning is not a problem humans can solve routinely. Planning is a computationally intensive activity. To achieve fleet-level efficiencies, the planner has to consider all possible truck-to-load combinations in real time and solve for many operational constraints such as drivers’ hours of service, customer windows, and driver home time, to name just a few. These computations become even more complex when you add in the dynamic nature of real-world conditions such as trucks getting stuck in traffic or breaking down or orders getting delayed. This is not a task humans do best! For these sorts of tasks, technology has the upper hand.
When a company creates a digital twin of its trucking network, it has a real-time model that factors in truck locations, drivers’ hours of service, and loads being executed and planned. Planners can then use this digital model to assess possible decisions and select ones that increase asset utilization, improve customer and driver satisfaction, and lower costs.
For example, a digital twin of the network can offer significant insights and analysis on the state of the network, including exceptions such as delayed pickups and deliveries, unassigned loads, and trucks needing assignments. Backed by AI that takes business rules into account, digital twins can allow companies to optimize their fleet performance by finding the most efficient load assignments and dynamically adjusting in real time to changes in traffic patterns and weather, customer delays, truck issues, and so on.
With a digital twin, carriers can optimize the matching of assets, drivers, and freight. Typically, an investment in this innovative technology results in a 20%+ increase in productive miles per truck, while also improving driver pay and significantly decreasing driver churn. Drivers get paid by the miles they run, so when they run more, they are able to make more money, resulting in less need to chase the next job in search of better pay.
ADDITIONAL BENEFITS
Digital twins also combat deadheading, another source of driver dissatisfaction and cost inefficiencies. On average, over-the-road drivers spend 17%–20% of road miles driving empty. Using a digital twin, a company can search across several freight sources to find a load that perfectly matches the deadhead leg without impacting downstream commitments. These additional revenue miles will help drivers to maximize their earnings on the road and carriers to maximize their asset utilization and profitability.
The traditional manual dispatch planning model is becoming increasingly outdated—each planner and fleet manager tasked with overseeing 30 to 40 vehicles. Carriers try to manage this problem by dividing the fleet into manageable chunks, which results in cross-fleet inefficiencies. Such a system isn’t scalable. A digital twin acts as an equalizer for small and mid-sized fleets. It enables carriers to expand by venturing beyond the fixed routes and network they were forced to run out of fear of additional logistical complexity.
A digital twin can also give an organization the transparency and visibility it needs to find and fix inefficiencies. A successful carrier will leverage the technology to learn from the hitches in its operations. While this visibility is beneficial in its own right, it also provides the first step toward a seamless, digitized operation. “Digital revolution” is a buzzword frequently heard at transportation conferences. Yet not too many organizations are dedicated to digitizing their operations past the visibility stage. The end goal should be using decision-support systems to automate key elements of the system, thus freeing up planners from their daily rote tasks to focus on problems that only humans can solve.
Finally incorporating a digital twin can also help trucking companies work toward the broader trend of creating greener supply chains. Because they have lower deadhead and dwell times, trucking companies that have adopted a digital twin can be more attractive to shippers that are looking for more efficient operations that meet their environmental, social, and governance (ESG) goals.
THE FUTURE IS HERE
It is important to note that the benefits described here are not dreams for the future; digital twin technology is already here. In fact, choosing a digital twin can seem daunting because there are already a spectrum of options out there. First and foremost, an organization must ensure that the digital twin it selects aligns with both the goals and the scope of its operation.
Additionally, the ideal digital twin should:
Operate in near real time. A digital twin should be able to refresh as often as the network changes.
Be able to factor in specific customer delivery requirements as well as asset- and operator-specific constraints.
Be computationally efficient and comprehensive as it considers thousands of permutations in milliseconds. The digital twin should be able to reoptimize an entire fleet’s schedule of multi-day routes on the fly.
Before implementing a digital twin, carriers need to make sure that they have robust data management processes in place. Electronic logging devices (ELDs), customers’ tenders, billing, shipments, and so on are already inundating carriers with a glut of data. However, the manual nature of operations in many carriers leads to poor data quality. Carriers will need to invest in data management approaches to improve data quality to support the generation and use of high-fidelity digital twins. Otherwise, the digital twin will not be representative of reality and companies will run into an issue of “garbage in, garbage out.”
REINVENTION AND TRANSFORMATION
While data management is critical, change management through the ranks of dispatch operations is often a harder task. In fact, the largest roadblock carriers face when undergoing a digital transformation is the lack of willingness to change, not the technology itself. Many carriers cling to outmoded planning methods. Planners, used to operating based on well-worn business rules and tribal knowledge, could be wary of the technology and resistant to change. They may need to be assured that, while it is true that every trucking network is uniquely complex, digital twins can be set up to model the intricacies of their specific dispatch operations and drive value to the network. A significant amount of time and resources will need to be expended on change management. Otherwise even though trucking companies may invest in cutting-edge technology, they won't be able to fully capitalize on the added value it can provide.
As the truckload industry works through the current freight cycle, it is important to realize that change is inevitable. Carriers will need to reinvent their operations and invest in technologies to ride through the busts and booms of future freight cycles. Recent global events point to the many ways that wrenches can be thrown into global transportation networks, and the fact that such volatility is here to stay. Digital twins can provide companies with the visibility to navigate such changes. But above all, an operation that uses the digital twin to drive decisions can make customers and drivers happy, and help the carriers keep their heads above water during times such as now.
Regular online readers of DC Velocity and Supply Chain Xchange have probably noticed something new during the past few weeks. Our team has been working for months to produce shiny new websites that allow you to find the supply chain news and stories you need more easily.
It is always good for a media brand to undergo a refresh every once in a while. We certainly are not alone in retooling our websites; most of you likely go through that rather complex process every few years. But this was more than just your average refresh. We did it to take advantage of the most recent developments in artificial intelligence (AI).
Most of the AI work will take place behind the scenes. We will not, for instance, use AI to generate our stories. Those will still be written by our award-winning editorial team (I realize I’m biased, but I believe them to be the best in the business). Instead, we will be applying AI to things like graphics, search functions, and prioritizing relevant stories to make it easier for you to find the information you need along with related content.
We have also redesigned the websites’ layouts to make it quick and easy to find articles on specific topics. For example, content on DC Velocity’s new site is divided into five categories: material handling, robotics, transportation, technology, and supply chain services. We also offer a robust video section, including case histories, webcasts, and executive interviews, plus our weekly podcasts.
Over on the Supply Chain Xchange site, we have organized articles into categories that align with the traditional five phases of supply chain management: plan, procure, produce, move, and store. Plus, we added a “tech” category just to round it off. You can also find links to our videos, newsletters, podcasts, webcasts, blogs, and much more on the site.
Our mobile-app users will also notice some enhancements. An increasing number of you are receiving your daily supply chain news on your phones and tablets, so we have revamped our sites for optimal performance on those devices. For instance, you’ll find that related stories will appear right after the article you’re reading in case you want to delve further into the topic.
However you view us, you will find snappier headlines, more graphics and illustrations, and sites that are easier to navigate.
I would personally like to thank our management, IT department, and editors for their work in making this transition a reality. In our more than 20 years as a media company, this is our largest expansion into digital yet.
We hope you enjoy the experience.
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In this chart, the red and green bars represent Trucking Conditions Index for 2024. The blue line represents the Trucking Conditions Index for 2023. The index shows that while business conditions for trucking companies improved in August of 2024 versus July of 2024, they are still overall negative.
FTR’s Trucking Conditions Index improved in August to -1.39 from the reading of -5.59 in July. The Bloomington, Indiana-based firm forecasts that its TCI readings will remain mostly negative-to-neutral through the beginning of 2025.
“Trucking is en route to more favorable conditions next year, but the road remains bumpy as both freight volume and capacity utilization are still soft, keeping rates weak. Our forecasts continue to show the truck freight market starting to favor carriers modestly before the second quarter of next year,” Avery Vise, FTR’s vice president of trucking, said in a release.
The TCI tracks the changes representing five major conditions in the U.S. truck market: freight volumes, freight rates, fleet capacity, fuel prices, and financing costs. Combined into a single index, a positive score represents good, optimistic conditions, and a negative score shows the opposite.