Collaborative Supply Networks Can Resolve The Logistics Logjam

Road Transportation Is Fragmented And Wasteful

Road freight accounts for 30% of the global logistics spend at about US$1.9 trillion per year. But road transportation is a highly fragmented industry. Most North American carriers operate fewer than 20 trucks, and companies with fewer than 50 employees generate more than 60% of European road freight market revenues. It’s almost impossible for any single carrier to invest in the automation and shipper connectivity needed to generate routes that match vehicles and trailers of the right types to loads and available drivers.

In the United States, 36% of heavy-duty vehicles on the road are empty. According to the Bureau of Transportation Statistics, one out of every four trucks in service in the United States in 2019 was empty, two were nearly empty, and one was 51% filled. In the European Union, 20% of road freight kilometers were empty in 2020, according to recent Eurostat data.

Meanwhile, truck drivers are in short supply and fuel is increasingly expensive, yet the road freight industry suffers from colossal waste and inefficiency. This year, we’ve seen spot transportation rates boom and then plummet. This stresses shippers, carriers, and, most of all, independent-owner operators.

Collaborative Scheduling Can Boost Service And Reduce Waste

Manufacturing used to behave just like this, too, with desperate “progress chasing” and last-minute spot procurement. But sales and operations planning now synchronizes materials, labor, and production capacity, period by period, with expected demand. Why not do the same with transportation?

Our recent research on collaborative supply networks shows how shippers can collaborate with carriers, just as they do with contract manufacturers, component, or raw material suppliers. Transportation is a process, just like milling or assembly, with a setup or changeover time, a run time, capacity, expected cost, and duration. Cloud deployment and embedded AI help enterprises balance delivery experience objectives with freight cost concerns. In our research, we found that shippers investing in delivery networks virtualize fleet and yard management for long-term value and customer service. We also found that, as a result, they were divesting from transportation management systems that focus more on short-term freight rates.

But to integrate transportation in the value chain, supply chain leaders must share more reliable data about anticipated demand. They must rebalance their mix of contract and spot logistics procurement. Shippers tell us that exclusive focus on spot rates results in freight rate instability. They say that they can boost customer service more sustainably by collaborating with carriers on shared cloud platforms.

Please also look out for new research that my colleague Michele Pelino and I will publish next month on the role of edge technologies in supply chain. I would love to hear your point of view.