Executive Briefings

The Future of Transportation Looks Flexible

Analyst Insight: Logistics decisions are executed to deliver a service at the lowest possible cost. There are various inefficiencies in logistics operations, and the overall supply chain, that make this seemingly simple objective a constant struggle. Some of those inefficiencies are self-imposed by shippers, as they attempt to drive stability in logistics to lower costs. Mode decisions and core carrier programs are examples of historical ways to drive logistics efficiencies. But they may be driving inefficiencies in tomorrow’s logistics operations. – Shanton Wilcox, Partner-Supply Chain Management, Infosys Consulting

The Future of Transportation Looks Flexible

Historically, shippers drive logistics efficiency by aggregating freight, selecting the cheapest mode and funneling loads to a limited number of carriers to increase spend and therefore "clout" with select carriers. Traditional transportation management software supports this strategy by compiling orders based on destination and delivery date into larger shipments, moving from costly LTL shipments to TL whenever possible, even selecting intermodal for transfer shipments. But this approach assumes a static state of the logistics industry, and ignores the daily ebb and flow of assets from market to market.

What if there was a different way, a more dynamic approach to driving logistics efficiencies that took advantage of the daily state of logistics operations that is ignored today. This wouldn’t apply to all of a particular company’s daily shipments, but would help in rush or unplanned situations. Today, this is the job of brokers, playing the role of match-maker between a load and an asset. But what if this role was “digitized” and spanned modes of transportation? What if shippers could see available assets in a market, with comparative pricing, and could directly tender freight in this digital marketplace? What would have to change?

To start, shippers would have to relax some internal constraints. Today, most shippers pre-plan shipments to take advantage of pricing contracts with pre-defined service levels. And this works to a great extent, but it leads to an imbalance of assets in certain markets. As carriers try to rebalance their assets and with their contracted freight, there is an opportunity to take advantage of this “arbitrage.”

Carriers would also have to be more transparent with their asset availability. They need to “publish” this capacity in real time in a marketplace environment that creates a pool of capacity for shippers to directly “shop” in, selecting a preferred carrier and price for a particular shipment.

And finally, this digitization would need to provide comparative pricing across modes. Shippers would need to be able to compare traditional LTL, TL and intermodal assets that are available in a specific market. This pricing would need to normalize the various pricing approaches and constraints that exist today across modes. The actual contracting may take the form of carriers bidding on freight or shippers selecting assets for a particular price. Either way, the marketplace needs to generate value for all to get shippers and carriers to participate.

The Outlook

A logistics marketplace is needed to achieve the next level of logistics efficiency. Today, too many transportation assets are unutilized or deadheaded to other markets based on the freight available to the carrier via contracts. This imbalance needs to be corrected, requiring shippers to relax transportation process constraints and carriers need to provide visibility to available assets. And the organization that provides the mechanism to match this demand and supply is positioned to reap the financial benefits from these digital relationships.

Historically, shippers drive logistics efficiency by aggregating freight, selecting the cheapest mode and funneling loads to a limited number of carriers to increase spend and therefore "clout" with select carriers. Traditional transportation management software supports this strategy by compiling orders based on destination and delivery date into larger shipments, moving from costly LTL shipments to TL whenever possible, even selecting intermodal for transfer shipments. But this approach assumes a static state of the logistics industry, and ignores the daily ebb and flow of assets from market to market.

What if there was a different way, a more dynamic approach to driving logistics efficiencies that took advantage of the daily state of logistics operations that is ignored today. This wouldn’t apply to all of a particular company’s daily shipments, but would help in rush or unplanned situations. Today, this is the job of brokers, playing the role of match-maker between a load and an asset. But what if this role was “digitized” and spanned modes of transportation? What if shippers could see available assets in a market, with comparative pricing, and could directly tender freight in this digital marketplace? What would have to change?

To start, shippers would have to relax some internal constraints. Today, most shippers pre-plan shipments to take advantage of pricing contracts with pre-defined service levels. And this works to a great extent, but it leads to an imbalance of assets in certain markets. As carriers try to rebalance their assets and with their contracted freight, there is an opportunity to take advantage of this “arbitrage.”

Carriers would also have to be more transparent with their asset availability. They need to “publish” this capacity in real time in a marketplace environment that creates a pool of capacity for shippers to directly “shop” in, selecting a preferred carrier and price for a particular shipment.

And finally, this digitization would need to provide comparative pricing across modes. Shippers would need to be able to compare traditional LTL, TL and intermodal assets that are available in a specific market. This pricing would need to normalize the various pricing approaches and constraints that exist today across modes. The actual contracting may take the form of carriers bidding on freight or shippers selecting assets for a particular price. Either way, the marketplace needs to generate value for all to get shippers and carriers to participate.

The Outlook

A logistics marketplace is needed to achieve the next level of logistics efficiency. Today, too many transportation assets are unutilized or deadheaded to other markets based on the freight available to the carrier via contracts. This imbalance needs to be corrected, requiring shippers to relax transportation process constraints and carriers need to provide visibility to available assets. And the organization that provides the mechanism to match this demand and supply is positioned to reap the financial benefits from these digital relationships.

The Future of Transportation Looks Flexible