My job takes me to many logistics and supply chain conferences. This week I attended the Jump Start conference. This educational conference is organized by SMC³. SMC³ provides less-than-truckload (LTL) solutions in the form of transportation data, technology and expertise to shippers, carriers, logistics service providers and technology providers. Not surprising there were many LTL executives and the show was a good opportunity to learn more about an important mode of transportation that gets far too little attention.
My main take away from the conference was just how outrageously difficult it is for an LTL carrier to accurately understand the costs of many of their shipments. You cannot run an efficient company if you do not understand your costs.
Over the last several years, software providers have introduced much better costing analytics. So, for example a manufacturer can view their most profitable and least profitable customers and products. If the analytics are based on granular data collection, they can drill in and see, for example, that a certain product has is being shipped mainly to one customer located 1000 miles away from their factory. Further, the goods are shipped LTL (costlier than truckload) and the buyer pays late. A product with what seems like good margins is really a dog.
But it is much more complex in LTL. Bill Shults, Vice President of Cost Systems at SMC³, walked through this in some detail. In LTL there has been a shift from complex commodity class pricing to pricing based on the dimensions of the freight. This is good for LTL carriers. Products in the same class can have very different weights, dimensions, and handling characteristics. Dimming (dimensional pricing) makes pricing more accurate. More than half of LTL freight is now dimmed. But LTLs need to think not just about the dimensions of a handling unit, but the usable space the unit takes up. Pallets that do not stack, or very wide pallets, can take up more usable space than their dimensions suggest.
As is the case in most industries, activity-based costing is important, something other executives at the conference talked about. Further, trucks have head hauls and back hauls; a back haul may look unprofitable, but it is not if there was enough margin associated with the head haul. This means the head haul/back haul issue requires ongoing lane by lane analysis. Collecting all this data at the necessary level of detail, and then being able to act upon that data, makes analyzing profitability in this industry an ongoing challenge.
Bob Farrell, GlobalTranz‘s Executive Chairman, moderated a panel on Ecommerce and the Changing Freight Landscape. We think of ecommerce as being parcel and certainly last mile deliveries, outside of white goods and furniture, mostly are. But the first- and middle-mile deliveries do have a heavy LTL presence.
Some good nuggets came out of this panel. For example, Frank Hurst the President of Roadrunner Freight, talked about how they try to deal with the difficult costing and pricing environment. “We’ve invested in DIM machines. All but one small facility has these machines. We really try and gather information on the front end (of a contract). We get an executive out to the customer and invest the effort up front in pricing their loads right.” Others on the panel talked about how important it is to document all costing assumptions.
Joe Finney, COO of Dependable Supply Chain Solutions, gave an example of why trying to price moves up front can be difficult. A customer might say to a sales rep in a phone call, “‘Trucks come out here all the time.’ They think a UPS truck is a truck. We end up sending the wrong equipment.” You cannot send a 53-footer up a driveway in a residential neighborhood. And Shawn Graves, a Vice President of Transportation at JB Hunt, added that if a driver did try and drive up that driveway the owner might call the company and demand their driveway be replaced because a tire mark was left on their ornate tiled driveway.
Mr. Graves also talked about the advantages of density in being able to make money. In a conversation later that day, Mr. Farrell of GlobalTranz expanded on this idea. GlobalTranz is a leading 3PL, and they partner with many LTL carriers. For LTLs to make money, they also need to get good loads from their 3PL partners. GlobalTranz will embed analysts with large carriers who look to add tariffs that can cover if not all, then at least most, shipment eventualities. Mr. Farrell mentioned one leading carrier. They want “us to bring the right freight to them. They don’t want more freight, they want the freight that works in their network.”
Mr. Graves also raised the topic of optimization. “Optimization is key, but it is still not a science.” For example, if there is one stop on a ten-stop route that requires a two-man crew to unload heavy handling units, and the other stops do not, optimal routing is difficult.
Activity based costing is important too. JB Hunt makes white good deliveries for Whirlpool. Their teams not only deliver the goods, they install them. They have endeavored to know the installation times for each different appliance down to knowing how long it takes to unpack the box that model comes in
Sonny Catlett, a Senior Vice President at Henry Logistics, talked about how damages can eat into profits. Packaging that is right for the first mile, might be inappropriate for the middle- or last-mile. A 3PL needs “to look at each segment of the delivery.”
So how can companies deal with these complexities. One way is through investing in technology. All the companies on this panel talked about investing in data scientists. Mr. Graves of JB Hunt said “two years ago we had no data scientists. Now we have 20.” But data scientists need data. “We are now tagging data. You can’t query it if is not tagged.” And Mr. Mr. Hurst of Roadrunner added, it is also about trust. The analytics created need be widely shared. And the analytics can include scorecards for customers. While many shippers have scorecards to measure their carrier’s performance, JB Hunt also has scorecards on their customers.
The panelists also talked about the fact that it is not enough for them to cost and price their trips effectively, their competitors need to do the same. A competitor with poor costing can grab loads they can not make money on, but that were a perfect fit for another carrier’s network. In short, in this industry, Mr. Catlett concluded, “It’s tough to make money.”
About the Author
Steve Banker is the Vice President of Supply Chain Services at ARC Advisory Group, a leading industry analyst and technology consulting company. I engage in quantitative and qualitative research on supply chain management technologies, best practices, and emerging trends. I’ve been published in Supply Chain Management Review, have a weekly column in Logistics Viewpoints (www.logisticsviewpoints.com), and can be followed on Twitter @steve_scm or contacted at email@example.com.