Creating a More Stable Environment for Navigating Demand and Rate Changes Using Transportation Optimization

There’s certainly no shortage of articles attempting to answer the question, “Will rates go up or down next year?” Depending on who is asked, the answers are yes, no or maybe. Is it any wonder? Some of the variables include:

  • According to the Cass Truckload Linehaul Index, which looks at where rates have been and where they’re going, the industry has experienced eight consecutive months of price declines. This is credited to “softer demand.”
  • Retailer earnings and same-store sales are flat or falling, but e-commerce sales, as a proportion of all retail sales, continue to rise.
  • Carriers are reducing fleet sizes and ordering fewer trucks, according to this Wall Street Journal article. In fact, orders have not fallen this low since the post-recession numbers of 2009 and 2010.
  • On the regulatory front, parts of the 34-hour-restart rule have been suspended. The suspension was a goal of the American Trucking Association (ATA).
  • Key provisions of the Electronic Logging Devices (ELD) mandate go into effect next year. In a Logistics Management article, Brad Delco, an analyst with the investment bank Stephens, Inc., adds that, “The ELD mandate [is] expected to reduce capacity by up to 10% in utilization and will have a positive impact on supply/demand dynamics for the entire TL industry, which could be in addition to supply correction that is occurring with weak equipment orders.”

As one can see, some of the above items will place upward pressure on rates, while others have the potential to cause rates to remain stable or to fall. With transportation being one of the highest supply chain costs—this study pegs it as 42% of total logistics costs, on average—the transportation decisions a company makes can impact all aspects of its business, from customer satisfaction to product availability to general profitability.

Creating an Environment to Evaluate Options in Uncertain Times
A sophisticated transportation management system (TMS) can help companies overcome the challenges of modern shipping. Transportation modeling technology can help shippers evaluate the effects of uncertainty and variability in their networks. In this way, they can effectively manage logistics across an entire, dispersed ecosystem. Modeling helps users to understand and prepare for the impact of any potential changes before they are operationalized. These changes can range from expanding networks to carrier flux or even to growing businesses, all of which require adjustments to logistics.

Test Assumptions
Essentially, shippers can model what their network might look like, allowing them to prepare and deploy resources as needed. An additional benefit of transportation modeling technology is that it enables companies to modify approaches to account for different shipping scenarios. Companies can then create models and review results through a user interface that includes maps and other graphical reporting. Additionally, various scenarios can be managed all at once, in order to quantify both results and the impact of change.

Transportation Modeling Informs Business Strategy
There are a number of benefits that can be realized by incorporating transportation modeling into a TMS strategy.

  • Determine which distribution centers should service which stores for which specific products, especially in large networks, in order to optimize time, fuel and resources.
  • Create the most productive delivery schedule for fleets, taking into account factors such as opened and closed stores, route disruptions and seasonal issues.
  • Factor in delivery window optimization, determining the best time for product delivery based on store hours, traffic and other variables.

These examples represent only a few of the benefits of transportation modeling. The challenges of managing an international transportation system that spans continents, cultures, languages and laws are daunting and require the assistance of advanced technology.

The Long View
Driver shortages, changing regulations, fuel costs, global security concerns and the logistics challenges that a geographically dispersed transportation network faces can create complications. In turn, managers must be prepared to address them. The insight provided by TMS enables managers to handle the challenges that await drivers on the open road. Managers prepared and equipped by a TMS strategy elude the risk of significant service disruptions, missed deliveries and unhappy customers as a result.

Comments

  1. Hi,

    Thanks for this insightful article. I was wondering whether a TMS would be suitable for smaller firms with lower throughputs and network complexity. Is there any rule of thumb or specific criteria for considering investing in a TMS? Could you kindly clarify/explain?

    Regards
    Sunil

    • Hi Sunil,

      TMS or Transportation Execution solutions that lack optimization capabilities are absolutely applicable to small companies. New SaaS solutions are much more economical than old software license solutions. If you have enough shipments where loads could be consolidated or clever routing could save money, look at TMS. If not, look to transportation execution solutions.

      best, Steve

      • Hi Steve,

        Thanks a lot for your explanation. Yes, looking at new SaaS solutions would be far more economical.

        Regards
        Sunil