Logistics Viewpoints

A complete analysis of logistics trends, technologies, and services

Driver Shortage, Driverless Vehicles, and Other Supply Chain Curiosities

Transportation | By •

driver shortageIf you thought it was difficult to find good drivers before the 2020 pandemic, try finding drivers of any caliber afterwards. Driver shortages have become even more of a reality in the supply chain industry for a number of reasons, chief among them being the sharp rise in demand.

The pandemic taught consumers that the most convenient and safest way to “get that thing” is to order it online and have it delivered, increasing not only the demand for qualified drivers but also the cost to hire.

As driver pay increases, so does the incidence of drivers jumping ship, switching companies for the next best payday. According to CNN Business, the annual turnover rate for drivers hit 95% most recently, and that’s without considering the negative pressure higher pay puts on the willingness to endure four out of five weeks on the road.

Throw in regulations regarding medical testing, licensing qualifications and safety enforcement, and it’s not difficult to see – something’s got to give. Could the obvious solution be that curious notion of driverless vehicles?

The Curious Case of the Headless Driver

Make no mistake, driverless vehicles are here to stay, driver shortage or not. Currently, most driverless opportunities are limited to secure private zones or closed environments, such as warehouses, campus environments or last mile runs from depot to front door. But the industry is watching as the technology opens new opportunities for safety, savings and speed long-haul, raising curiosity on the strength of a compelling business case.

For starters, many of the rules that apply to human drivers do not apply to driver robots. For instance, a bot never needs to take a mandatory break after 10 hours on the road or pass a drug test. And, while Federal Motor Carrier Safety Administration (FMCSA) Regulations for driverless vehicles are still emerging, the general code was not made for driverless vehicles; it was meant for human driver safety.

What’s more, bots don’t require paychecks, benefits, vacations, training or other workforce overhead. Deploying driverless vehicles could take a significant bite out of operating costs, considering that approximately 75% of company expenses are tied up in labor. There will still be a workforce needed to maintain those driverless vehicles or costs associated with maintenance done by the manufacturer or a 3rd party.

To demonstrate, one California autonomous vehicle company, TuSimple, tested the efficacy of long-haul driverless vehicles in a recent trek from Nogales, Arizona to Oklahoma City, shaving 10 hours (42%) off of what would otherwise be a 24-hour trip. The journey was bracketed with a human driver handling pick-up and delivery of the shipment, while an automated driver took the long-haul segment in between.

An impressive case study to be sure, but alas, the cost of the technology is still prohibitive for most companies. A January 2021 DOT report suggests that “only 48% of trucking firms would be able to buy the technology in the decade after it becomes available.” Approval of long-haul driverless technology isn’t projected to settle until around 2031.

Curiouser and Curiouser

For as curious as many are over the potential of driverless vehicles, logistics companies need to get even curiouser about what’s driving their bottom lines. There are many ways to address the driver shortage, but perhaps none is more powerful or effective than knowing what’s going on in your business.

In a word, it’s data. Capturing it, cleaning it, screening it and analyzing it to determine better routes, better prices, and better sources is foundational to smart logistics operations. State-of-the-art warehouse, labor and transportation management systems are designed to facilitate the kind of real-time data analysis necessary for spotting cost-saving, productivity-enhancing, margin-building opportunities. In fact, using modern AI and machine learning tools to track market movements, you can perfect your game as you also improve your ability to predict future market fluctuations and plan proactively.

One way to gain an edge is to analyze existing carrier contracts against spot market pricing posted on load boards and freight auctions to determine if your current carriers are in line with going rates. In a tight market, it never hurts to shop your contracts. Perhaps you signed deals years ago at a high rate that now stands below market due to rising demand. Perhaps you’re overpaying. Perhaps one carrier deserves more of your business than another. Knowing the details will equip you to either negotiate or hold tight based on facts.

Tender rejection rates are another stat to examine. If you’re tendering out loads and see a rise in rejections, from say 2%, which is pretty good, to suddenly 10%, you likely need to examine your rates for particular lanes. Configure your system dashboard to watch the spot market and time your moves to optimize bids by lanes, carriers and time slots.

Good data will help you track valuable decision factors such as best per-mile rates, conditional charges, field charges and other variables to ensure your best bang for the buck. You can also build metrics to support your hiring practices, making sure you’re paying drivers what they’re worth to inhibit churn, enhance acceptance rates or stem the tide of driver turnover.

Keep Your Eyes on the Road

There are many ways existing, modern technology can help you effectively manage changing market conditions, such as driver shortages, without lurching prematurely into the future. Certainly, keep an eye on the horizon. But also, do yourself a favor by getting curious about what’s really driving your business. Know what’s happening, gauge its impact on your business, carefully examine where to make adjustments and get better at it over time. By analyzing data, monitoring KPIs and making decisions based on facts, you can better predict the market and plan for better business outcomes.

driver shortageByron Davis, Senior Director, Client Services, Open Sky Group. As a Senior Director at Open Sky Group, Byron’s focus is building and growing the Transportation Management practice. Open Sky Group’s mission is to deliver technology-enabled solutions that allow our customers to achieve more, often with less, while having the flexibility to adapt to change. Our mission and core values are the foundation of our culture and guiding source in our interactions. Byron lives the core values and mission each day by bringing the best experience possible to our clients. Not only does he provide internal support to our Sales and Marketing team through presentations and industry interviews, Byron works alongside our TMS teams and clients, encouraging them to use innovation and best practices instead of customizations for their long-term success.

Open Sky Group, global specialists in the Blue Yonder supply chain platform (formerly JDA RedPrairie Software), helps companies like yours implement and upgrade warehouse, labor and transportation management systems. To learn more, visit https://www.openskygroup.com

Shippers Caused the Truck Driver Shortage

Food & Beverage Industry | By •

Land O’Lakes Chief Supply Chain Officer, Yone Dewberry, told an audience at eft’s 3PL and Supply Chain Summit in Atlanta in on June 6th, “We’ve created it” (the truck driver shortage). “As an industry” (shippers), “we’ve done this to ourselves.”

Driver Shortage
Yone Dewberry, Chief Supply Chain Officer, Land O’ Lakes

Land O’ Lakes is a member owned cooperative with revenues of $15 billion. The company is best known for dairy products, particularly butter, but the company also has divisions devoted to animal nutrition and seeds/crop protection. When it comes to securing carriage, it is easier if you have predictable demand, use standard trucks, and have long lead times.  That does not fit any of their businesses.

The animal feed business does not have seasonal peaks, but 40 percent of deliveries are same day or next day. The dairy business has “huge peaks” according to Mr. Dewberry. 40 percent of butter is sold in November and December and needs to be transported in refrigerated trucks. “Getting refrigerated trucks during the busy season is tough.” Finally, the Ag service business is “peaky.” “When the weather gets warm, farmers want to plant. It is hard to “predict” these peaks. And when it rains, farmers are apt to ask for fungicides, and they want those fungicides delivered the same day. 80 percent of deliveries from this business are same or next day.

The trucker shortage is being driven by: unemployment rates being down which has created a positive consumer outlook and people buying more goods. It is definitely driven by demographics, “in the past ten percent of drivers were near retirement at any point in time, today it is 25 percent” said Mr. Dewberry. The ELD mandate has had an impact, but perhaps not as big as many argue. But a big reason for the shortage is that “we’ve forced our carriers to drive their prices down. Trucking companies don’t have many levers. There is fuel, carriers can’t control that. And there are driver wages.” For many years, driver wages were not keeping up with wage growth in other sectors.

So, there is a driver shortage. Companies are having a harder time maintaining existing service levels, much less moving to more demanding business to consumer ecommerce type expectations for quick deliveries. “5:00 to 9:00 bleeds over to 9:00 to 5.00” quipped Mr. Dewberry. By that he means that people go home at the end of the day, order on line, are promised quick deliveries, have choices on when and how goods are shipped, and have visibility to those shipments. Those expectations then carry over to the business environment.

So that is the problem, what is the solution. Land O’ Lakes is doing several things to deal with a tough freight environment. First of all, the company believes a focus on costs has been overblown. “We don’t generally talk about price (with carriers), we talk about how to solve a problem.”

With the ag supply business, they are making many shipments to rural areas served by small carriers that don’t have a lot of technology. Land O’Lakes has implemented a real-time transportation visibility solution from FourKites. Drivers can download an app, accept a load, and then have the shipment tracked via their smartphone. “We track every Purina shipment.” They are running pilots with FourKites to see whether predictive analytics surrounding weather – the data comes from the Weather Channel owned by IBM – and traffic can be used to better predict arrival times. Further, visibility can be used to pay drivers for all the work they do. If they are struck in traffic, and the visibility solution shows that, they can be paid for their time. If they are made to wait too long picking goods up at a warehouse, the visibility solution proves that, and they are paid for that as well.

Land O’Lakes is also running pilots with Uber Freight and Convoy. “Traditional brokerage is too slow.” These technologically sophisticated AI-based brokers might be a partial solution. But the experiment is young. “We don’t know if it will work.”

The company is also looking to partner with companies with private fleets. “Carriers fleets are at a 90 percent utilization level. Private fleets are only 50 to 60 percent utilized. We’ve found a few we can work with.” Eventually, finding loads while helping their partners eliminate empty backhauls will be made easier with technology.

Land O’Lakes wants to also test the feasibility of autonomous trucks. Their partner here is Uber Advanced Technologies. Self-driving trucks are not legal yet, but some states are allowing pilots to be run.  Land O’Lakes would like to work with the Department of Transportation in Minnesota and Uber to begin testing certain lanes. “This might not happen for years,” Mr. Dewberry admits, “but we have to start somewhere.”

Finally, the company is working with industry groups like the Grocery Manufacturers Association and the Food Marketing Institute around participating in projects that can help alleviate this problem. For example, what if food manufacturers did not have to deliver to retailers on week days 9 to 5 but could smooth demand by delivering on weekends? A study could show how much capacity might free up.

In the current environment, partnering, new technologies, and experimentation makes sense. Land O’Lakes is clearly doing something right. They average 1,000 shipments per week. In the last year, only three shipments were left on the dock because of an inability to find a carrier willing to take the load.

Hours of Service: The “Obamacare” of the Trucking Industry?

Regulations | By •

The new Hours of Service regulations, which went into effect July 1, 2013, might well be the “Obamacare” of the trucking industry, with yet another challenge issued last Thursday when U.S. Reps. Richard Hanna (R-NY), Tom Rice (R-SC) and Mike Michaud (D-ME) introduced the TRUE Safety Act. The bill specifically targets the 34-hour restart rule, which is the most controversial part of the new HOS regulations, much like the individual mandate is for Obamacare. Here are some highlights of the TRUE Safety Act:

  • Truckers would abide by the 34-hour restart rules that were in place before July 1, 2013.
  • The Government Accountability Office (GAO) would be required to conduct an independent assessment of the methodology FMCSA used to come up with the new 34-hour restart rule.
  • The new 34-hour restart rule could not be re-implemented until six months after GAO submits its assessment to Congress.

According to Representative Rice, “Congress required the FMSCA to complete a comprehensive study before imposing new hours of service standards on our truckers. Instead, the agency has abused its authority and is requiring truckers to comply with one of the most stringent parts of its regulation prior to receiving their study’s findings. This legislation will rein in FMSCA and postpone the new un-tested hours of service regulation until its study is complete and require an additional study to ensure that our truckers are not being overregulated.”

Until recently, I hadn’t heard much from shippers, carriers, or 3PLs about any significant impact to operations resulting from the new rules. But that’s starting to change. Here are some comments issued in recent weeks by Schneider National and Werner Enterprises related to Hours of Service.

From a press release issued by Schneider National on October 24, 2013:

Since the new HOS implementation, Schneider has realized a 3.1 percent drop in productivity on solo shipments and a 4.3 percent decline on team shipments [emphasis mine]. The results are similar to Schneider’s forecasted 3–4 percent, which was based on predictive modeling and presented as testimony to the Federal Motor Carrier Safety Administration in February 2011.

 

“The Hours of Service changes could not have come at a worse time,” said Dave Geyer, senior vice president/general manager of Schneider’s Van Truckload division. “We now need more drivers to do the same amount of work, but regulations, economic conditions and demographics are working against us in terms of recruiting new drivers. Those who do answer the call deserve an attractive wage and good benefits, but we’re being restricted in the number of miles we can give them and the ongoing challenges that come with sharply rising operating costs.”

And from Werner Enterprises’ Q32013 financial results press release:

The Federal Motor Carrier Safety Administration (“FMCSA”) published final driver hours of service (“HOS”) rules in December 2011, which became effective July 1, 2013. Among the changes were more restrictive requirements covering driver use of the 34-hour restart rule and a new mandatory 30-minute rest period after 8 hours on duty. The Company modified and tested its electronic HOS system and began dispatching drivers under the revised HOS rules effective July 1. As expected, the Company believes that these hours of service changes negatively impacted miles per truck by two to three percent [emphasis mine].

I’m speaking tomorrow about Hours of Service at the CONECT 12th Annual Northeast Cargo Symposium, so I won’t steal any more of my thunder today. But here’s one of the key points I plan to communicate to the audience tomorrow: do not view Hours of Service as an isolated issue in the trucking industry; it’s just one factor, along with CSA, driver shortage, and others, that are coming together to create a capacity crunch “perfect storm,” similar to (or perhaps worse than) the one we experienced in 2004. The only missing factor is a strong growing economy, which is why we find ourselves today in the calm before the storm. What are you doing to prepare before the winds pick up and you’re caught in the storm path?

The Capacity Crunch Perfect Storm
The Capacity Crunch Perfect Storm

For related commentary, see What is the Future of Truckload Transportation?

This Week in Logistics News (November 5-9, 2012)

RFID & AIDC | By •

The US presidential election is finally over. $6 billion (yes, billion) was spent on the presidential campaign to end up where we started: same president, the Republicans in control of the House, the Democrats in control of the Senate, and the country still very divided. It’s hard to see how things will be different this time around when nothing has really changed. As Albert Einstein said, “Insanity is doing the same thing over and over again and expecting different results.” I just hope that Congress and our president will stop the insanity in Washington and take a different path to working together, a more productive and constructive one, for the good of our country. Otherwise, it will be four more years of inaction and finger pointing, four more years of low approval ratings for our elected officials, and four more years of the same insanity.

In other news…

Innovation in logistics doesn’t just happen in computing technology or software. Take the lowly truck trailer for example. Back in July 2010, I wrote about Con-way’s DoubleStack trailers that use a racking system which “allows for the loading of cargoes on two separate, adjustable levels throughout the length of the trailer, accommodating shipments of different dimensions while more fully utilizing the trailer.” This week Walmart Canada unveiled a 60-foot supercube trailer that can hold up to 30 percent more product than a standard 53-foot trailer. The company received permission from the Ministry of Transportation in Ontario to conduct a pilot test with four of these trailers on the road. Here are some excerpts from a Truck News article:

Designed and built in Ontario, the supercube trailer was produced in partnership with Innovative Trailer Design. The tractor is a Freightliner, built in the US but modified in Canada.

 

The extended semi-trailer of up to 60-ft, 6 inches provides about 28% more volume than the existing 53-ft semi-trailer with a floor that is lower…than a typical trailer currently in use.

 

“We’ve always said that sustainability is not a competitive advantage. We’ll share the knowledge and technology put into this truck with anyone who’s interested, just as we’ve shared the knowledge gained from our sustainable fresh food distribution centre in Balzac, Alberta,” said [Andy Ellis, Senior VP, Walmart Supply Chain and Logistics] in a release.

Meanwhile, FedEx has enhanced its SenseAware service by introducing it to new markets (Canada, the United Kingdom, Australia and Singapore) and making it available to other air and ground transportation carriers (Delta Airlines, Southwest Airlines, United Airlines, and certain third-party ground carriers and private fleets). The company also made some application improvements, as outlined in the press release:

  • Route Geo-fences: Customers can now create a geo-fence along the actual route a shipment should follow and set up alerts to notify the customer if the shipment deviates from this pre-established route. This feature is available on ground shipments.
  • Environmental Data Specification: When setting up a journey or creating a template, customers can now choose which environmental data, such as temperature, humidity or barometric pressure, is collected. This ensures that the device only collects data for specific environments requested, thus streamlining the amount of information the customer receives.
  • Nonevent Geo-fence Triggers: Triggers can be set up to alert or notify customers when geo-fence events do not occur as expected by a specified time. This helps customers determine if a package has gotten off pace or off track

On the software front, SAP announced a user interface add-on for its SAP Supplier Relationship Management application that provides “a consumer-like user experience for casual procurement users to create purchase requests from catalogs with little or no training.” Here is an excerpt from the press release:

SAP worked with over 40 customers to develop the more intuitive user experience. The familiar look-and-feel and dynamic Web page features that users enjoy from online shopping and Internet search experiences have been incorporated into their corporate buying experience. Features like type-ahead search terms, browse by category, filtering, detailed product information and ratings enables users to search across internal and external catalogs to quickly find the products and services they need to order.

This is an example of two trends we’ve talked about in the past: enterprise applications are starting to borrow the “look and feel” of consumer applications, including search tools and social media apps, and user interfaces are becoming a competitive differentiator for software vendors.

Another related example is FedEx’s launch of its FedEx® Ship to Friends app this week “that allows people who use Facebook to prepare and pay for a U.S. domestic shipment without ever leaving Facebook.” Because, why would you ever want to leave Facebook?

At a meeting this summer, the topic of driver shortage came up, and a logistics executive said to the group,”This is a problem that has been talked about for many years, for as long as I’ve been in the industry, and it has yet to cause any real, lasting impacts on transportation operations.” There is some truth to his statement. The last time the driver shortage problem had a real impact was during the “capacity crunch” shippers experienced in and around 2004. Then again, increased use of rail and intermodal, better load consolidation and trailer utilization, and of course, the economic downturn have all minimized or negated the driver shortage issue since then.

But the red flag continues to wave. A new paper released by the American Trucking Associations (ATA) concludes “that long-term trends could cause the [driver] shortage to explode in the next decade.” Here are some excerpts from the press release:

“Carriers and fleet executives have begun expressing concern about their ability to identify and hire qualified professional drivers,” ATA Chief Economist Bob Costello said, “and with this report, we tried to identify where the impacts were being felt the most, why the shortage is increasingly worrisome and why it has the potential to get worse.”

 

“ATA estimates the current shortage of drivers to be in the 20,000 to 25,000 range in the for-hire truckload market . . .  on a base of roughly 750,000 trucks,” the report said, adding that if current trends continue, the shortage has the potential to grow to 239,000 over the next decade.

 

“On average, trucking will need to recruit nearly 100,000 new drivers every year to keep up with demand for drivers,” Costello said, “with nearly two-thirds of the need coming from industry growth and retirements.”

Finally, file this news under “A Supply Chain Risk Management Blindside”: After Australian auto parts supplier Autodom shut down two plants in Australia last week, Ford Australia and General Motors Holden raced in to underwrite the company’s $6.5 million debt and prevent their own production lines from shutting down. The Reuters article cites declining demand for locally-produced vehicles as a contributing factor to the automotive industry’s woes in Australia, but as we’ve seen in other cases, I’m sure the OEMs and their “we expect cost cuts every year” approach to supplier relationship management played a role too.

Have a great weekend!

Song of the Week: “We Come Running” by Youngblood Hawke. It’s not often that you see musicians surrounded by sharks in a music video.

(Note: Con-way and SAP are Logistics Viewpoints sponsors)

Guest Commentary: Fostering Long-Term Carrier Partnerships

Guest Commentary | By •

Last month, Manhattan Associates hosted the Inaugural “Shipper/Carrier” Exchange event in Atlanta. Attendees included an array of large shippers, 3PLs and carriers including GENCO ATC, HEB Grocery, Publix Super Markets, Celadon Trucking and Knight Transportation.

The event focused on the importance and benefit of strengthening relationships between shippers and their transportation service providers. While there were occasional areas of disagreement, there was consensus in one critical area: Freight rates are going up!

The Law of Supply and Demand
It is no surprise that fundamental supply/demand principles apply to freight transportation pricing just as they do to any other product or service. As supply tightens, either capacity must increase or higher prices will result. The key factors that are driving this in domestic TL transportation have been well documented, but nuanced thoughts identifying the potential consequences of the changing demographic, economic and regulatory landscape were raised by the event participants.

  • Lost TL capacity due to bankruptcy: A study by Avondale Partners was quoted that states that 12% of total TL capacity has been eliminated in the past few years due to the economic downturn. Many of these vehicles were shipped overseas and will be lost forever from the US inventory.
  • Driver Shortage: Carriers discussed the difficulty they are having in finding and retaining qualified long-haul drivers. This is all the more remarkable given that nationwide employment exceeds 9% and the US economy continues to sputter along with sub 2% growth. The feeling amongst the carrier community is that if they cannot find drivers now, the only recourse will be to increase driver pay until supply returns to equilibrium with demand.
  • CSA 2010: While the participants agreed that the objectives of CSA are laudable, the net impact will be a reduction in the driver pool. They noted that shippers are monitoring carriers and that the threat of litigation may preclude poor carriers, as defined by their BASIC scores, from being utilized. The participants also noted that a lack of consistency in enforcement across states may make transportation service providers leery to haul freight in certain geographic regions where the probability of being cited for an infraction is high. This could lead to regional shortages or significantly higher rates when carriers are traversing these regions.
  • Potential Changes to Hours of Service: In contrast to CSA 2010, the participants viewed the changes to HoS rules much more disdainfully. The general feeling was that the proposed HoS rules are a solution looking for a problem. It was noted that safety is at or near all time historic highs and the proposed changes under consideration will simply reduce overall trucking productivity with little in the way of benefits to the trucking industry or society in general. Additionally, it was noted that the required midnight to 6:00 am driver reset will lead to a heavy influx of trucks just as rush hour begins each day.

So what’s a shipper to do?
Truly meaningful shipper/carrier partnerships remain elusive. The feeling amongst the attendees was that there is often times a lack of trust and willingness to share information because in doing so, an advantage is given to the other party. In many shipper / carrier relationships, the concept of “win-win” is dubiously looked upon as an overly naive concept most likely developed by a consultant.

However, the forward thinking shippers and carriers at this event see things differently. As the supply / demand pendulum swings back to the carriers, three areas were discussed as means for shippers to lock in capacity without breaking the bank.

  1. Ensure Network Alignment: A quick glance at a carrier’s quarterly report tells you all you need to know about the importance of network alignment. High empty miles lead to high operating ratios. Requiring carriers to haul freight which is not aligned with their internal network reduces their profitability. Also, keep in mind that economies of scope are the driving factor in enabling carriers to reduce cost and thereby provide better rates. There is no such thing as economies of scale in TL transportation.
  2. Focus on Operational Efficiency: Carriers generate revenue by moving freight, not by sitting in a yard. Shippers that have inefficient yard operations are eating away at the productivity and profitability of the carrier. Shippers that get the reputation for poor receiving or loading processes will pay through detention charges, higher rates and/or lost capacity. Focusing on efficiently flowing carriers into and out of facilities will enable carriers to do more with less, which will drive savings that can be passed back to the shipper.
  3. Implement “Carrier-Centric” Policies: Dr. Chris Caplice, Executive Director at the Center for Transportation and Logistics at MIT, shared the results of a recent study he conducted. Based on a “market basket” of policies that determine whether a shipper is carrier-centric or not, Dr. Caplice showed that those shippers that implement policies more favorable to carriers have rates that are on average 2-3% lower than those shippers who have less “friendly” policies.

Unlike musical chairs, where the kid left without a seat is randomly determined, the pending TL capacity shortage will target shippers that are the least profitable for carriers to serve. Understanding the factors that make your carrier partners successful is the best way to ensure you have a seat when the music stops.

Mike Mulqueen is the Senior Product Director for Manhattan Associates’ Transportation Lifecycle Management solution suite.

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