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.
Trust and transparency are words not normally associated with truckload pricing. Contracts between shippers, brokers, or third-party logistics service providers (3PLs) and carriers in the $700 billion-a-year business are difficult to enforce and routinely disregarded. Shippers often don't honor volume commitments and have been known to kick a carrier to the curb if they can get a lower price elsewhere. Carriers can be just as fair-weather, turning their wheels in another direction if more profitable loads come along, especially during weak pricing cycles. Shippers and their brokers are then forced to search carrier routing guides for alternative capacity. Failing that, they turn to the volatile non-contract, or spot, market, hoping to find trucks at prices they can live with.
Enter Craig Fuller, armed with terabytes of pricing data and an abiding faith in Adam Smith's "invisible hand" of the free market. By forming a company called TransRisk to trade futures contracts for spot truckload pricing, Fuller, part of the third generation of the Chattanooga, Tenn., family that founded truckload giant U.S. Xpress Enterprises Inc., hopes to establish a mechanism allowing participants to hedge the direction of spot rates and manage price risk. By doing so, they can protect their margins against sharp up and down moves in spot rates and the market's reactions to them, he said. Fuller plans to go live with the platform during mid- to late-2018.
The objective, Fuller said, is to inject honest dealing into what he called a "liar's poker" atmosphere, where bidding, bluffing, and deception are intertwined in a zero-sum game where one side gains at the expense of the other. TransRisk will let the marketplace determine prices, Fuller said. By creating an open, tradable market with transparent price discovery, shippers, brokers, and carriers "could be much more honest about their demand and capacity," he said in an interview. This will spawn better decision-making on all sides, he added.
The service was announced Oct. 27 in partnership with DAT Solutions LLC, a load-board provider that will provide pricing data across several high-density markets to form the basis for buy-and-sell decisions, and Nodal Exchange LLC, a derivatives exchange that clears trades and settles accounts in the electric power and natural gas industries.
HOW IT WORKS
The model works like this: Say a shipper has a contract rate of $1.25 cents a mile, but it needs additional capacity and is concerned spot rates to secure more tractor-trailers could climb to $1.50 a mile over the next six months. The shipper buys a futures contract to hedge its position. Should spot rates subsequently trade at the higher price, the shipper sells out at a profit and neutralizes its margin shrinkage due to the upward price spike.
Conversely, a carrier contracted to haul at $1.50 per mile but concerned spot rates could decline six months out could sell futures to lock in the higher price and reduce its downside risk. Of course, the shipper and carrier could lose if they bet wrong.
TransRisk makes its money on commissions collected from each transaction. Contracts will have durations of no more than a year. TransRisk will not book loads or manage trucks, and no physical delivery of a product will take place—a departure from other futures markets where a contract's holder takes delivery of the underlying commodity should the contract expire.
The platform will initially support just the dry van segment, the most commonly used trailer type. However, Fuller said he plans to expand the portfolio at some point to incorporate flatbed, refrigerated, and dry bulk truck transport. Cloud-based technology will underpin the trading activity, meaning participants need not invest in IT (information technology) capabilities, he added.
Trading in transport futures is not a new concept. In 2001, the International Maritime Exchange, an Oslo, Norway-based exchange for trading forward freight agreements, began trading tanker freight futures contracts. The next year, the exchange began trading dry cargo futures. Fuller said the market for spot truckload futures is potentially much larger than for maritime futures.
ALL IN THE TIMING
Fuller will launch his model amid an increasingly volatile climate for spot rates. A growing shortage of commercial truck drivers, the Dec. 18 deadline for electronic logging device (ELD) compliance, and a firming tone to overall freight demand will result in a considerable tightening in truckload capacity in 2018 and perhaps beyond, according to various experts. In an interview, Fuller said that a risk management tool like TransRisk couldn't come along at a more opportune time.
Spot rates this year have already put the hurt on shippers and brokers. The second quarter saw a sharp break between rising spot rates and flattish contract prices that squeezed brokers' margins. It didn't get easier for users in the third quarter as spot rates hit multiyear highs. Large blocks of capacity moved south to support the recovery efforts after hurricanes Harvey and Irma, and an improving U.S. economy and strong harvests in several regions left shippers with a lot of loads but not enough trucks. Truckload demand hit seven-year highs in September, with van demand seeing unusual strength, according to DAT data.
Fuller said the biggest risk to the model's success is that orders would be so large that counterparties—those on the other side of the trade—wouldn't have the liquidity to match them. Fuller estimates his market will require $50 million in monthly volume in order to function in an orderly fashion. The need for significant capital means the platform will be dominated by companies with big loads and capacity at stake, according to Fuller. Smaller players like owner-operators and micro fleets need not apply because the cost wouldn't outweigh the benefits, he said.
TransRisk's fee is equal to 0.5 percent of the size of the contract, which Fuller contends is a small price for large players to pay for the chance to limit their exposure to spot market turbulence. Fuller said the platform works for participants expecting wide up or down movements in spot rates, not marginal ones. "It's not that people think prices are going up or not, it's the degree to which they do so that they are trying to [hedge against]," he said.
One broker who thinks TransRisk will attract and retain ample capital is Douglas Waggoner, chief executive officer of Chicago-based Echo Global Logistics Inc., one of the country's largest brokers. Speaking in October at an industry conference in Chicago, Waggoner called the concept a "a valid approach" to delivering adequate price discovery and said TransRisk should find "plenty of speculators who will provide liquidity."
The U.S., U.K., and Australia will strengthen supply chain resiliency by sharing data and taking joint actions under the terms of a pact signed last week, the three nations said.
The agreement creates a “Supply Chain Resilience Cooperation Group” designed to build resilience in priority supply chains and to enhance the members’ mutual ability to identify and address risks, threats, and disruptions, according to the U.K.’s Department for Business and Trade.
One of the top priorities for the new group is developing an early warning pilot focused on the telecommunications supply chain, which is essential for the three countries’ global, digitized economies, they said. By identifying and monitoring disruption risks to the telecommunications supply chain, this pilot will enhance all three countries’ knowledge of relevant vulnerabilities, criticality, and residual risks. It will also develop procedures for sharing this information and responding cooperatively to disruptions.
According to the U.S. Department of Homeland Security (DHS), the group chose that sector because telecommunications infrastructure is vital to the distribution of public safety information, emergency services, and the day to day lives of many citizens. For example, undersea fiberoptic cables carry over 95% of transoceanic data traffic without which smartphones, financial networks, and communications systems would cease to function reliably.
“The resilience of our critical supply chains is a homeland security and economic security imperative,” Secretary of Homeland Security Alejandro N. Mayorkas said in a release. “Collaboration with international partners allows us to anticipate and mitigate disruptions before they occur. Our new U.S.-U.K.-Australia Supply Chain Resilience Cooperation Group will help ensure that our communities continue to have the essential goods and services they need, when they need them.”
A new survey finds a disconnect in organizations’ approach to maintenance, repair, and operations (MRO), as specialists call for greater focus than executives are providing, according to a report from Verusen, a provider of inventory optimization software.
Nearly three-quarters (71%) of the 250 procurement and operations leaders surveyed think MRO procurement/operations should be treated as a strategic initiative for continuous improvement and a potential innovation source. However, just over half (58%) of respondents note that MRO procurement/operations are treated as strategic organizational initiatives.
That result comes from “Future Strategies for MRO Inventory Optimization,” a survey produced by Atlanta-based Verusen along with WBR Insights and ProcureCon MRO.
Balancing MRO working capital and risk has become increasingly important as large asset-intensive industries such as oil and gas, mining, energy and utilities, resources, and heavy manufacturing seek solutions to optimize their MRO inventories, spend, and risk with deeper intelligence. Roughly half of organizations need to take a risk-based approach, as the survey found that 46% of organizations do not include asset criticality (spare parts deemed the most critical to continuous operations) in their materials planning process.
“Rather than merely seeing the MRO function as a necessary project or cost, businesses now see it as a mission-critical deliverable, and companies are more apt to explore new methods and technologies, including AI, to enhance this capability and drive innovation,” Scott Matthews, CEO of Verusen, said in a release. “This is because improving MRO, while addressing asset criticality, delivers tangible results by removing risk and expense from procurement initiatives.”
Survey respondents expressed specific challenges with product data inconsistencies and inaccuracies from different systems and sources. A lack of standardized data formats and incomplete information hampers efficient inventory management. The problem is further compounded by the complexity of integrating legacy systems with modern data management, leading to fragmented/siloed data. Centralizing inventory management and optimizing procurement without standardized product data is especially challenging.
In fact, only 39% of survey respondents report full data uniformity across all materials, and many respondents do not regularly review asset criticality, which adds to the challenges.
Artificial intelligence (AI) tools can help users build “smart and responsive supply chains” by increasing workforce productivity, expanding visibility, accelerating processes, and prioritizing the next best action to drive results, according to business software vendor Oracle.
To help reach that goal, the Texas company last week released software upgrades including user experience (UX) enhancements to its Oracle Fusion Cloud Supply Chain & Manufacturing (SCM) suite.
“Organizations are under pressure to create efficient and resilient supply chains that can quickly adapt to economic conditions, control costs, and protect margins,” Chris Leone, executive vice president, Applications Development, Oracle, said in a release. “The latest enhancements to Oracle Cloud SCM help customers create a smarter, more responsive supply chain by enabling them to optimize planning and execution and improve the speed and accuracy of processes.”
According to Oracle, specific upgrades feature changes to its:
Production Supervisor Workbench, which helps organizations improve manufacturing performance by providing real-time insight into work orders and generative AI-powered shift reporting.
Maintenance Supervisor Workbench, which helps organizations increase productivity and reduce asset downtime by resolving maintenance issues faster.
Order Management Enhancements, which help organizations increase operational performance by enabling users to quickly create and find orders, take actions, and engage customers.
Product Lifecycle Management (PLM) Enhancements, which help organizations accelerate product development and go-to-market by enabling users to quickly find items and configure critical objects and navigation paths to meet business-critical priorities.
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.