{"id":2370,"date":"2020-06-04T20:38:28","date_gmt":"2020-06-04T20:38:28","guid":{"rendered":"https:\/\/quicktransportsolutions.com\/blog\/?p=2370"},"modified":"2020-06-04T20:38:30","modified_gmt":"2020-06-04T20:38:30","slug":"welcome-to-the-future-of-freight","status":"publish","type":"post","link":"https:\/\/quicktransportsolutions.com\/blog\/welcome-to-the-future-of-freight\/","title":{"rendered":"Welcome to the Future of Freight"},"content":{"rendered":"\n

Trucking companies only generate revenue when they are hauling freight. Miles that trucks run empty are doubly wasteful. The motor carriers\u2019 fixed costs of truck payments and insurance grow by the day, and variable costs like fuel still must be met. From the shippers\u2019 perspective, empty miles are a waste of potential trucking capacity \u2014 the needless reduction of available capacity introduces artificial scarcity and drives up prices. It\u2019s a negative on both sides. <\/p>\n\n\n\n

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According to data in FreightWaves\u2019 SONAR platform, the trucking industry\u2019s empty mile rate averages between 12% and 13% across equipment types. Dry van trailers, the most abundant and commoditized type of equipment, average little more than 10% empty miles while reefer and flatbed trailers deadhead more often. In an industry with operating margins often below 10%, empty miles are a serious drag on motor carrier profitability.<\/p>\n\n\n\n

Trucking companies have every incentive in the world to\nreduce deadhead, but they\u2019ve been unable to move the needle. Why? There are two\nreasons: freight flows are inherently unbalanced, and carriers have limited\ncustomer bases.<\/p>\n\n\n\n

A Closer Look at Freight Flows<\/strong><\/p>\n\n\n\n

Freight flows in North America \u2014 and globally \u2014 are\ninherently unbalanced. Some freight markets produce freight in excess of what\nthey consume while other freight markets consume freight in excess of what they\nproduce. <\/p>\n\n\n\n

Trucking companies call productive markets \u2018headhaul\u2019\nmarkets: these markets, which tend to always run short of trucking capacity,\npay higher outbound rates to trucks and are attractive to carriers. Carriers\ncall consumptive markets \u2018backhaul\u2019 markets: these markets, which tend to\nalways run short of freight, pay lower outbound rates to trucks and are\nunattractive to carriers.<\/p>\n\n\n\n

Los Angeles and Memphis are quintessential headhaul markets,\nwith outbound freight flows nearly always exceeding inbound flows. The Los\nAngeles market, of course, includes two enormous ports that together account\nfor 23% of the continent\u2019s container traffic, much of it Asian imports. In\nMemphis, the country\u2019s third-largest rail hub connecting the eastern and\nwestern railroads is in a fairly poor city that does not consume much freight.<\/p>\n\n\n\n

Miami and Seattle are quintessential backhaul markets, with\ninbound freight flows nearly always exceeding outbound flows. South Florida is\npopulated by upper middle class and wealthy retirees who consume goods but do\nnot produce them; the tourist, financial, and entertainment economies of the\nregion likewise do not produce significant outbound freight flows. <\/p>\n\n\n\n

Similarly, Seattle is a wealthy city whose economy is\npowered by the technology industry: even the Tacoma port does not bring in\nenough freight to flip Seattle into a headhaul market.<\/p>\n\n\n\n

So, one of the problems contributing to waste in the\ntrucking transportation industry is rooted in the uneven geographic\ndistribution of freight production and consumption. The other problem has to do\nwith how carriers sell their capacity, their limited number of dedicated\ncustomers, and the bets they place on the spot market.<\/p>\n\n\n\n

How Capacity Plays a Part<\/strong><\/p>\n\n\n\n

When trucking capacity is tight, carriers make more money by\ntaking ad hoc freight on the spot market, sacrificing the coherence of their\nnetworks for lucrative rates per mile. When trucking capacity is loose,\ncarriers make more money by servicing dedicated customers with predictable\nvolumes and lanes. In other words, carriers manage their capacity according to\nchanging market conditions \u2014 and they normally lag market conditions,\nover-exposing themselves to downside risk without fully capturing the upside.<\/p>\n\n\n\n

Without being able to fully commit to a strategy \u2014 dedicated\nor spot \u2014 motor carriers face structural obstacles to optimizing their\nnetworks. Dedicated customers may use their capacity to ship freight from\nChicago to Atlanta, but not in the other direction. <\/p>\n\n\n\n

Furthermore, sales teams siloed from operations and chasing\ncommissions based on revenue, not profitability, sell capacity to customers who\ndon\u2019t fit into the carrier\u2019s existing network, creating further inefficiencies.<\/p>\n\n\n\n

The combination of inherently unbalanced freight flows and\nspecific, limited customer bases create inefficiencies in carrier networks that\nreduce profitability and drive up costs for shippers.<\/p>\n\n\n\n

Surging spot rates don\u2019t make up for sloppy asset\nutilization, and large enterprise trucking\ncarriers<\/a> know it. That\u2019s why publicly traded trucking carriers often report\nthe proportion of loaded miles to empty miles run by their tractors.<\/p>\n\n\n\n

Take Knight-Swift (NASDAQ: KNX), the country\u2019s largest\ntruckload carrier, as an example. Knight-Swift recently reported its financial\nresults for the first quarter of 2019, and some of the operating metrics\nincluded in the release highlight the importance of asset utilization. KNX\u2019s\ngross revenues dropped 5.2 percent compared to the first quarter of 2018, even\nthough revenue per loaded mile (or rate per mile) increased 9.4 percent. Why?<\/p>\n\n\n\n

Digging a little deeper into the numbers revealed that\nKnight-Swift\u2019s miles per tractor were down 8.7 percent and the carrier\u2019s\npercentage of empty miles increased to 12.9 percent. Despite significantly\nhigher rates, Knight-Swift brought in less money than it did a year ago because\nits trucks ran fewer overall miles and ran more empty miles.<\/p>\n\n\n\n

A Tale of Empty Miles<\/strong><\/p>\n\n\n\n

Meanwhile, small and regional carriers without extensive networks of facilities, market data, load-planning software, or diverse customer bases are forced to fixate on rates per mile. Owner-operators and drivers for small fleets congregate in Facebook groups like \u201cRate per mile masters\u201d and \u201cTrucking: Rates and Lanes\u201d to compare notes and share market information in manual, error-prone communications processes.<\/p>\n\n\n\n

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It doesn\u2019t help that the equipment types commanding the\nhighest rates per mile have the highest percentage of empty miles. Reefers tend\nto run more empty miles because food production is highly concentrated while\nfood consumption is highly distributed. <\/p>\n\n\n\n

Flatbeds tend to run more empty miles for a variety of\nreasons: they handle one-off projects like specialized equipment moves, active\nconstruction sites are always in new places, and rarely do commodities like\nbuilding materials have balanced two-way freight flows.<\/p>\n\n\n\n

Again, the waste of trucking capacity drives up costs for\nshippers and makes it difficult for carriers to calculate the true\nprofitability of any single load.<\/p>\n\n\n\n

Furthermore, the electronic logging device mandate has\nnarrowed the time span in which small carriers and owner-operators \u2014 who had\nlower rates of ELD adoption than enterprise carriers before the mandate \u2014 can\nrun miles and generate revenue. The waste of trucking capacity, then, occurs on\nboth a distance (empty miles) and time (nondriving hours) basis.<\/p>\n\n\n\n

How to Address It<\/strong><\/p>\n\n\n\n

Trucking companies should look for a platform that optimizes\nfor asset utilization based on both of empty miles and nondriving hours;\ndeadhead miles and hours of service, in order to increase its carriers\u2019 revenue\nper tractor per week by about 20%.<\/p>\n\n\n\n

Creating a \u2018dedicated\u2019 experience for both shipper and\ncarrier requires dynamically managing capacity and freight volumes across an\narray of regional players. An advanced platform builds dense circuits and adds\nor subtracts loads and trucks on an on-demand basis, integrating upstream\nsupplier information with carrier data sets like preferred destinations and HOS\navailability.<\/p>\n\n\n\n

Freight platforms need two things in order to achieve asset\nutilization: critical mass and data. Transportation companies need something\nthat enables both shippers and carriers to optimize their operations. <\/p>\n\n\n\n

A good platform will effectively serve as integration layer\nbetween many shippers and many carriers to automate the process of matching the\nright load with the right truck at the right price. There are two primary ways technology\ncan do that, by making truckload transportation more efficient, and driving\nshippers\u2019 costs down while increasing carrier revenues.<\/p>\n\n\n\n

The first is by optimize for asset utilization. Automated\nfreight matching can solve for different problems. A platform designed for\nshippers may be geared toward finding the cheapest available truck, while a\ncarrier-centric platform might be built to send trucks to markets with high\nspot rates or to find loads that will reposition the truck closer to a driver\u2019s\nhome. <\/p>\n\n\n\n

A 3PL handling critical freight may want its algorithms to\nfind the nearest available truck regardless of cost. In short, for a\nload-matching algorithm to decide which truck is the right truck for a load\n(and vice versa), it has to be trying to solve a specific problem\u2014it has to\ndefine what \u2018right\u2019 means. Solving for asset utilization makes sense for\ncarriers because a lower rate per mile, say, $1.80 per mile versus $2 per mile,\nis far more desirable than deadheading at $0 per mile. Solving for asset\nutilization also makes sense for shippers because it frees up capacity and\nlowers its cost.<\/p>\n\n\n\n

The second way that technology drives efficiencies in\ntruckload transportation is by building virtual \u2018dedicated\u2019 customers and\nvirtual \u2018dedicated\u2019 fleets out of multiple shippers and multiple carriers.\nDoing so requires systems to look deep inside customers\u2019 supply chains to\ngather and analyze upstream data, so that it can help position assets where\nthey are needed even before loads are tendered. <\/p>\n\n\n\n

Shipper facilities are also analyzed so that customers learn how detention times at specific nodes in their networks are correlated with transportation costs. Improving scheduling at docks, so that the notification of an early or late shipment actually causes on-the-fly adjustments to be made, maintaining constant throughput.<\/p>\n\n\n\n

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Let\u2019s put this in simple terms. Imagine two freight\nmarketplaces: the first has a combined 100 trucks and loads; the second has a\ncombined 200 trucks and loads. Metcalfe\u2019s law states that it is actually four\ntimes easier for the second marketplace to match freight than the first\nmarketplace, not just twice as easy. And the best way to address that is\nthrough technology. Welcome to the future of freight. <\/p>\n","protected":false},"excerpt":{"rendered":"

Trucking companies only generate revenue when they are hauling freight. Miles that trucks run empty are doubly wasteful. The motor carriers\u2019 fixed costs of truck payments and insurance grow by the day, and variable costs like fuel still must be met. From the shippers\u2019 perspective, empty miles are a waste of potential trucking capacity \u2014 … Read moreWelcome to the Future of Freight<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":2177,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-2370","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-trucking"],"yoast_head":"\nWelcome to the Future of Freight - Quick Transport Solutions Trucking Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/quicktransportsolutions.com\/blog\/welcome-to-the-future-of-freight\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Welcome to the Future of Freight - Quick Transport Solutions Trucking Blog\" \/>\n<meta property=\"og:description\" content=\"Trucking companies only generate revenue when they are hauling freight. Miles that trucks run empty are doubly wasteful. The motor carriers\u2019 fixed costs of truck payments and insurance grow by the day, and variable costs like fuel still must be met. From the shippers\u2019 perspective, empty miles are a waste of potential trucking capacity \u2014 ... 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