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Nowadays, an extremely pressing situation is happening in the logistics industry: according to a study by consulting firm AlixPartners, in order to maintain margins and cope with the costs of low-sulfur regulations from the International Maritime Organization coming in 2020, ocean carriers must “impose significantly higher fuel surcharges in 2019”.

Surcharges need to increase  

Consulting firm estimated the container shipping industry needs to offset $10 billion in “incremental” costs starting Jan. 1, 2020. Carriers operating Asia-Europe routes would need to increase surcharges by 40%, and those on Asia-Americas routes would need to increase fees by 33%, to maintain their financial standing, the study estimates.

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Tough year for ocean carriers

In 2018, carriers began to announce fuel surcharges related to IMO 2020, much to the chagrin of shippers. Many of the surcharges took effect at the beginning of 2019, a year ahead of the low-sulfur deadline, in order to offset costs of preparation for carriers.

IMO 2020 may present the most immediate costs for carriers to tackle, but ongoing financial strife and trade uncertainty will contribute to a tough 2019 for ocean carriers.

In the following years appears that the ocean industry will continue the financial struggle. The Altman Z-score measures credit strength and bankruptcy risk, and a score of 1.8 or lower indicates a high risk of bankruptcy. The aggregate Z-score of 14 ocean carriers fell below 1.8 from 2011 to 2017, reaching a low of 1.24 in 2016, the year Hanjin filed for bankruptcy.

What does the future bring?

According to a study, although score rebounded to 2.02 last year “it’s a reminder that the industry remains under serious financial strain”. Future trade uncertainty does not bode well for ocean carriers. Weakness is expected by Maersk, particularly in China and Europe.

Given the ongoing financial strain to ocean carriers, “shippers can expect pressure from carriers seeking to recover their added fuel costs and improve profitability,” the study said.

According to the national Outbound Tender Volume Index (OTVI) national trucking volumes are almost exactly the same as they were last year. Being one year old in term of following freight market’s movement, those results may come as a shocker to those of us watching market regularly.

Spot rates are down 10-15% YoY and tender rejection rates have dropped from over 24% a year ago to 7.26% as of March 1, 2019. indicating carriers are accepting contracted loads at the highest rates since the Tender rejection Index’s (TRI) inception in early 2018.

The Discrepancy between volume and capacity

There are several factors that influence capacity and therefore rates of trucking capacity. The availability of trucking capacity is not simply correlated to freight volume.  For example, volume has a definitive impact on capacity, but the rate at which it enters the market and distribution are also important factors.

Volume entering the market rapidly from multiple origins is more disruptive to capacity than large volume coming from one area slowly, over a long period of time. Basically, the difference between 2018 and 2019. consists of those factors.

Impact on contracted freight rates

Capacity must be limited or oversupplied for longer than a week or two to cause any significant impact to long-term trucking rates. In recent months, there have been trucks available where they are needed. This has pulled spot market prices down rapidly.

There have been a few of events that occurred throughout 2017 when trucks were needed in and around Houston, Florida and then all over the U.S. in a matter of weeks. The two major hurricanes and massive amounts of retail freight flooded the market in the fall of 2017.

Increasing freight volumes in 2018

The largest ports in the U.S, Los Angeles and Long Beach sparked the steady increase of freight volumes who characterized the end of the last year. Amid the trade war concerns, record inbound international volumes flooded the port cities from China.

The ports acted like a regulator in the way they could not offload the freight fast enough to create significant disruption. The lead time to get freight into the country helped carriers position their trucks effectively, as shippers gave them plenty of notice.

Freight market as it is today

The southern California markets of L.A. and Ontario account for 8.15% of the total outbound volume of the contracted freight market. It has grown slowly over the course of the past 9-10 months and the rest of the U.S. has been relatively stable. To put it in perspective the markets had 5.41% in early March of 2018. This volume did not come all at once like the 2017 hurricane and retail freight did in 2017.With more freight originating from more widely dispersed markets and capacity concentrated on the West Coast, one of the big questions heading into spring is how well the freight market will be able to maintain this stability as volumes begin to increase in other areas of the country. This past week, 91 of the 135 markets all showed increases in volume over last month and 82 of them show week over week increases.

For starters, let’s just say that trucking is surely not what it used to be. Smart solutions have inherently changed the way goods are transported around the world with analytics creating a more efficient supply chain – and the industry knows it. 64 percent of executives think that big data and the insights it brings will have a disrupting power that can pivot the industry forever, according to Supply Chain Management World research.

But why wouldn’t big data and innovation be changing the game? Everybody’s using it – Amazon, Maersk, Walmart, everybody. The world’s biggest companies are already integrating tech-driven and data-backed solutions to make their operations as efficient as possible. In fact, one study found that 98 percent of third-party logistics companies (3PLs) and 93 percent of shippers believed data-driven decision-making was essential to supply chain activities.

Technology is truly revolutionizing how trucking companies deliver, and it is not only about speed – lives and money are also being saved in the process. So, let’s take a look at five technology and innovation trends which are disrupting the trucking industry:

Revolutionary electric vehicles

You’ve heard the hysteria surrounding electric and autonomous vehicles, but the technology is more than hype: it really is revolutionary.

You’ve all probably heard about Tesla and its autonomous electric trucks, but what about Nikola, or Einride or even such giants as Daimler and Volkswagen? Each of these companies is also making inroads into the trucks of the future. Trucks continue to be leveraging the latest technology for safety and efficiency.

These innovations include lane-assist and assisted braking features, which will lead the way to true autonomy. And with more advanced trucks, break-downs will be less common and repairs less frequent. Such advancements herald a seismic shift to the industry. But most importantly, reduced accidents from self-driving and assisted technologies are going to save a lot of time, money and lives.

Tesla and Volkswagen going forward

Though trucks are yet to reach complete automation, they can stay at a consistent speed and maintain a safe distance from other vehicles. One challenge facing electric vehicles at the moment is their travel range and charging infrastructure. Last year, Tesla revealed that its new Tesla Semi Truck will be able to drive as far as 800 km on full batteries and can get an additional 600 km range with just 30 minutes of charging.

While Tesla presents such numbers with the most expensive version of their truck, Volkswagen is already looking into delivering better results and at the same time decreasing the cost of the electric vehicles with solid-state batteries. This technology has further advantages over the present lithium-ion batteries: higher energy density, enhanced safety, better fast-charging capability and the batteries are taking up significantly less space. Therefore, it can lead to a 2.5x increase in the distance range for the electric vehicles.

But as regular vehicles need gas stations, electric vehicles cannot exist without a proper charging infrastructure. While such giants as BMW, Daimler, Ford and Volkswagen join together to create a high-power charging network across Europe, Tesla is already looking to improve its ecosystem worldwide with Tesla Supercharger Network. With such pace of development, this technology does not just look promising – it looks inevitable, therefore the industry should better prepare itself and embrace the electric wave and the potential of advanced trucks.

What’s real cost-saver?

And with more advanced trucks comes more precise driving. Improved driving systems now allow for trucking rigs to arrange into formations. These formations, intricately controlled by computers which communicate with one another, follow closely behind other trucks in their fleet. It is all made possible through telematics: the sending, receiving and storing of information via telecommunication devices to meticulously control remote objects, such as trucks. The end result makes for a long line of heavy vehicles heading in the same direction, one after the next after the next.

This method, named platooning, is a real cost-saver in terms of fuel consumption and emissions. The combined line of trucks works to combat wind resistance and traffic congestion. Think about it: it also works as a safety feature for the public as well. Instead of many trucks dotted all over our roads, this method creates a single, predictable file of large vehicles.

A good example of this in practice is the work done by Peloton. The company specializing in platoon technology and has proven fuel savings of 4.5% for the lead truck, and 10% for the following truck. Win-win. Although not yet widespread, platooning could soon be a regular feature on European roads thanks to the Ensemble project. A three-year project from 2018 is set to analyze how platooning impacts upon infrastructure, road safety and traffic flow.

Internet of Things makes everything better

It is easy to see why the Internet of Things (IoT) is having such an impact on trucking: better location tracking, better environment sensing, better fleet management, better eco-friendly shipping, better supply-demand balance. It is just better.

IoT forms a network of devices, vehicles and appliances which can actively share data. For example, networks of sensors mounted throughout the truck can monitor everything from tire pressure to load stability. Semi-autonomous and platooned truck systems, like those being developed by Peloton, will generate even more data for carriers and shippers to manage and make decisions. This exchange can drastically improve supply chain management and minimize the amount of human intervention that is necessary in any given situation.

Take for an example,  Kuehne + Nagel, one of the world’s leading logistics companies. They are using sensors and a cloud-based platform to provide shippers with real-time information about the location and condition of critical freight in transit. Their solution, which brings the Internet of Things to freight monitoring, provides users with alerts based on temperature, humidity, pressure intrusion detection, shock and tilt at the pallet or parcel level.

AI in service of Big Data

The relationship between big data and efficient delivery should not be understated. It’s all logistics: exact information on the location and real-time data analysis is revolutionizing the supply chain. However, to make use of big data, companies need to ensure that the data itself is of good quality, which is not typically the case in logistics.

Fortunately, using Artificial Intelligence algorithms can help to clean and enrich the data, significantly improves the data quality. Big Data paired with AI also allows companies to forecast highly accurate outlooks for shipping volumes and to optimize proactively: planning for future performance rather than focusing on historical expectations.

Take for instance Geodis, the worldwide logistics giant. Last year they launched Neptune: a platform which uses real-time co-ordination of transport activity, reporting and analysis of key performance indicators, and document archiving. With big data at its heart, the platform allows hauliers and customers to manage all their activities from a single platform in just a few clicks.

You have to admit, utilizing such tech was the next logical step: “The combination of big data, artificial intelligence and geolocation are at the heart of our current and future thinking and aimed consistently at further simplifying our customers’ activities; guaranteeing them new sources of productivity”, according to Geodis Executive Vice President of Road Transport Olivier Royer.

Nowadays we are facing with the rapid growth of e-commerce and that causes changes in our industry, from tightening up trucking capacity to elevating the importance of final-mile delivery processes. That is exactly the reason why managers today need to leverage diverse systems, thereby making processes more efficient.  

Opinion on how these changes influence the trucking industry we got from Jonathan Gold, Vice President of Supply Chain and Customs Policy for the National Retail Federation. In the following interview, Gold shared his insights and observations on the growth of e-commerce.  

1. How is e-commerce changing the way we approach logistics/distribution network strategy?

By eliminating the physical constraints of how much merchandise will fit into a physical store, e-commerce allows a retailer to offer a virtually unlimited selection of merchandise. But the more merchandise that’s offered, the more challenges there are in where it is sourced from, how it gets to the retailer, how it is sold to the customer and how it gets delivered to the customer. As retailers expand into options like selling products that are drop-shipped directly from the manufacturer to the customer or selling their products through third-party online marketplaces like eBay or Amazon, the complexity is even greater. Delivery and opening the box also take on greater importance. The way a company ships the product – is it traceable while on its way, does the customer get alerts, is shipping quick, when the box arrives is the product well-packed and does it arrive in good condition – is all part of the customer experience and can color how the customer feels about the transaction. Since an online customer doesn’t have the opportunity to visit a store or interact with a store associate the arrival of the box is the first tangible interaction with the company. It can make the difference between a good and bad brand experience.

2. How can e-commerce bring the information needed to allocate resources efficiently?

Data collected through e-commerce sales is critical to help retailers plan their supply chains down to the customer level. The data is incredibly important to properly plan inventory and additional resources.

3. How is e-commerce changing the way shippers approach carrier relationships?

The relationships and partnerships between shippers and carriers are becoming more and more important. The ability to provide services including last-mile delivery is crucial, especially with the speed that customers want to receive their products.

4. Has technology reached a level of maturity that certain key players such as ocean shippers, industry clearinghouses such as ISO standards, and public-private partnerships will step up?

Technology is continuing to evolve with e-commerce. It is important that all players in the field work together to develop seamless and interoperable standards that will work across many different platforms.

Finally, Gold adds that e-commerce is changing the way shippers are finding the labor they need “Finding the right labor workforce is always a challenge for all retailers, and especially so right now in time with some of the lowest unemployment levels we’ve seen in decades.  E-commerce is certainly in a similar situation as far as the needed skill set for a continually expanding workforce.”