Leveraging Network Effects to Improve Managed Transportation

Jeff McDermott, the Sr. Vice President of Transportation at GEODIS, made the point in a conversation with me that there have been several new entrants providing managed transportation services. “Cloud-based transportation management systems (TMS) have lowered the barriers of entry in this field. But small players don’t have the economies of scale.” By economies of scale, Mr. McDermott is referring to network effects; being able to leverage visibility to large numbers of transportation moves and contracts to provide better service for their shipper customers. Jordan Kass, the President of Managed Services at C.H. Robinson TMC, added that this is also an advantage of managed transportation over TMS. Several other large 3PLs providing managed transportation services (MTS) made similar points to me in recent weeks.

Network visibility partially reflects the freight under management (FUM), the dollar amount of freight managed by an MTS provider on behalf of their shipper clients. But asset-based and brokerage-based MTS providers also have network visibility that includes their asset-based shipments or the transportation spend that flows through their brokerage network. For example, in an annual financial report submitted to the SEC, Ryder mentions $4.7 billion in “purchased and/or executed freight moves on our customers’ behalf.”

Finally, MTS providers that sell public cloud TMS have visibility to the transportation procured by their TMS clients. BluJay Solutions, for example, has $2 billion in freight under management, but they have visibility to an additional $37 billion in transportation spend from their TMS customers, parcel, and freight forwarding service lines.

Mr. Kass of C.H. Robinson TMC points out, that the “density of networks managed” matters too. If a billion dollar in FUM is based on several modes and industries, there are fewer network synergies than from a provider with a narrower focus. Vincent Chiodo, the Senior Vice President of Transportation Management at Transplace, agrees, but with a qualification. “If it is a type of trailer is widely used across industries, such as a 48 or 53 foot long dry box trailer, then the opportunities are greater to achieve network synergies based on FUM. In contrast, by having visibility into a billion dollars of FUM for bulk transport, a provider will need to be more product commodity and lane focused to achieve network opportunities across a provider’s ecosystem of customers.

The following table shows the FUM of a selection of leading MTS providers. There are other MTS providers with over a billion dollars in FUM I don’t yet have data on (I’m in the middle of a market study on this market).

Managed Transportation Service Provider Freight Under Management
BluJay Solutions $2.3 Billion
C.H. Robinson $5.4 Billion
GEODIS $1.2 Billion
Penske Logistics $4.3 Billion
Transplace $6.5 Billion
XPO Logistics $2.7 Billion

Several 3PLs explained that they could do better strategic procurement of carriers based upon the visibility of their transportation network. The MTS suppliers can look at shipper origin-destination pairs and how they are changing. Then they can look at the carrier moves, and destination points where carriers are delivering loads and may have empty backhauls. BluJay Solutions looks at the shipment destinations by day of week, carrier service levels, and tender acceptance rates. When they find a carrier that is a potential match on a lane, they also seek to leverage their visibility into the carrier’s performance on that lane. Tim Hinson, the Chief Operating Officer at BluJay Solutions, explained “We then say ‘Mr. Carrier, if you are OK with this, we’d like to share your KPIs (key performance indicators) with the shipper.’”

For large asset based carriers, they don’t need to make an educated guess whether there are backhaul opportunities at a destination. If it is their trucks, they know. They can than offer their assets to a shipper at a preferential rate and create a win/win if the shipper agrees to add them. Brokers, who also offer managed transportation services, can offer up carriers in their brokerage network in a similar manner.

Mr. Chiodo of Transplace agreed with me that network visibility creates opportunities to do collaborative shipments involving multiple shippers to a common destination. He also agreed that European shippers are further along in collaborative shipments than those in North America, but over the past few years, North American shippers have become more open to pursuing these types opportunities than ever before.

GEODIS has done a better job of cracking the code on coloading based upon an integrated offering – warehousing and managed transportation services. Mr. McDermott from GEODIS said that in their case, many of their consumer goods and food & beverage shippers use them for both managed transportation and warehousing. They may have several shippers transporting goods less-than-truckload (LTL) to the same Walmart or Target distribution center. Because their warehouse and transportation management systems are tightly integrated, because they have visibility to a large network of consumer goods moves, and because they run several warehouses in the same campus location that include many consumer goods clients, they can frequently consolidate LTL shipments into more economical truckload moves.

Mr. Hinson of BluJay Solutions explained the analytic advantages associated with network visibility. “When I was on the shipper side, managing a $500 million Profit & Loss operation, time was precious. If someone could provide insights into my operation, that was valuable.” That is what BluJay does with their network-based analytics. BluJay sells both function rich TMS – in a multitenant, public cloud architecture – and managed transportation. This spend allows for a variety of transportation benchmark analytics. BluJay’s TMS and MTS customers have access to BluDex. BluDex is an aggregation of shipper and carrier market transactions for dry van and refrigerated shipments across North America. BluDex tracks contract as well as spot markets, and improves procurement planning. The benchmarking is based on peer group shippers, “shippers with a similar spend and modes.” Mr. Hinson added that telling a shipper that “their tender acceptance rate is better than the market average is mildly interesting. But we follow that with ‘here is an opportunity to improve your performance.’”

Transplace, Mr. Chiodo explained, also does benchmark analytics based upon their network. “We do it in hubs to drive density. So a hub might not be a specific origin or destination, for example Peoria, IL, but rather from the Chicagoland area. We also benchmark rates, accessorials and fuel surcharges by vertical to allow our customers to compare their rates and charges against their industry vertical as well as outside their vertical.

Mr. Kass at C.H. Robinson TMC agrees that a network can provide analytic information. But in examining a carrier’s service level you need to recognize that “much of a carrier’s performance depends upon the customers they are serving.” If a carrier’s trucks are in an industry where trucks are commonly manually unloaded, turnaround times and on time delivery performance will be affected. In short, you start with benchmark metrics, but need to apply logic to those numbers.

In conclusion, the MTS market is becoming more crowded. But the largest players in the market point out that network visibility can provide better carrier procurement, more consolidation opportunities, better integrated services, and better benchmarking. Finally, I’d like to give a special call out to eyefortransport who had their 3PL and Supply Chain Summit in Chicago this week. There was great networking and lots of good content, including surrounding the topic of Managed Transportation.