I am wrapping up my Transportation Management Systems market study which looks at the total size of the market, the forecasted growth through 2025, and the leading suppliers across a number of categories including industry, region, and customer size. A key piece of the study is looking at the key drivers for TMS growth from both a historical and future-looking perspective. The study includes a holistic view of the TMS outlook.
A TMS helps companies move freight from origin to destination efficiently, reliably, and cost-effectively. Transportation management systems include 2 types of solutions. Planning and execution is focused on freight moves involving a carrier. The complete process would include procurement, creation of a route guide, planning and optimization, electronic communication with carriers, visibility and exception management, freight audit, and performance management. Fleet Management involves freight moves with transportation assets owned by the company. The complete process would include routing and optimization; visibility and exception management; transportation asset management; and performance management.
The market, despite a slowing economy during the great lockdown, still saw growth in 2020. The TMS market is more insulated than other markets and felt the impact of Covid-19 to a lesser extent, especially as certain industries, such as CPG and food & beverage in particular, saw an increased need for TMS applications. Below are a few of the key reasons for TMS growth.
E-Commerce Continues to Surge
The COVID-19 pandemic pushed e-commerce to levels that would not have been believed in early 2020. For example, in the US, May 2020 alone eclipsed the entire 2019 holiday shopping season and $82.5 billion was spent online. This is a trend that will continue to grow, especially as those who may have been reluctant to shop online have experienced the ease and convenience associated with it. While this is putting added strain on shippers and carriers to fulfill customer orders and meet expectations, it is a boon to the TMS market as retail, CPG, and food & beverage companies in particular look to meet growing demand.
A Proven ROI
Historically, transportation management systems have offered a strong ROI. The primary reason companies buy a TMS is for freight savings. These freight savings can be attributed to simulation and network design, load consolidation and lower cost mode selections, and multi-stop route optimization. As freight costs have continued to rise, companies have looked more and more to their TMS to mitigate these rising costs. When a shipper decides it needs to improve its transportation performance, it typically attempts to achieve this by either buying a transportation management system (TMS) or outsourcing transportation planning and execution to a managed transportation services (MTS) provider. According to ARC Advisory Group research, among those shippers that successfully achieve significant reductions in freight savings, TMS and MTS perform roughly the same. However, when you look at the proportion of respondents that achieved negative results (increased freight costs) or no improvement in their freight spend; TMS appears to be the less-risky investment.
One of the biggest areas for TMS growth over the last few years has been the continued emergence and proliferation of cloud solutions. Suppliers that have fully made the transition and no longer or only reluctantly sell in the software license model, are growing much faster than their competitors. The COVID-19 pandemic is speeding up the shift to cloud. The increase in the number of “work-from-home” employees has helped to push cloud solutions as well. Cloud solutions have better security and access for remote workers, and TMS customers using a cloud solution were able to transition to remote work over the course of a weekend without noticing a disruption. A cloud solution also enables rapid updates to be pushed out to all employees without the need for time-consuming up-grades and configurations.
A look at Sustainability
Sustainability initiatives have been growing by leaps and bounds, with more companies to become carbon neutral through the use of renewable energy, electric vehicles, the elimination of single-use plastics, and more. Companies are looking at TMS to reduce costs while improve sustainability initiatives. This is especially true for route optimization. Load consolidation means less trucks on the road to deliver the same freight, which is important as far as carbon emissions. But with route optimization, companies can use algorithms to determine the most efficient route for every truck on the road, from, cross-country deliveries to the final mile. By determining the absolute ideal route for each truck, shippers are able to reduce their fuel costs and their miles significantly; with backhaul optimization, deadhead miles can also be reduced so trucks are not just carrying air to their next destination.
Technology has been steadily improving over the last few years within the TMS market. There are a number of technologies that are improving performance and helping to reduce freight spend. These technologies include:
- Visibility Tools. Real-time visibility solutions are set to explode. The visibility is based on integration to truck carrier’s systems. The carriers in turn are tracking the ELD devices on their trucks or by a downloadable app that the driver puts on his smart phone. There are a variety of external data streams that also play a role in providing better visibility and improved ETAs.
- Machine Learning and Artificial Intelligence. Aside from improved ETAs, machine learning plays a role in other aspects of transportation management. Shippers can learn which carriers meet on-time service levels and which do not, which lanes typically carry more chance for delays, and whether there is an optimal number of stops before shipments become late. Machine learning can aid shippers in better understanding how to drive efficiencies without sacrificing service levels.
- The right IoT application can help make sense of data to improve asset performance. Sensors in trucks can help provide better visibility and make predicted ETAs more accurate. Additionally, connected trucks can provide information on specific driver’s driving patterns and habits, leading to improved safety as well as visibility.
The TMS market performed better than most supply chain software markets during the Covid-19 lockdown. The pandemic fueled the rapid growth in e-commerce that has show no signs of slowing down. This surge was a major factor in the performance of the TMS market. Looking ahead, the historical ROI associated with TMS, the continued move to the cloud, the importance of sustainability, and the overall improvement in technology should all help the TMS market to grow in the coming years.