This story first appeared in the Special Issue 2021 of}CSCMP’s Supply Chain Quarterly, a journal of thought leadership for the supply chain management profession and a sister publication to AGiLE Business Media’s DC Velocity.
If there is one industry where there is no normal, it’s trucking. An industry highlighted by constant disruption, it is regularly plagued by issues varying from regulations to new technology and from asset-management obstacles to labor shortages. As trucking prepares for the end of 2021 and heads into 2022, what constitutes normal is unknown, but we project continued challenges within a few key areas of this industry.
Both consumer behaviors and business habits tend to set the stage for upstream trucking challenges. Right now, these challenges are being shaped predominantly by the changing shopping preferences of modern-day consumers—who require everything from frequent purchases, such as groceries and clothes, to one-time purchases, such as furniture, to be delivered to their doorsteps and available immediately. This shift has exacerbated existing challenges, putting immense new pressures on the trucking industry and making driver retention, cost management, and technology key strategic considerations for all carriers. All of these factors have had an impact on the trucking industry and have caused a huge increase in the linehaul rates.
This trend is illustrated by recent results from the Cass Truckload Linehaul Index (see Exhibit 1), which has measured fluctuations in the per-mile truckload linehaul rates since its base year in 2005. The Index shows an upturn that started in June 2020, started spiking even further in early 2021, and is continuing to trend upwards. By April 2021, the Index hit an all-time high of 146.5, with a trajectory indicating that rates could continue to skyrocket.
As trucking prices increase, we believe that there are three pivotal areas within the industry that will determine the competitive landscape for carriers and will become the defining characteristics of 2021 and 2022: a challenging labor market; increasing focus on the “final mile”; and the need to adopt more real-time track-and-trace technology.
LABOR MARKET
While there is a shortage of truck drivers, the root of the existing challenge stems from retention. Nine out of ten drivers who start the year as a truck driver leave the industry by the end of the year.1 Driver turnover places constant strain on carriers, including the need for additional licensing, missing knowledge of specific routes or clients, and of course, training for new drivers. At the same time, the pandemic resulted in reduced commercial driver training and licensing, leading to a shortfall of nearly 200,000 drivers in 2021, which only served to exacerbate the problem.
But as with all business challenges, tension and scarcity have set the stage for innovation. New entrants to the market, such as Uber Freight or Instacart, are attempting to disrupt a long-standing cause of the driver retention problem: pay.
Historically, long-haul trucking incentives were based on a cents-per-mile compensation structure. Having a miles-driven pay structure as opposed to an hourly rate has created several issues. For example, in 2021, truck drivers averaged 56 cents for every mile driven. While this represents an increase of 4 cents per mile over 2016, that’s not enough of a raise to retain truck drivers in the long run. This is especially true as legislation around electronic logs and hours of service, which went fully live in 2017, have put a cap on the time available for a driver to make runs. Taken together, these factors mean that long-haul trucking is no longer a lucrative occupation for potential drivers.
Now new firms, as well as some companies with large in-house owned fleets, are changing driver compensation to improve retention by adding hourly rates, fixed salaries, bonuses, pay per load, and more.
FINAL-MILE INVESTMENT AND STRATEGY
The pandemic accelerated the already existing trend toward omnichannel retailing. Every product is now available to be delivered to a customer’s home at almost no additional surcharge. The increase in home delivery has placed pressure on market leaders in long-haul trucking to make acquisitions and investments within the last-mile space. Additionally traditional freight companies are facing competition from newer, more technology-based companies, like Uber Freight, which are making in-roads into the market.
However, the last-mile space is not an easy one to succeed in, as it does not offer the same revenue potential as the long-haul market. Even those leaders who thought they had a competitive advantage and an early lead within the final-mile segment have seen mixed results. They are tackling a new type of business that their legacy organizations are not structured to manage effectively. While the equipment and technology required for final-mile delivery market is the same as more traditional trucking, the dynamics are completely different—low- to no-entry barriers, fewer regulations, equipment flexibility, and lower insurance premiums. The home-delivery component of last mile adds another complicating factor into the mix: drivers now are in a consumer-facing customer service role, a completely different skill set than they’re used to. Trucking companies that have acquired smaller final-mile delivery companies have had to put in place new practices.
We forecast that several large carriers that have entered the final-mile marketplace will either separate the business or spin it off completely. At the same time, some experts think that those companies that started in the last-mile segment will begin pushing into long-haul, increasing competition with the major market players. Last mile will be a battleground area, not because it’s the most profitable for large carriers, but because they want to retain their position and market share across the entire trucking segment.
REAL-TIME TRACK AND TRACE
Pandemic-related shutdowns and bottlenecks during 2020 taught us that global supply chains are fragile and easily fractured. This realization continues into 2021, as we experience incidents such as the Suez Canal blockage in March 2021; port congestion; and shortages of key products, such as Covid vaccines and semiconductors. As a result of these disruptions, companies have grown even more focused on establishing resilient supply chains and providing real-time transparency to customers about the status of their orders.
Indeed, today’s consumers expect to have detailed information at their fingertips about their orders, and they have grown accustomed to receiving real-time updates and immediate delivery notifications. These factors are putting pressure on trucking companies to invest in technology and resources that can help them track and trace products in real time.
Market leaders have had macro track-and-trace capabilities and robust reporting tools for years, but the information from those tools is not necessarily readily available to customers. New tools that can help provide more immediate tracking and tracing range from bluetooth low-energy (BLE) sensors to cloud-based platforms, video monitoring, and machine learning.
In general, there is now a greater urgency to run a smarter fleet, which will help not only with tracking-and-tracing capabilities but also with predictive analytics. Smart fleets connected to analytics will allow trucking companies to deploy their fleet to where customers are and in a way that better meets their changing omnichannel networks.
LOOKING DOWN THE ROAD
It is safe to assume that the trucking industry will continue to be challenged by labor shortages, changing customer behaviors, and a need for enhanced technology and efficiency—as well as additional waves and variations of upheaval. While most trucking companies are not oblivious to these issues, only those that take the right steps and invest heavily to counter these factors will maintain or gain a competitive edge.
As we slowly come out of the pandemic and unemployment assistance begins to fade, available drivers and trucking capacity will increase again, and rates will likely stabilize somewhat. However, with the holiday season just around the corner, capacity will remain limited, leading to inflated rate levels into the end of 2021; rates may only drop and reach a stable level as we head into the first quarter of 2022.
Downstream, companies that depend heavily on the trucking industry for their supply chain will need to actively engage with their partner carriers to understand whether they need to redesign or diversify their distribution network. Shippers should set a clear strategy for each of their markets based on the total cost of service, profiles of their customers, and service level requirements. Market disruptions are going to be a constant, but these steps will ensure that trucking companies and their clients can stay ahead of their competitors by adopting a clearly defined strategy moving into 2022.
Notes:
1. “ATA report shows OTR driver turnover rate ‘held steady’ in Q4 of 2020,” The Trucker (March 31, 2021): https://www.thetrucker.com/trucking-news/business/ata-report-shows-otr-driver-turnover-rate-held-steady-in-q4-of-2020
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.