When it comes to managing your freight spend, there are a few options to consider. The three traditional methods are the use of a transportation management system (TMS), transportation execution system (TES), and managed transportation services (MTS). Ultimately it comes down to whether shippers want to manage their freight spend in-house or outsource it. We have created a handy Supply Chain 101 cheat sheet, but this article will go into a little more depth.
The most common application for in-house management is a TMS. A TMS offers optimization capabilities across multiple modes to improve service levels and reduce freight spend. The alternatives to TMS include transportation execution solutions and managed transportation. Transportation execution solutions are mode specific and lack optimization capabilities, but for shippers with simpler transportation requirements, that is often all they need.
Large shippers with complex needs may turn to managed transportation services providers to plan and execute their loads. These MTS providers may use an in-house developed TMS. Or, if they use an off-the-shelf TMS, they may get a volume discount. In some instances, they may not use a TMS at all in managed trans deals, although these providers lack a significant presence in the market.
Transportation Management Systems
ARC’s definition of transportation management systems (TMS) is freight centric; we do not include solutions that help companies move passengers more efficiently and solutions for mail. The TMS market can be segmented into two types of applications:
- Planning & Execution: This application focuses on freight moves involving a carrier. The complete process would include procurement, creation of a route guide, planning and optimization, electronic communication with carriers (tendering), visibility and exception management, freight audit, and performance management. For international shipments, it would also include advance shipment notification to government authorities. Many solutions don’t support the end-to-end process described here. For classification purposes, if the solution includes a route guide, planning optimization, and electronic tendering/acceptance execution, it is included in this category.
- Fleet Management: This application focuses on freight moves involving transportation assets owned by the company. The complete process would include routing and optimization, visibility and exception management (including GPS style solutions), transportation asset management, and performance management. Transportation assets include both power units and container cars. Many solutions don’t support the end-to-end process described here. For classification purposes, any solution that includes routing plus any of the other modules listed above will be deemed a fleet management solution.
ARC’s research shows that the planning and execution solution can contribute to significant reductions in freight spend while preserving or even improving service levels. The fleet management segment is growing because of the shift to e-commerce and omni-channel and the need to fully utilize drivers during a time in which it is increasingly difficult to hire and retain drivers.
The freight spend required to invest in a TMS solution is lower than ever. Historically, if a company did not have over $20 million in freight spend, purchasing a TMS was out of the question. The emergence of SaaS solutions, and less sophisticated on-premise applications, has reduced that number significantly. Now, essentially companies of all sizes can afford a TMS. This includes companies with as little as $1 million in freight spend. With lower barriers to entry in the market, smaller Tier 3 and 4 customers that needed to rely on a 3PL for their transportation needs can bring those functions in-house. This change brings a wide variety of new companies into the TMS market. The leading providers of TMS are SAP, Oracle, Blue Yonder, Descartes, and TMW.
Transportation Execution Systems (TES)
Transportation Execution Solutions (TE) allow shippers to connect to multiple carriers and then tender, track, and pay in the system. Visibility solutions allow real-time asset tracking across the entire distribution network. This enables improved estimated arrival times of goods. Visibility solutions are playing a larger role in the market, as real-time tracking of assets becomes more important. Suppliers of visibility solutions continue to bring in additional data streams for better ETAs.
Visibility solutions are becoming more necessary. The need to know where products are, whether they are on the way to the warehouse, store, or customer, is critical to ensure a positive customer experience. The rise of visibility solutions at the container-level is helping to drive the transportation execution market to new heights. While this application is helping to fuel overall market growth, there are a number of other growth factors and trends that are pushing the market forward as well. These growth factors touch upon emerging technologies and general trends.
The transportation execution and visibility systems market has seen significant growth over the last few years due to a variety of factors, including the growth of e-commerce, the strong ROI tied to these solutions, the rise of control towers and visibility requirements, capacity fluctuations, and the expansion of e-commerce. Buyers and suppliers need to have the right tool set in order to make the most of the solutions available. Potential buyers need to do their due diligence about the solution, its strengths, and potential shortcomings. Additionally, buyers need to minimize customizations to speed up the implementation and upgrade cycles. Suppliers need to continue to enhance machine learning and look to the cloud. An emphasis on last mile will also be important as the e-commerce market continues to grow. The leading companies of TES solutions include Descartes, INTTRA (E2open), GT Nexus, Transporeon, Pitney Bowes, and Metapack. The leading visibility companies include FourKites, project-44, and Descartes MacroPoint.
Managed Transportation Services (MTS)
In an MTS arrangement, a shipper contracts with a third party to plan and execute their moves for them. In other words, instead of having internal planners plan and execute moves, those planners are employed by the MTS supplier, but work on the shipper’s behalf. While growth has slowed considerably in the 3PL market as a whole, this segment of the market is one of the fastest growing of all 3PL service lines, although from a much, much smaller base than carriage, brokerage, forwarding, or warehousing services.
Similar to the TMS market, freight spend requirements for engaging in an MTS arrangement have changed. Just a few years ago, the majority of MTS arrangements sold to shippers with freight spend over $100 million. These large customers demanded a customized solution, which is just not the case today. Instead, most MTS providers have standardized on one TMS and do not customize that solution. This results in speedier and lower cost implementations. Lower costs increase the ability to sell MTS to smaller customers, especially those in the $25-100 million and $5–25 million freight spend segments. These two segments are now considerably larger than the freight spend of over $100 million category.
As mentioned above, one difficult decision shippers need to make is whether to bring transportation management in-house or outsource it to an MTS provider. The freight savings and service improvements associated with TMS are quite similar to MTS arrangements. However, many shippers lack network design capabilities or a continuous improvement culture. Many MTS providers have expertise in these two areas, which can help shippers make that decision.
There are a number of key growth drivers for the MTS market including the strong ROI attached to these arrangements, the rapidly improving technology of MTS suppliers, the need for real-time visibility and accurate ETAs, and the fact that the MTS market is massively underpenetrated. Even with this last fact, the amount of freight under management in MTS arrangements is quite high. The leading MTS providers based on freight under management include Transplace, CH Robinson, Ryder Supply Chain Solutions, DHL, and Penske Logistics.
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