Letter from the CEO: 2019 Outlook & Strategies to be Successful
By: Frank McGuigan, Chief Executive Officer, Transplace
The past year was challenging to say the least. The confluence of a high performing economy with finite trucking capacity that had already been impacted by regulatory changes, a driver shortage and severe weather events, resulted in capacity constraints and, ultimately, exorbitant freight costs. These challenges caused a number of service and cost issues for shippers throughout the year.
While it is not uncommon for the market to fluctuate and for rates to surge, the historic increase of spot freight prices in 2018 was unprecedented and caught many shippers off guard. With 2019 now in full swing, we’ve seen some relief from the arduous market we experienced last year, but there are still several things to keep an eye on. Based on what we’ve seen in recent months, here are some Transplace projections for the remainder of the year:
- There will be a balanced supply and demand of truck capacity. In 2018, the demand for truck capacity far exceeded the supply, causing spot market transportation rates to skyrocket. While capacity may tighten at various points throughout 2019, I don’t anticipate demand exceeding the supply of actual carrier capacity at 2018 levels, in fact supply is currently exceeding demand.
- Tender acceptance and routing guide compliance will improve. As a result of having more balanced capacity, tender acceptance from truckload carriers improved in Q4 2018 and should remain improved for the rest of the year. The impact to shippers will be a reduced reliance on spot freight and improved predictability of overall transportation costs and improved service levels to the end customer.
- Freight costs will become more manageable. The ability to lock in rates with core carriers and less reliance on the spot market will make freight costs more manageable for shippers. Although trucking carrier contracts will remain inflationary versus 2017, improved routing guide compliance will lead to better budget performance for shippers and provide much needed relief in terms of overall transportation costs.
Best practices to be successful in 2019
High transportation costs and increasingly complex supply chains brought freight “into the boardroom” last year, making it all the more critical for organizations to proactively examine their transportation network and logistics processes to determine where improvements can be made. Take a look at some best practices shippers should consider for improving their supply chain operations in 2019.
1. Utilize technology and logistics platforms to drive supply chain automation, optimization and visibility – Companies are constantly seeking new ways to improve supply chain performance and reduce costs while maintaining high levels of service to increasingly demanding customers. The capabilities of modern logistics platforms provide a level of near real-time visibility that has not been seen before in the transportation industry. In fact, organizations now have access to a holistic view of their entire network in real-time, allowing them to quickly and easily create dynamic dashboards comprised of key performance indicators to support better decision making. By employing these next-generation, intelligent logistics platforms, companies will be able to leverage immediate business activity updates, network history and a variety of unstructured data to automatically predict, plan and execute a transportation solution with high service at the lowest cost – driving measurable value across the supply chain.
2. Partner with third party providers to improve transportation processes and operations – While a TMS can have a significant impact on your supply chain operations, it’s not automatically going to fix problems in your network, improve service or enable continuous improvement. The right strategy and processes have to exist in concert with the technology in order to maximize impact. Unfortunately, many organizations do not have the human capital, industry expertise or IT infrastructure needed to most effectively manage their transportation in a more demanding world. For this reason, shippers should look to partner with a logistics provider that can provide a deeper understanding of market conditions along with the key processes and best practices that are necessary for supply chain excellence. Shippers not only gain access to a team of knowledgeable, experienced supply chain professionals and a comprehensive suite of technology and services, but can also leverage the 3PL’s size and scale. This combination of people, processes and technology can help drive meaningful and sustainable operational efficiencies, reduce transportation costs and improve service levels.
3. Leverage supply chain data to improve capacity planning – Advanced data analytics can help create an optimal carrier network during the procurement and bidding process. The ability to forecast these activities can help lower carrier costs and, if handled correctly, manage variations. In order to obtain the optimal bid results, shippers must create bid packages that include potential continuous move lanes, low volume lane strategy and other potential lane/customer segments. By utilizing advanced planning scenarios, shippers can model the future for carriers to bid against (versus static, historical lane data). Look at your organization’s forecast for any early indicators that there will be volume increases (e.g., seasonal surges, EOM/EOY spikes and promotions, etc.) at a given plant or distribution center, and then model out the impact for your transportation providers to understand how your network can best adapt to any scenario. This is also a best practice to adopt when operationalizing a bid. Your network will change based on supply and demand, consumer behavior, purchase price and more, so you need to be agile in flexing your network and working with your carrier partners to continually re-balance your commitments.
What industry trends or challenges are you keeping an eye on in 2019?