Bad weather, tight capacity made for soaring costs and tense times for the trucking industry in the first quarter. Was this an anomaly or the shape of things to come?
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.
On a balmy Florida morning in mid-April, Gail Rutkowski, executive director of the shipper group NASSTRAC, took the microphone at her organization's annual conference and proceeded to give a couple of service providers an earful.
Freight brokers, Rutkowski said, are eager to negotiate rates with shippers yet are willing to break their contractual commitments should capacity tighten and a truck is no longer available at the predetermined rate. Brokers and their carriers want the stability of committed volumes at negotiated rates, yet carriers also want the freedom to reposition their assets should circumstances dictate, said Rutkowski, a 40-year industry veteran. "You can't have it both ways," she told broker executives in a NASSTRAC panel session aptly titled "Ten Things I Hate About You: An In-Depth Look at the Shipper/Broker/Carrier Relationship."
Rutkowski verbalized the frustrations of shippers reeling from one of the most brutal quarters in U.S. transportation history. Terrible weather in huge swaths of the country during January, February, and early March kept many trucks off the road for extended stretches. Rail intermodal networks were hammered, which had the dual effect of denying truck shippers access to an alternate transport mode and forcing traditional intermodal users onto the highways. Smaller truckers picked up some of the slack, but they too were prone to shift assets to the spot market to capture higher rates.
With their contracted truck services often unavailable, shippers were left to the mercies of the spot market. Not surprisingly, they paid dearly for space. Spot rates for dry van services—the most common type of truckload transportation—climbed to between $1.95 and $2.09 a mile during the quarter (including fuel surcharges), according to DAT, a consultancy that tracks the market. The firm's load-to-truck ratio, which measures the ratio of loads to available trucks, doubled from the levels of two years before, a reflection of far more demand than supply.
Market participants accustomed to short-term surges normally due to a natural disaster were stunned by the cycle's longevity. "It was remarkable, almost like a once-in-a-lifetime experience," said Kerry R. Byrne, executive vice president of Total Quality Logistics (TQL), a Cincinnati-based broker.
Spot rates have remained high into the summer as the trucking supply chain moved through its seasonally strong period, an improving economy stimulated freight demand, and some third-quarter orders were pulled forward into the second quarter ahead of a possible work stoppage at West Coast ports. Dry van rates averaged $2.08 a mile (including fuel surcharges) during June, according to DAT data. Rates for flatbed and refrigerated transport soared as the market struggled with seasonally high demand for construction equipment and produce.
In a mid-July interview, Rutkowski stood by her pronouncements at the NASSTRAC conference. "During [the first quarter], shippers experienced brokers—and to a lesser extent, carriers—refusing to honor contracted pricing and forcing shippers to pay much higher spot rates to move their freight," Rutkowski said. The behavior "caused a lot of bad blood between shippers, brokers, and carriers," she noted. Rutkowski added that the hostility has abated somewhat since then and that shippers have become more "carrier friendly" when crafting requests for proposals. She didn't elaborate.
For their part, broker executives on the NASSTRAC panel said they were caught in much the same first-quarter maelstrom as their customers. "The capacity crunch was greater than any of us could have planned for," said Eric McGee, senior vice president of transportation for J.B. Hunt Transport Services Inc., the diversified truckload giant that has a fast-growing brokerage operation. McGee said Hunt's truckers were charging rates that were up "double-digits" from a year ago. McGee added that Hunt never intends to leave its shippers hanging. "In normal circumstances, we are committed to our customers to honor what we signed up for," he said.
Rob Kemp, president and founder of DRT Transportation LLC, a broker with about $65 million in annual sales, said the situation was so bad in the first quarter that loads would not get moved even if they could fetch much more than the contracted rate. Kemp said that DRT honors its contractual commitments to the point that it will lose money on the load rather than turn it away. "I looked at our book of business the other day, and about 8 percent of the loads on our board lost money," he told the audience.
MORE THAN MOTHER NATURE
No one doubts that weather conditions played a major role in the first-quarter nightmare. The storms were as widespread and prolonged as they were fierce. Yet every first quarter spells weather problems for the U.S. freight network. What made this year different? First off, the elements amplified an already-strained market for carrier supply. The industry entered 2014 facing a well-documented shortage of drivers as well as the reluctance of carriers to add equipment in the face of escalating costs and the lack of a sustained pickup in demand. An increase in the number of trucking company failures hasn't helped; an estimated 390 companies and 10,650 trucks left the road in the first quarter, according to Avondale Partners, an investment firm; in 2013's second quarter, 205 companies and 4,745 trucks exited the market, the firm said.
Over the past four quarters through this June, about 3 percent of the nation's for-hire fleet and between 10 and 15 percent of spot market capacity left the market, according to the Avondale study. The rise in trucking failures comes as freight volumes increase, a phenomenon that Donald Broughton, an Avondale managing partner who oversees the report, said he's never seen in examining data from the past quarter century.
Carriers also began the year coping with reduced productivity due to the Federal Motor Carrier Safety Administration's new regulations governing a driver's hours of service. The rules, which were enforced in July 2013, reduced a driver's workweek and changed drivers' rest cycles. According to most estimates, they have shaved between 3 and 5 percent off a typical carrier's available asset utilization. Peggy Dorf, an analyst at DAT, said the network had trouble this past winter adjusting to its first cold-weather cycle under the rules. She said the rules should have less of an impact next winter because the industry now has a year of experience working with them.
The growing influence of freight brokers has become a key factor in driving up demand for and cost of space. According to a recent survey of large shippers by Morgan Stanley & Co., 37 percent used six or more brokers in June, compared with 30 percent in June 2012. Shippers no doubt are using more brokers in hopes of increasing their chances of finding affordable capacity. However, this has resulted in a growing number of potential buyers chasing a declining pool of trucks. Rutkowski said she doesn't see this trend reversing any time soon.
Then there is old-fashioned capitalism. Like most free-marketers, truckers sought to "make hay while the sun shone," or, in this case, as the snow fell and the ice formed. With space at a premium and fat spot market rates beckoning, it would only be natural for carriers to migrate their assets to the spot market or to tell their users their contracted capacity would need to be repriced. "Why should I move freight for $1.35 a mile when I could get $2 a mile without any trouble?" said Charles W. Clowdis Jr., managing director, transportation, at IHS Economics, a unit of consultancy IHS Global Insight.
Shipper-carrier contracts generally contain language committing the carrier only if equipment is available, Clowdis said. This effectively gives the carrier an escape hatch to shift rigs and trailers to the spot market, and leave the contracted shipper in the lurch, he said.
WHAT DOES THE FUTURE HOLD?
The prolonged nature of the current cycle, and the seemingly secular trends behind it, will be on everyone's mind as the bidding process for peak-season business gets under way. Shippers have held the upper hand for most of the past eight years as a subpar economy and truck oversupply left carriers clamoring for business. That leverage is gone, and with it any thought of shippers' punishing their carriers for purportedly bad behavior in early 2014. "Shippers cannot afford to have a 'retribution' approach" anymore, said C. Thomas Barnes, president of Con-way Multimodal, which procures capacity for the Con-way companies as well as for other users.
Barnes said that justice is finally being served on those shippers who took advantage of the multiyear downturn starting in 2006 to play carriers off against each other in an effort to get the lowest price for their freight. "A lot of shippers misbehaved between 2007 and 2009," he said. Barnes noted that trucking executives have warned for years that shippers who stayed around during the bad times would be rewarded when the pendulum swung, while those who, in his words, "played the transactional game" could find themselves without wheels.
Meanwhile, truck users are doing what they can to protect themselves. Con-way Multimodal and truckload giant Werner Enterprises recently signed a three-year agreement for Werner to supply the Con-way operating companies with an adequate amount of assured capacity; the agreement is an extension of previous compacts between the two. Byrne said he is using TQL's technology to provide carriers with value-added benefits such as identifying backhaul opportunities on various lanes. And shippers that wouldn't have even thought of it in the past are now asking their carriers what they can do to make their freight more "carrier-friendly."
Clowdis of IHS said savvy shippers should see the turning of the worm and give carriers what they want most: more money. He added that in return for capacity assurance, shippers should offer to pay a 20-percent premium over the going rate. If the shipper's loads fall below the agreed-upon level, the shipper should compensate the carrier for the difference, he said.
"In this environment, that is what a wise shipper would do," he said.
Progress in generative AI (GenAI) is poised to impact business procurement processes through advancements in three areas—agentic reasoning, multimodality, and AI agents—according to Gartner Inc.
Those functions will redefine how procurement operates and significantly impact the agendas of chief procurement officers (CPOs). And 72% of procurement leaders are already prioritizing the integration of GenAI into their strategies, thus highlighting the recognition of its potential to drive significant improvements in efficiency and effectiveness, Gartner found in a survey conducted in July, 2024, with 258 global respondents.
Gartner defined the new functions as follows:
Agentic reasoning in GenAI allows for advanced decision-making processes that mimic human-like cognition. This capability will enable procurement functions to leverage GenAI to analyze complex scenarios and make informed decisions with greater accuracy and speed.
Multimodality refers to the ability of GenAI to process and integrate multiple forms of data, such as text, images, and audio. This will make GenAI more intuitively consumable to users and enhance procurement's ability to gather and analyze diverse information sources, leading to more comprehensive insights and better-informed strategies.
AI agents are autonomous systems that can perform tasks and make decisions on behalf of human operators. In procurement, these agents will automate procurement tasks and activities, freeing up human resources to focus on strategic initiatives, complex problem-solving and edge cases.
As CPOs look to maximize the value of GenAI in procurement, the study recommended three starting points: double down on data governance, develop and incorporate privacy standards into contracts, and increase procurement thresholds.
“These advancements will usher procurement into an era where the distance between ideas, insights, and actions will shorten rapidly,” Ryan Polk, senior director analyst in Gartner’s Supply Chain practice, said in a release. "Procurement leaders who build their foundation now through a focus on data quality, privacy and risk management have the potential to reap new levels of productivity and strategic value from the technology."
Businesses are cautiously optimistic as peak holiday shipping season draws near, with many anticipating year-over-year sales increases as they continue to battle challenging supply chain conditions.
That’s according to the DHL 2024 Peak Season Shipping Survey, released today by express shipping service provider DHL Express U.S. The company surveyed small and medium-sized enterprises (SMEs) to gauge their holiday business outlook compared to last year and found that a mix of optimism and “strategic caution” prevail ahead of this year’s peak.
Nearly half (48%) of the SMEs surveyed said they expect higher holiday sales compared to 2023, while 44% said they expect sales to remain on par with last year, and just 8% said they foresee a decline. Respondents said the main challenges to hitting those goals are supply chain problems (35%), inflation and fluctuating consumer demand (34%), staffing (16%), and inventory challenges (14%).
But respondents said they have strategies in place to tackle those issues. Many said they began preparing for holiday season earlier this year—with 45% saying they started planning in Q2 or earlier, up from 39% last year. Other strategies include expanding into international markets (35%) and leveraging holiday discounts (32%).
Sixty percent of respondents said they will prioritize personalized customer service as a way to enhance customer interactions and loyalty this year. Still others said they will invest in enhanced web and mobile experiences (23%) and eco-friendly practices (13%) to draw customers this holiday season.
That challenge is one of the reasons that fewer shoppers overall are satisfied with their shopping experiences lately, Lincolnshire, Illinois-based Zebra said in its “17th Annual Global Shopper Study.”th Annual Global Shopper Study.” While 85% of shoppers last year were satisfied with both the in-store and online experiences, only 81% in 2024 are satisfied with the in-store experience and just 79% with online shopping.
In response, most retailers (78%) say they are investing in technology tools that can help both frontline workers and those watching operations from behind the scenes to minimize theft and loss, Zebra said.
Just 38% of retailers currently use AI-based prescriptive analytics for loss prevention, but a much larger 50% say they plan to use it in the next 1-3 years. That was followed by self-checkout cameras and sensors (45%), computer vision (46%), and RFID tags and readers (42%) that are planned for use within the next three years, specifically for loss prevention.
Those strategies could help improve the brick and mortar shopping experience, since 78% of shoppers say it’s annoying when products are locked up or secured within cases. Adding to that frustration is that it’s hard to find an associate while shopping in stores these days, according to 70% of consumers. In response, some just walk out; one in five shoppers has left a store without getting what they needed because a retail associate wasn’t available to help, an increase over the past two years.
The survey also identified additional frustrations faced by retailers and associates:
challenges with offering easy options for click-and-collect or returns, despite high shopper demand for them
the struggle to confirm current inventory and pricing
lingering labor shortages and increasing loss incidents, even as shoppers return to stores
“Many retailers are laying the groundwork to build a modern store experience,” Matt Guiste, Global Retail Technology Strategist, Zebra Technologies, said in a release. “They are investing in mobile and intelligent automation technologies to help inform operational decisions and enable associates to do the things that keep shoppers happy.”
The survey was administered online by Azure Knowledge Corporation and included 4,200 adult shoppers (age 18+), decision-makers, and associates, who replied to questions about the topics of shopper experience, device and technology usage, and delivery and fulfillment in store and online.
An eight-year veteran of the Georgia company, Hakala will begin his new role on January 1, when the current CEO, Tero Peltomäki, will retire after a long and noteworthy career, continuing as a member of the board of directors, Cimcorp said.
According to Hakala, automation is an inevitable course in Cimcorp’s core sectors, and the company’s end-to-end capabilities will be crucial for clients’ success. In the past, both the tire and grocery retail industries have automated individual machines and parts of their operations. In recent years, automation has spread throughout the facilities, as companies want to be able to see their entire operation with one look, utilize analytics, optimize processes, and lead with data.
“Cimcorp has always grown by starting small in the new business segments. We’ve created one solution first, and as we’ve gained more knowledge of our clients’ challenges, we have been able to expand,” Hakala said in a release. “In every phase, we aim to bring our experience to the table and even challenge the client’s initial perspective. We are interested in what our client does and how it could be done better and more efficiently.”
Although many shoppers will
return to physical stores this holiday season, online shopping remains a driving force behind peak-season shipping challenges, especially when it comes to the last mile. Consumers still want fast, free shipping if they can get it—without any delays or disruptions to their holiday deliveries.
One disruptor that gets a lot of headlines this time of year is package theft—committed by so-called “porch pirates.” These are thieves who snatch parcels from front stairs, side porches, and driveways in neighborhoods across the country. The problem adds up to billions of dollars in stolen merchandise each year—not to mention headaches for shippers, parcel delivery companies, and, of course, consumers.
Given the scope of the problem, it’s no wonder online shoppers are worried about it—especially during holiday season. In its annual report on package theft trends, released in October, the
security-focused research and product review firm Security.org found that:
17% of Americans had a package stolen in the past three months, with the typical stolen parcel worth about $50. Some 44% said they’d had a package taken at some point in their life.
Package thieves poached more than $8 billion in merchandise over the past year.
18% of adults said they’d had a package stolen that contained a gift for someone else.
Ahead of the holiday season, 88% of adults said they were worried about theft of online purchases, with more than a quarter saying they were “extremely” or “very” concerned.
But it doesn’t have to be that way. There are some low-tech steps consumers can take to help guard against porch piracy along with some high-tech logistics-focused innovations in the pipeline that can protect deliveries in the last mile. First, some common-sense advice on avoiding package theft from the Security.org research:
Install a doorbell camera, which is a relatively low-cost deterrent.
Bring packages inside promptly or arrange to have them delivered to a secure location if no one will be at home.
Consider using click-and-collect options when possible.
If the retailer allows you to specify delivery-time windows, consider doing so to avoid having packages sit outside for extended periods.
These steps may sound basic, but they are by no means a given: Fewer than half of Americans consider the timing of deliveries, less than a third have a doorbell camera, and nearly one-fifth take no precautions to prevent package theft, according to the research.
Tech vendors are stepping up to help. One example is
Arrive AI, which develops smart mailboxes for last-mile delivery and pickup. The company says its Mailbox-as-a-Service (MaaS) platform will revolutionize the last mile by building a network of parcel-storage boxes that can be accessed by people, drones, or robots. In a nutshell: Packages are placed into a weatherproof box via drone, robot, driverless carrier, or traditional delivery method—and no one other than the rightful owner can access it.
Although the platform is still in development, the company already offers solutions for business clients looking to secure high-value deliveries and sensitive shipments. The health-care industry is one example: Arrive AI offers secure drone delivery of medical supplies, prescriptions, lab samples, and the like to hospitals and other health-care facilities. The platform provides real-time tracking, chain-of-custody controls, and theft-prevention features. Arrive is conducting short-term deployments between logistics companies and health-care partners now, according to a company spokesperson.
The MaaS solution has a pretty high cool factor. And the common-sense best practices just seem like solid advice. Maybe combining both is the key to a more secure last mile—during peak shipping season and throughout the year as well.