It’s getting harder for carriers to find drivers and it’s getting harder for shippers to find capacity. These two trends have set off a feeding frenzy in the transportation sector in which little guys are being acquired by the big freight carriers. The first half of 2012 saw robust transportation and logistics M&A activity—up 80% from $1.4 billion in the first half of 2011, according to Harris Williams & Co.’s Transportation & Logistic Group, subsidiary of The PNC Financial Services Group.
I guess you could say this is a mixed blessing. It’s great that despite the unease surrounding the European debt crisis, domestic fiscal issues and the presidential election, there’s still big-buck-buying going on in this low-margin business. Carriers that want to survive have to find ways to grow their service offerings, improve driver efficiencies and stay competitive. That’s why many small family-run firms that have been around for generations are dying off—if they haven’t been acquired.
Frank Mountcastle, managing director at H&W, told me it’s a classic case of survival of the fittest.
“Shippers are interested in going with companies that have better scale and IT networks, and that puts a lot of pressure on the smaller carriers,” he said. “That dynamic won’t change. All of these external factors are forcing the trucking industry to become more efficient and cost effective. Shippers will want to do business with carriers that have the equipment, drivers and technology to haul their freight productively. The smaller carriers will have a harder time competing in this environment.”
One saving grace for the smaller guys is that technology is scaling toward affordable. You may have read MH&L’s recent coverage of “the internet of things,” in which supply chain assets communicate with each other so their owners can get more productive service out of them. In this scenario, organizations are segmenting their supply chains and enhancing visibility into their end-to-end operations with the help of automatic identification and data collection (AIDC) technology. I spoke with Mike Terzich about this. He’s senior vice president for global sales and marketing at Zebra Technologies. He cited dynamic truck routing as an example. This can help carriers meet customer demand at the last minute.
“As a shipper I may have product in my supply chain intended for a single destination but because I have real time visibility to the demands that have been placed on my business up to and including the last evening’s internet demand, I may want to dynamically reroute my carriers to a different warehouse location because I’ll be better able to serve that customer,” he explained. “Or I may be in the business of moving perishable goods and grocers and retailers want to know if and when spoilage occurred so they can reroute that lot of produce before it shows up at my dock because there’s a cost associated with processing what is effectively a rejected order.”
These capabilities help both shippers and carriers become stronger competitors. They’ve also changed the AIDC industry. With the internet of things and the visibility shippers and carriers are demanding in their value chains, knowing what’s in a box isn’t enough. They also need to know where it is and how it is. That’s integrating technologies like radio frequency identification, global positioning systems, temperature sensors and real time location systems into the supply chain manager’s box of tricks.
Smart carriers are also making these technologies offset the higher costs associated with their fleets. For example, they’re using mobile printing devices so when a driver drops off that last load, instead of running back to the truck and using a multi part form, he can print a receipt for the customer on that device. By saving steps at his stops he may be able to squeeze a couple more into his day. Terzich equates that to what the larger carriers like FedEx and UPS are doing with route optimization.
But what’s even more interesting is how other industries are taking notice.
Terzich used a hospital emergency room as an example.
“You have a 10-bed ER and doctors going from bed to bed,” he explained. “With dynamic routing and the staff’s triage, the technology tells the doctor to go from bed 1 to bed 4 and then back to bed 2 and then to bed 6. That helps them be more effective in getting through those patients quicker.”
Restaurants offer another good example. When it’s time to pay the bill, the customer can hand the wait staff a credit card and using a mobile all-in-one device hanging off their belt, that person can swipe the customer’s card table-side and process the transaction. This minimizes the chance for credit card theft for the customer, and it may help the restaurant squeeze another table or two of customers into an evening. For a high volume restaurant that means fatter margin and more business.
With hospitals and restaurants taking notes from freight carriers, survival of the fittest may apply to the U.S. economy when times get tough again—which you can bet they will.