Chain of Thought
You Don’t Have to be Road Kill in the Logistics Capacity Race

You Don’t Have to be Road Kill in the Logistics Capacity Race

The recently released annual state of logistics report gave voice to what many shippers and carriers are already feeling: Ouch.

It’s getting harder to find the capacity and talent to move shipments  for rates that fit existing budgets. The laws of supply and demand say that the drivers remaining on the road can therefore command more pay and carriers can up their rates 5-8%. That leaves it up to shippers to be more creative in how they get transportation for rates they can afford. And that in turn offers 3PLs an opportunity to leverage technology to meet that rising demand.

As you’ll read in our upcoming state of logistics analysis (MH&L August issue), companies like Limited Brands will be relying more on 3PLs for transportation management and 3PLs will be relying more on technology to meet the rising demand for their ability to find affordable capacity—not just on the road, but in their warehouses. You’ll read in our report that the cost of warehousing rose 5.6% in 2013, while industrial property vacancy rates were down almost a full percentage point from the previous year.

Dan Vertachnik says this challenge will call for true supply chain collaboration. He’s executive vice president and chief commercial officer at MercuryGate, Inc., which helps 3PL clients spot-quote through both private and public bid boards, tender freight, track movements and audit carrier freight invoices. He believes technology has reached the point where collaboration between shippers, carriers and intermediaries is not only manageable but necessary.

“There’s a blurring between the transactional market and the brokerage market,” he told me recently. “Value-add 3PLs are looking to move more into brokerage to compete for available capacity and drive cost out of the system. They have contract rates and they’re strong but that doesn’t mean there will be capacity. We have to find that capacity and move it to the broker arena. More 3PLs are quoting transactional trucking on a day-to-day basis in spot markets and comparing those rates to contract rates to take advantage of the lowest rate available.”

They’re also more willing to invest in material handling automation to sync-up the physical movement of the goods they handle with the accelerating movement of those goods through the global supply chain. Bill Tomasi, global director of product management at IBS, providers of distribution resource management, ERP and WMS software, says his 3PL clients are investing more in voice-based picking, pick-to-light, automated storage & retrieval and automatic guided vehicles—as long as they can prove the return on investment. These systems can make it easier to track movement in their facilities, which makes it easier to bill clients for their services.

“More 3PLs are looking into making sure they bill for everything, and to recover those nickels they’ve been losing and that becomes part of an ROI solution for automation,” Tomasi said. “That also means service levels will rise with integrated warehousing and transportation. At the time of pick they can also determine the level of service and the best carrier to drive time and cost out of that equation.”

He adds that the cloud architecture is enabling more competitors to play in this field, allowing a broader range of clients to find a broader range of partners to help them move freight—even internationally.

“For service providers, scaling new clients in the cloud is more cost efficient, as are adding clients and searching new capacity,” he concluded. “Collaborative abilities are key to the market right now. Data driven analytics is where companies are heading for centralized control tower visibility from top to bottom.”

But managing transportation cost volatility and capacity isn’t all about technology. There are basic laws of material handling flow that shippers must follow, as Tom Moore suggested in a recent comment he posted in response to Dave Blanchard’s most recent blog, “Sunny Skies Don’t Help Much as Capacity Storm Looms.” Moore is founding partner at Transportation/Warehouse Optimization.

“Rather than look at this oncoming problem like deer in the headlights, shippers need to do several things, including lock up capacity, make their dock carrier-friendly so trucks turn faster and reduce their need for trucks and intermodal by a series of supply-chain optimizations—from increasing truck capacity utilization to shipping more product direct from plants.”

Those are a good start. Tell us what you're doing to maintain your balance between rising logistics costs and falling logistics capacity. If you're not doing anything, tell us that too. E-mail me. You must have a good reason--I hope.

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