Transportation Institution vs. Information

26 Pages·2017·1.97 MB·English

W H I T E P A P E R
Transportation
Institution vs.
Information
TIMOTHY LEONARD
EVP/CTO A Report by TMW Systems on the Future
of the Trucking Industry
R
VASANTH SRINIVASAN A TRIMBLE COMPANY
PRINCIPAL
2
R
A TRIMBLE COMPANY
Transportation Institution
vs. Information
Authors
Timothy Leonard – EVP/CTO
Vasanth Srinivasan – Principal
Contents
3 Executive Summary 16 Private Fleet
5 Transportation Landscape 16 Introduction
5 Market segmentation 17 A few ways to improve
5 Economic indicators customer service and
operational efficiency
7 We forgot our roots
19 Master Data Management
7 The evolution of information
technology in the 19 Introduction
trucking industry 20 Benefits and investment
7 The future is bright justification
9 Last Mile 21 Applications for MDM in
transportation
9 Future of home delivery
21 Shared pool points
9 Introduction
21 Border-crossing issues
11 Unused capacity
22 Resolving dock scheduling
11 Leveraging a shared
conflicts
economy
23 Tracking key metrics
12 Tomorrow’s shopping cart
23 Leasing private fleet trucks
13 Stores to distribution
centers 23 Fleet maintenance
14 Impact of autonomous 24 Leveraging unstructured
vehicles on last mile data
15 The world filled with drones 25 Sources
and delivery robots
© 2017 TTRMAWN SSyPsOteRmTBsA,iT IgnIO cD.N |a AItNa TS rDTimIrTbivUleeT CnIOo mTNrp aVannSy.s .pI NAolFl rORtiaRghtiMtosA RnTe IsAOenNrva e ld|y. ti TcMs WSYSTEMS.COM
Executive Summary
3
Every business enterprise, regardless of industry, faces immense pressure. An ever-expanding array
of market forces are driving these organizations to find new ways to reduce operating costs, increase
margins, improve customer service, accelerate revenue growth and meet aggressive corporate goals. Most
successful businesses rely on technology to meet these challenges, and continue to invest in innovative
solutions to help ensure their competitiveness.
The trucking industry, on the other hand, has largely failed to keep pace with the strong technology
investments seen in other sectors. As a result, the industry has become a prime target of disruption.
One of the most pressing new market realities is the emergence of “Uberization,” an on-demand freight
management business model that could transform the manner in which products move through the B2B
and B2C supply channels. This model could conceivably connect millions of small carriers and independent
operators within a common platform that facilitates freight transactions. Among the organizations now
exploring this channel opportunity are Cargomatics, Convoy, Trans Fix, Next Trucking, Cargo Chief and
others. An estimated $700 million in venture capital has already been invested in this domain.
An additional, significant disruption is found in the data analytics field, where select transportation
services organizations have leveraged deep insight into their operational data to make better
strategic decisions.
Other challenges facing many industry participants are a lack of connectivity and diversification. Some
industry experts worry that trucking companies aren’t adequately integrated into the supply chain. Indeed,
the industry continues to rely on outdated technologies such as EDI to receive tracking updates, although a
variety of vendors are now working with some companies to transition to an API-driven messaging model
that will provide faster and more reliable communication.
© 2017 TMW Systems, Inc. | A Trimble Company. All Rights Reserved.
TRANSPORTATION INSTITUTION VS. INFORMATION | TMWSYSTEMS.COM
Last-mile, a major, fast-growing segment within the transportation industry, has become increasingly
4
complex and challenging in recent years. In the past, customers were content to integrate multiple,
disparate systems to meet their operational needs in this area. Today, however, customers expect
vendors either to be fully integrated or provide a comprehensive single solution encompassing the entire
transportation lifecycle – from order creation to route planning to dispatch to delivery to analytics. This
objective presents unique challenges to a community of largely specialized software providers. In the
meantime, home delivery, a key market within the last-mile space, has exploded due to the exponential
growth of e-commerce, Amazon, Alibaba, eBay and other major retailers. Traditionally, home deliveries
were predominantly handled by UPS, FedEx and the US Postal Service. With delivery volume on the rise,
and consumers expecting faster and less expensive (if not free) deliveries, the market is ripe for disruption.
“Crowdsourced” delivery providers including UberRush, SideCar and InstaCart, among others, are now
gaining share at the expense of traditional delivery providers.
We expect to see more disruption in the coming years. For trucking companies to successfully compete
with disruptors, they need to reevaluate their current strategies and identify new ways to streamline
business processes. More importantly, they will have to exploit their biggest asset – data. If not, they
will run the risk of losing market share to new entrants. Transportation service providers must consider
adopting an array of next-generation strategies, including Master Data Management, true optimization,
and business and artificial intelligence.
This paper offers in-depth analysis of these and other market trends and challenges as well as likely future
trends, and points to specific technology strategies that can help transform companies from business-
centric institutions to customer-centric, information-driven organizations.
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Transportation Landscape
5
Considered the backbone of the national economy, the U.S. trucking industry is a $700 billion industry
representing 8% of the country’s annual GDP. About 70% of all freight is handled by trucks. To put this into
perspective, according to American Trucking Associations, there are about 3.5 million drivers operating
3.4 million Class 8 trucks that consume 38 billion gallons of diesel fuel to move 10.5 billion tons of freight
every year. It is believed that one person in every 15 works for a trucking firm or related organization.
Market segmentation
The trucking industry, in general, is broken down into four major segments: Truckload (TL); Less-Than-
Truckload (LTL); Last Mile (or Final Mile); and Parcel. Truckload is used to transport full trailer loads of
freight. Typical length of haul would range between 500 and 2,000 miles, and very seldom be under
500 miles.
An LTL truck is used to transport smaller freight, 14 pallets or less, and operates within a limited geography.
The LTL segment consolidates multiple customer orders into a single load to reduce cost and leverage
excess trailer capacity.
The last mile segment also utilizes order consolidation, but with different operating procedures. It
is generally applied in areas where products need to be distributed from a warehouse to their final
destinations.
Parcel carriers deliver envelopes and small packages to homes and office buildings.
Truckload and LTL are the most important modes to automate for manufacturers and 3PLs, followed by
ocean (full container load, or FCL) and air freight, respectively. Retailers give more importance to LTL
and FCL.19
Economic indicators
There are several key reports that transportation stakeholders view periodically to assess the status of
the industry and predict future growth. One of these, the truck tonnage report published by the U.S.
Department of Transportation, provides a relative measure of total tonnage transported by the motor
carrier industry for the given month1. According to the report, the tonnage index fell 6.2% in December
2016, following an 8.4% jump in November. Besides the trucking industry, many Wall Street financial
analysts use this report to assess economic trends.
TRANSPORTATION INSTITUTION VS. INFORMATION | TMWSYSTEMS.COM
6 Seasonally-Adjusted Truck Tonnage (Truck Tonnage Index)
January 2000 to December 2016
150 December 2016
• Seasonally-adjusted truck tonnage: 138.5
140
x
e
d130
n
e I
g
na120
n
o
T
uck 110
Tr
100
90
2000 2002 2004 2006 2008 2010 2012 2014 2016
Seasonally-adjusted Truck Tonnage
Source:
Seasonally-adjusted Truck Tonnage - U.S. Department of Transportation, Bureau of Transportation Statistics (BTS) calculation from
American Trucking Association Monthly Truck Tonnage Report.
A second widely used report is the sales to inventory ratio report published by the U.S. Census Bureau. This
report calculates the ratio of items in inventory to items sold. For example, a value of 1.2 indicates there
are 1.2 items in inventory for every one item sold. This information, when combined with the tonnage
report, reveals when inventory is rising and tonnage is slowing down – meaning consumers are less active
in the market. When this happens, it usually causes a ripple effect in the supply chain, with retailers
ordering fewer products and manufacturers scaling back production. The typical value for a healthy
economy is around 1.3, but recent supply chain transformations have pushed the value slightly higher. For
example, Amazon and other major e-retailers are carrying more inventory in new warehouses built around
densely populated urban areas to offer faster delivery services.
Total Business Inventories / Sales Ratios: 2007 to 2016
1.55
1.50
1.45
1.40
1.35
1.30
1.25
1.20
1.15
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: U.S. Census Bureau, Manufacturing and Trade Inventories and Sales, January 13, 2017.
(Data adjusted for seasonal, holiday and trading-day differences but not for price changes.)
TRANSPORTBAiTgIO DNa ItNaS DTIrTivUeTnIO TNr aVnS.s pINoFrOtaRtiMoAnT IAOnNa l|y ti TcMs WSYSTEMS.COM
We forgot our roots
7
Ernie Smith, in his article “How Sears and Montgomery Ward Changed American Shipping,” writes about
how the two companies spread their burgeoning retail businesses across the nation through the use of
mail catalogs and shipping services. These successes occurred long before Amazon existed.
Unfortunately, in the intervening decades the trucking industry has remained fragmented while other
key players in the economy have innovated through the smart, aggressive use of technology. One
good example is Coyote Logistics, which was purchased by UPS for $1.8 billion because of its powerful
technology.10 Businesses need to think outside the box to solve problems and shouldn’t be bound to their
traditional practices.
The evolution of information technology in the
trucking industry
The trucking industry has undergone many transformations, the most recent of which have been driven
by information technology. In the 1990s, the industry relied heavily on fax machines and phone calls for
business transactions. Later, EDI technologies helped these businesses exchange data electronically.
Since then, customer expectations have changed dramatically. In today’s fast-paced world, near-real-time
access to data has become a priority so organizations can offer much-needed visibility and transparency
to their customers. Hence, many companies have begun to replace certain aspects of EDI transactions with
Application Programming Interface (API) integrations.
While access to data has accelerated, the need to understand this data through advanced analytics has
become paramount. About 65% of companies interviewed as part of a recent study believe they need to
improve their data analytics capabilities. Moreover, top performers in this space have invested twice as
much in related technology as compared to peers.9 This paper examines the importance of data, its value
and how transportation organizations can best realize this value.
The future is bright
Any product that is manufactured, sourced or developed needs to somehow be transported to a retail
store, business facility or home for consumption. This makes transportation and logistics an essential step
in the supply chain.
TRANSPORTATION INSTITUTION VS. INFORMATION | TMWSYSTEMS.COM
8
The U.S. Department of Transportation has predicted a 40% increase in freight movement in 2045
compared to 2015. The trucking industry would benefit the most from this increased demand, as trucks
haul the largest portion of all freight. With freight volume estimated to grow, the driver shortage
expected to continue and customers demanding more responsive transportation services, the trucking
industry finds itself in a challenging position. However, the industry can overcome these obstacles by
employing advanced, new transportation management systems. According to MarketResearch.com,
fleet management technologies and solutions are expected to grow from $8.01 billion in 2015 to $22.35
billion in 2020, for a CAGR of 22.7 percent. Considering the above facts and market trends, the future
of the transportation industry looks very promising, and technology will play a predominant role in the
industry’s growth.
Truck Driver Shortage
200,000
150,000
100,000
50,000
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Source 1: Trucking.Org
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Last Mile
9
The scope of last mile transportation is both large and variable based on market requirements. Private
fleet and courier are two common modes used in this sector. Couriers are predominantly used by
e-commerce retailers to deliver packages to homes, while private fleets are used to deliver shipments or
offer services to businesses. In this section, we will examine a few current industry challenges and how the
market is set to undergo major disruption, particularly in the courier segment.
Future of home delivery
Introduction
In 2016, e-commerce represented about
8.1% of total retail sales, a huge jump
8.1% $4.8 trillion dollars is
from 2.2% in 2004.13 Omni-channel plays
total sales in 2016
a vital role in the e-commerce world.
$393 B
Traditionally, consumers purchased E-commerce
most products from physical stores.
With the introduction of telephone
and product catalogs, consumers had
a choice between direct purchase from a store and placing an order over the phone. The advent of the
Internet offered the prospect of a seamless shopping experience: the technology combines an endless
product catalog and 24/7 order placement in a single platform, thus providing a streamlined order-search
and order-purchase process. The rise of mobile technology has improved the shopping experience even
further. A consumer, at any point in time and virtually anywhere in the world, can use a smart phone to
learn about a product, compare pricing, exchange experiences with other users, and ultimately order the
product. This experience is referred to as omni-channel. The objective of the omni-channel is to provide
customers the same shopping experience across every channel — store, telephone, online, mobile and any
other platform that enables order placement.
TRANSPORTATION INSTITUTION VS. INFORMATION | TMWSYSTEMS.COM
10
Amazon Lead-Time Advantage
8
7
6
ys)
Da Other merchants
d ( 5
e
e
p
S
or 4
o Amazon
D
o-
k-t 3
Clic
2
1
0
01/15 05/15 09/15 01/16 05/16 09/16 01/17
Month
Source 2: Slice & CNBC
Recent store closures by Macy’s, Sears/Kmart, JCPenney and other retailers offer a clear indication that
consumers are moving toward the e-commerce business model. In 2016, 211 million users made one or
more purchases online, and this number is expected to reach 224 million users in 2019.12 Amazon alone
ships more than one billion packages per year, generating $79.79 billion in revenue in the U.S., and has
earned a commanding 20% share of the total e-commerce market.12 Amazon currently generates about
6.6% of its total revenue from shipping charges but spends about 11.8% on shipping costs. Shipping
is crucial to any e-commerce player’s business. Indeed, Amazon’s greatest advantage is its two- to
three-day lead time in shipping. Amazon’s average delivery time is 3.4 days as compared to 5.6 days
for other providers. This advantage has helped Amazon capture 53% of year-over-year growth in the
e-commerce market.14
Like Amazon, the main objective for many other e-retailers is to deliver the package faster and cheaper.
This is a driving influence for consumers as well. UPS found 92% of survey participants abandoned a
shopping cart more the once, with 50% of this purchase avoidance due to higher-than-expected shipping
cost.15 Today, UPS and FedEx, in partnership with USPS, deliver most packages to homes. Both UPS and
FedEx have announced plans to increase ground and home delivery rates by 4.9% this year, and USPS has
followed suit. To that point, shipping costs are only expected to grow. With online sales forecasted to
increase at a rate of 15% year over year and delivery rates susceptible to spikes, retailers must identify less
expensive alternatives.
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