We're On the Eve of Disruption

We're On the Eve of Disruption

E-commerce is here and it's not going away. How is your supply chain going to deal with the growing demands of omni-channel?

"The transportation of information is more important than the transportation of goods."

Sounds like something a software solutions provider or maybe a tech consultant might say, doesn't it? However, those words in fact came from James Welch, CEO of national less-than-truckload carrier YRC Worldwide, whose career dates back to the pre-deregulation days of the late 1970s.

When somebody who's been in trucking since the Carter Administration says moving data is more important than moving stuff, you know that we've reached a business-as-unusual point in the industry—the era of disruption.

That certainly was one of the dominant themes at last month's Council of Supply Chain Management Professionals (CSCMP) annual conference in Orlando. Rather than just dwelling on how rapidly things are changing, though, the prevailing message is that it's fasten-your-seatbelts time because things won't be slowing down.

"E-commerce is the number one disruptive change to our business," says John Wiehoff, CEO of third-party logistics provider C.H. Robinson, a company that provides services to many of the biggest retailers and e-tailers in the world. "Virtually every mode we offer is being changed by the demands of e-commerce."

In this world of omni-channel distribution, consumers have been trained by Amazon and other large retailers to expect that they can receive any product from anywhere delivered for free or at least minimal cost, and that mentality has filtered through the entire transportation industry. Customers expect the carriers to figure out how to make money by delivering small shipments with greater frequency to out-of-the-way addresses. And customers really don't care if their freight is being delivered as a loss-leader opportunity—they just want their stuff.

"Consumers expect free shipping all the time now, but there's no such thing as free shipping," Welch points out. "We're certainly not going to do it for free, and nobody else is, either. Somebody is going to pay for it somewhere along the line," and that almost always means the end customer at some point will pick up the tab for the shipping, even if those expenses are buried in the cost of the product.

Not only do customers expect their stuff delivered rapidly and for free, but given the nature of e-commerce, they often order more products than they need knowing they can easily send them back for full credit. With companies offering more SKUs online but holding less inventory in their brick-and-mortar stores, moving goods through cross-dock operations at distribution centers has become a crucial logistics strategy.

"There's tremendous pressure on retailers to accept all returns from customers," Wiehoff says, but he sees that situation starting to take on more realistic dimensions. "As retailers gain more maturity in the e-commerce marketplace, I anticipate more positive disruption as they focus more on profitability than on service." So the days of ordering six shirts, hoping one of them will fit and then returning the other five, might not be such a prevalent practice once consumers start having to pay for the online convenience. Just look at how the once-consumer-friendly airlines are now tacking on charges for services that used to be offered for free, such as being able to pick your own seat or carrying a small suitcase onto a plane.

There's been a lot of talk about the so-called Uber-ization of trucking, but Wiehoff cautions against shippers who are imagining apps that will allow them to arrange for a driver to pick up a load at their door and drive it straight to their customer's loading dock.

"The commoditization of freight is a lot different than the Uber model of passenger pick-ups, due to all of the exceptions and requirements involved in freight carriage," he points out, especially given how closely and tightly regulated the motor carrier industry is. It's not likely the government will turn a blind eye to delivery companies that try to circumvent the labyrinth of rules involving Hours of Service, electronic logging devices, hazmat restrictions and emission controls, to name just a few.

"It seems like our industry is more regulated today than it was back in the pre-deregulation days," Welch observes. "We're being regulated to death."

Technology isn't necessarily a negative force but, when applied strategically, it can be a survival tactic when it comes to dealing with market and regulatory pressures. "If you're not investing in technology and constantly reinventing yourself, you're not going to be around very long," observes Jon Russell, president of truckload carrier Celadon Logistics. And that philosophy is as true for transportation providers as it is for shippers.

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