3PL Perspectives
By Brian Hodgson, SVP, Industry Strategy at Descartes
Logistics service providers (LSPs) are seeking strategies to help navigate the capacity crunch and become more competitive in today’s volatile freight market. Relying on their own data and networks is not enough. LSPs need to find available capacity both inside and outside their carrier networks, understand which carrier is the right one to call first, and book loads faster to gain a competitive advantage. Easy, secure access to capacity information can make it happen.
Why is Capacity Tight?
Simply put, higher freight demand, driver shortages and ELD mandates have severely limited capacity on the road. Increased volume can be tied to economic growth, specifically ecommerce, which has affected distribution patterns to meet changing consumer demands. The lower supply of available capacity is attributed to the growing driver shortage, along with additional government regulations such as the electronic logging device (ELD) mandate.
Significant challenges, however, are preventing LSPs from executing more efficiently to address current market conditions:
- Finding capacity is a less-than-optimal, manual process of selecting carriers based on tribal knowledge that requires many time-consuming calls.
- Private web portals draw limited participation due to industry fragmentation and the resulting large number of sites to navigate. Subsequently, portals can’t provide a complete view of carrier networks, which means incomplete, stale or invalid information.
- Traditional load boards, as well as the silos that exist between load boards, portals and transportation management systems (TMS), make it difficult to qualify carriers and may result in service risks and higher rates.
- Understanding the capacity availability outside of existing carrier networks is a guessing game with limited or stale data available.
As a result, LSPs are weighing potential strategies to address the capacity crunch, including data-driven capacity matching solutions. New cloud-based network solutions that provide actionable and verifiable capacity data are gaining industry recognition as cost-effective, easily accessible strategies.
How Can Technology Help?
Data-driven technology solutions can help bridge the gaps created by today’s market. While exploring solutions to help address these gaps, LSPs can consider technology solutions that will:
- Automate the manual capacity sourcing/booking process: By eliminating time-consuming phone calls to their carrier network to locate and book capacity, LSPs can increase efficiency, speed and transportation savings.
- Visually depict market conditions: With real-time visual representations of available capacity, LSPs have a comprehensive understanding of available capacity both inside and outside of their existing carrier network.
- Unlock an expanded capacity network: By sharing information with trusted partners to free up previously inaccessible capacity when it’s needed, LSPs are more strongly positioned to spur business growth.
- Leverage only verified data: Access verified, consolidated capacity data that is collected from actual truck moves, ELD data, and other visibility technologies versus manually entered data that quickly becomes inaccurate.
How Does Capacity Matching Work?
Technology-based capacity matching solutions enable intelligent matching by providing access to actionable, verified data. Additional data points can include carrier strength by lane, geographic region, product expertise or special equipment needs. With this type of data at their fingertips, freight brokers and 3PLs can quickly prioritize and select the top carriers best suited to transport each load, and to identify which carrier to call first. This helps ensure the most qualified carrier is on the load.
More sophisticated solutions leverage ELD technology and real-time tracking capabilities to know the location of carriers’ trucks with capacity and help determine which carrier is the best fit. For example, the technology can track a vehicle moving from Chicago to Dallas that is scheduled to arrive in three days. The Dallas destination point for that truck becomes, therefore, a broker’s origin point for a load that needs to be covered at a future date. This increases on-time delivery and strengthens the relationship with the carrier by providing loads that fill potentially empty miles.
By eliminating the manual process of finding capacity and consolidating the fragmented nature of private carrier portals, the next generation of capacity matching tools aims to empower LSPs to operate more efficiently and intelligently.
Capacity Matching vs. Digital Freight
Given recent market conditions, some industry newcomers have introduced ‘freight marketplace’ solutions focused on efficiently booking carriers through automation. Their strategy aims to disintermediate traditional 3PLs and freight brokers, ignoring the deep expertise and relationships these companies bring to a complex industry.
With hundreds of thousands of carriers in the market, the vast majority of capacity lies with smaller carriers. Through years of working with individual carriers and a great deal of tribal knowledge, brokers have created large communities of carriers that provide great value to their clients. LSPs have the expertise and relationships with these carriers (which are often unknown to their shipper customers) to find capacity that is inaccessible, and to handle specific customer needs such as urban deliveries, refrigeration, special lanes, etc. In addition, in the process of serving customer needs, brokers often end up cooperating with each other in win/win scenarios.
Freight marketplaces are essentially relegated to the same day spot market because they don’t have these types of carrier relationships. They also cannot guarantee a large and relatively consistent volume of business to carriers. By contrast, the broker/carrier relationship is very symbiotic; they form working communities because they can rely on each other for business.
Although automating load information is the first step in tackling freight capacity problems, the ultimate goal is finding and booking the most qualified carrier. This requires intelligent capacity matching, which is enabled by actionable, verifiable data on a large scale. The ability of freight brokers and 3PLs to access capacity from a large variety of carriers makes them a vital resource to shippers and integral to consolidating the industry.
The Benefits of Capacity Matching
Capacity matching solutions that provide both market information and the ability to share verified data will undoubtedly bring efficiency to the sourcing and booking process. This can translate into both financial and operational benefits for LSPs. For example, understanding a carrier’s next move can allow
a team to book loads in advance, helping secure better rates while increasing the productivity of resources. Here are additional benefits associated with real-time capacity matching:
- Increased revenue: Consolidating carrier data and prioritizing target lists will free up employees to book more loads. If a broker managing 8-10 loads per day increases productivity 20-25 percent, this translated into booking 2 additional loads per day.
- Lower rates: Having visibility into capacity 24-72 hours ahead of pick-up offers a price advantage as LSPs do not have to compete in the “day-of” spot market and it protects margins in competitive lanes.
- Faster bookings: LSPs can cover loads faster by reorganizing the booking process to begin with available capacity information, which allows employees to avoid the labor-intensive process of gathering that data.
- Stronger Relationships: By reducing deadhead miles and increasing backhauls for carriers, LSPs can build stronger relationships.
- Expanded Network: By leveraging capacity outside of the existing network, on lanes and in geographies that could not be previously covered, LSPs grow their transportation network.
- Reduced Service Failures: With access to accurate, verified capacity data, LSPs help ensure the most qualified carrier is on the load.
Protecting Capacity Data
LSPs typically work with a fixed set of carriers where they have formed relationships. Understanding capacity availability outside the existing network is often speculation built around very limited data. To find available capacity outside of their network, LSPs must connect with a broader set of carriers. Capacity matching tools can help by creating an interconnected network that provides an efficient, safe space to share capacity data.
To encourage greater sharing of capacity data throughout the industry, LSPs need assurances that data will be secure. Because the value of the carrier network is part of an LSP’s competitive advantage, concerns about how, when and with whom capacity data is shared are understandable. It’s important, therefore, that technology solutions include measures to safeguard valuable information. While data security is a reasonable concern, the benefits of sharing capacity data within a trusted, scalable network are tangible and immense. Consider the competitive advantage of being able to exponentially expand your trusted carrier network and gain access to its verifiable market data.
One game-changing function in capacity matching for LSPs is the ability to protect the data of their most strategic partners’ in a voluntary, secure network. By opting into this network, LSPs can share unused capacity data with key partners in the network and, in return, obtain significantly more usable capacity information. The expanded access to actionable capacity data offers increased value to network members while providing privacy and building trust.
Parting Thoughts
Capacity matching technologies can offer efficiencies that augment an LSP’s expertise and carrier relationships. In a tight freight capacity market, technology can help brokers to find available capacity within their own network and beyond with carriers they haven’t historically used. With a much larger pool of available capacity and the ability to cover more loads in a fraction of the time, brokers and their shipper customers are poised to realize greater transportation efficiencies in the supply chain.
Brian Hodgson, SVP, Industry Strategy at Descartes, has over 20 years of sales and business development experience. He has worked with hundreds of companies to apply enterprise software and process improvements to drive value and cost savings in their supply chain and logistics functions. In 2012, Brian joined Oz Development, now part of Descartes, and has since rejoined the team to increase customer value, expand our product offerings and drive growth. Brian has held executive positions in sales and marketing with Kewill, SupplyWorks, Eleven Technology and Computer Network Technology. He received his Bachelor of Science in Electrical Engineering from the University of Waterloo.
About Descartes Systems Group
Descartes (Nasdaq:DSGX) (TSX:DSG) is the global leader in providing on-demand, software-as-a-service solutions focused on improving the productivity, performance and security of logistics-intensive businesses. Customers use our modular, software-as-a-service solutions to route, schedule, track and measure delivery resources; plan, allocate and execute shipments; rate, audit and pay transportation invoices; access global trade data; file customs and security documents for imports and exports; and complete numerous other logistics processes by participating in the world’s largest, collaborative multimodal logistics community. Our headquarters are in Waterloo, Ontario, Canada and we have offices and partners around the world. Learn more at www.descartes.com, and connect with us on LinkedIn and Twitter. Contact us at [email protected].
