There are two terms no logistics professional likes to hear: empty miles and volatility. But sadly, they are terms all of us in the freight industry are all too familiar with. Both result in creating network-wide inefficiencies that affect all members of the freight industry.
There is a new-found reckoning in the industry that technology may be the answer to solving these issues. So we recently spoke to SemiCab’s Chief Product Officer, Vivek Sehgal, to understand how technology may play a role in addressing the industry’s biggest challenges, and how SemiCab, a Collaborative Transportation Platform (a term coined by Gartner) may help reduce empty miles for all players in the field. Here’s what Vivek had to say.
Q: What is behind the volatility and empty miles that have persistently characterized freight markets?
A: Let’s take a look at volatility from different perspectives. For a shipper, volatility is a lack of reliable supply at predictable prices. For a carrier, it is a mirror image: lack of stable demand at profitable rates. One key difference is that demand is generally stable in a geography (shippers keep shipping in the same lanes over long periods of time since their supply chain networks evolve slowly), but supply (trucks) is always on the move. This is a unique characteristic of this industry which causes initial volatility.
Temporary geographic imbalances between demand and supply affect prices, pushing them up in areas where there is more demand than the number of trucks and vice-versa. These price changes further affect behavior as carriers want to get to an area with higher prices, which adds capacity and in turn abates those higher prices. The demand-supply-imbalance hotspot moves to another geography and the cycle continues!
As carriers chase higher prices, they may be adding extra empty miles to earn a few extra dollars, but in the process, they are also moving capacity unwittingly. In some cases, carriers may be declining contract-based loads from shippers to move their trucks to high-demand areas. This forces shippers to look for spot-capacity, raising spot prices while bursting their own budgets in the process.
Some variability does exist in demand, but the freight industry’s unique characteristic of physically moving supply (trucks) makes the demand-supply equation much more volatile than in other industries. This affects pricing, further exacerbating the situation.
Q: How does the growth of ecommerce impact inefficiencies in the freight industry?
A: Ecommerce growth means we have an expanding network of locations: distribution centers, stores, and e-commerce fulfillment centers that are being placed close to consumers in order to fulfill customer orders reliably, and within hours. This has created new transportation demand for short and mid-haul routes that barely existed a few years back.
Unfortunately, short-to-mid haul routes are unattractive to carriers since it makes their assets less productive as trucks sit waiting for loading or unloading at the docks, instead of running. In turn, retailers are forced to build their private fleets or to get into dedicated fleet arrangements with carriers. This resolves some issues, but these fleets often add more empty miles into the network as they drive empty when returning to their warehouses.
Therefore, while it provides shippers with the control they desire on shipping operations, it also pushes their costs, and adds unnecessary carbon to the environment through empty backhaul miles.
Click here for the rest of the interview.
Or maybe you’re curious to hear more about what’s driving inefficiencies in the transportation industry and solutions to address these issues? We can help with that too! Check out our new guide Collaborative Transportation – The Antidote to Freight Market Volatility for all the scoop!