SemiCab - Webinars

Webinar: Virtual Dedicated Capacity—The Antidote to Freight Capacity Volatility

The long-haul trucking industry faced another year of unpredictable and volatile demand. The ongoing COVID-19 pandemic presented peaks and valleys in shipping needs on the shipper side, and a difficulty to forecast demand on the carrier side. Today, both shippers and carriers need to redefine their criteria for success.

Shippers can no longer focus on just capturing savings through reduced rates – their key objective must be to secure reliable capacity at stable and predictable prices. Carriers and 3PLs cannot continue to gamble on the spot market and dynamic pricing approaches – it makes it too difficult to keep their assets and drivers fully utilized, manage finances, and run a profitable business.

Watch this webinar for an overview of 2020 truckload (TL) market capacity trends and for insight into Virtual Dedicated Capacity – a new approach to navigating freight capacity volatility in one-way contract carriage.

WEBINAR TRANSCRIPT

On Wednesday, 12/9/2020, SemiCab hosted a webinar, Virtual Dedicated Capacity: The Antidote to Freight Capacity Volatility. We discussed dynamic pricing, dedicated fleets, and freight marketplace volatility, along with our solution to the issue: virtual dedicated capacity through SemiCab’s predictive optimization algorithm.

Below is an edited transcript of the Webinar. If you would like to watch the webinar, you may do so by clicking here.

Moderators:
Noelle Abarelli
Ajesh Kapoor

Panelists:
El Marie Hugo
Chris Russell
David Thomas
Jagan Reddy

Noelle:
Welcome everybody to today's webinar, Virtual Dedicated Capacity: The Antidote to Freight Capacity Volatility. Thank you so much for joining us. First, we're going to introduce our expert panelists, and then we'll dive right into the juicy stuff. We'll start with a quick look at freight industry trends, in regards to volatility and specifically the impact of dynamic pricing. Then we'll go over what actions have been taken and are currently underway to address this volatility. And finally, we'll cover what we believe to be the only solution to freight capacity volatility, the combination of virtual dedicated capacity and predictive optimization.

Our panelists today are; ElMarie Hugo, an accomplished industry and supply chain leader with over 20 years of experience in supply chain orchestration, contract logistics, 3PL, and 4PL. Next up we have Dave Thomas. Dave is the senior manager of global supply chain network optimization for HP. He leads a global team responsible for logistics and transportation optimization for all areas of mode and transport.

We also have Chris Russell joining us who is the customer success manager with Blue Yonder. He has decades of experience. In his current role, he helps customers navigate the digital transformation of their supply chain and realize value in their supply chain applications.

Finally, we have Jagan Reddy who is the co-founder of SemiCab. He has over 20 years of experience leading large scale business transformations and modernization initiatives that enable organizations to realize growth, profitability and sustain value. Jagan, I'm going to hand it over to you to get us started today.

Jagan:
Great. Thank you, Noelle. Good afternoon, everyone. Thanks for joining.

We'll go ahead and kick it off with the founding premise of SemiCab. When we came together a few years ago to found SemiCab, we recognized that volatility is here to stay. It's driven by macro economic shifts, regulatory changes, and global events. We said that volatility will drive supply and demand pendulum swings in transportation, so how do we help shippers and carriers cope with those pendulum swings?

Take the last three years, for example. 2018 was tough, largely driven by the ELD mandate, driver shortage, and economic volatility that hit us all at the same time, causing massive capacity shortages. And then in 2019 the pendulum swung the other way in spite of a strong economy coming out of 2018, where capacity was extremely tight and you expected it to drop off a little bit, but it fell off a cliff. There was so much capacity out there, that rates began to fall pretty hard and fast, causing a large number of carrier bankruptcies.

And we all know what kind of a year 2020 has been with COVID and the effect it has had on our personal lives, global supply chains, and transportation as an industry in particular.

ElMarie Hugo:
Yeah, if I could just jump in here, Jagan. I think you're right. This year's definitely been a rollercoaster. Demand in 2020 has been all over the place. We see players such as UPS, FedEx, and Amazon having to ramp up their capacity and still falling short by a huge margin. And you can see this in home deliveries, which are getting slower and slower. Cmpared to last year, tracking volumes first increased by about 30% as a result of the panic buying and then they dropped drastically. And now we are seeing it tick back up again. And we also saw that railroad volumes declined by 20%, and they have not yet recovered.

And last mile deliveries have surged more than 10 times over. I think that's where consumers are seeing the biggest disruptions.

Chris Russell:
I agree. I think we do a lot of best practice sharing and this volatility continues to haunt the market, right? Many shippers that we talked to are using digital brokerage, and they're reporting that dynamic pricing right now is out of control. They're seeing that compared against their spot market and their carrier rates, it’s sometimes three or even four times higher than what they've seen in the past.

David Thomas:
Yeah, I agree. I think volatility is the name of the game these days. When I talked to my executives at my customers, that's the number one thing on their challenges list, how much volatility there is not only in demand, but also in supply, throughout the supply chain, regardless of what kind of company they are. And I know we're going to talk about digital and freight marketplaces, you would think that these marketplaces would have pricing that tracks with the spot pricing, but that's out of kilter now, too, with these big whipsaws in demand and supply.

Chris Russell:
Right, and what we're really seeing is the impact around budgeting. Shippers, ourselves, and others that we were talking with, they're having to look at their budgets every three to six months and try to explain that to their finance people because they really have no way of seeing that far forward, it's become very difficult for them.

David Thomas:
Yeah, just to add, I have a customer, your fortune 50 type who is very proud of the way they budget everything. And in some of the reporting we did in the spring, they actually made money off of having tenders rejected because the prices were so out of whack, right? So all that purchasing time and effort they put into getting those contracted rates, having that rejected actually, was less money.

ElMarie Hugo:
Yeah, I think it's fair to say that volatility has become a hallmark of this industry, right? And even though on the surface it seems that digital brokers and dynamic pricing are a solution to the problem, it may in fact, not be the case. And I think the whole intention of bringing these dynamic marketplaces into being was really to provide transparency to the shippers so that they had a better view, instead of just a single pass to market through a contractor who was doing it on their behalf. But it doesn't seem to bring the equilibrium back to the market.

Chris Russell:
Right. Digital brokerage solutions do bring some transparency, and certainly some automation. So you can do automated tendering and automated looks for capacity. But there's always a trade off there with pricing and quality.

ElMarie Hugo:
Yeah. Back to the visibility issue, the dynamic pricing approach is really there so they can deploy transparency and real time pricing, so that they can have that immediate request made into the spot needs. But if they're small enough, there are significant steps to solving that freight volatility, but for the bigger players, it really is turning into a problematic situation and undermining their margins.

Noelle:

Can you tell us a little bit more in detail about dynamic pricing? And what are some of the downsides that shippers are experiencing?

David Thomas:
Dynamic pricing refers to pricing that changes automatically, as the market conditions drive change in that supply and demand. Over the last couple years that's been touted as a solution for volatility in the freight markets under the assumption that it protects shippers from cost overruns. But if you really look at it, freight’s more complex than a demand and supply equation, because on any given day the capacity available is either going to increase or decrease based on the demand that slides up and down based on those market conditions. So the dynamics of any freight lane within any given day really causes those rates to swing from hour-to-hour, day-to-day, week-to-week, and I think you see that in other areas as well, when you're trying to use a different service that is rated based on the frequency. So I think it's a day-to-day swing that controls that.

Chris Russell:
Right, and it’s also an extension of how larger shippers, over time, become mature with their use of a TMS, and due to management requirements, need to find different ways to improve the bottom line. Dynamic pricing can help at first, but once that option is exhausted, what’s next for them? While there is value, the fundamental issue of volatility isn’t solved.

ElMarie Hugo:
Yeah, I think in summary, dynamic pricing can help, but once that option is exhausted, what's next? And we see continuous downward pressure on budgeting for capacity and transportation. So while there's value, the fundamental issue of the volatility isn't solved. And I think the ironic part is that shippers, digital freight brokers, and carriers operating in this dynamic environment often end up perpetuating this volatility as the market demand goes up.

Carriers move their equipment to lanes where they are likely to get higher prices. And this creates capacity scarcity in other lanes, which causes prices to go up. And I know that some of these players are in fact mining this data for this very reason, they want to be able to capitalize on that. So in a similar fashion, as the demand goes down, the excess capacity leads to downward pressure on prices leading to carriers not being able to sustain their operations.

So, digital brokers and dynamic pricing can help with capacity, but the volatility is still prevalent. And this is one of the reasons why shippers are relying more and more on dedicated fleets, because that's really the only way in which they can protect themselves against that volatility.

Noelle:
Dedicated fleets seem to be a reasonable solution in terms of making sure you have capacity. But what are some of the pros and cons of working with dedicated fleets?

Jagan:
I'm sure David could reinforce this, but it's always a trade off between getting certainty and getting a commitment, but the trade off may be cost and that cost can come in different forms. It can be missing opportunities in the market or it can be underutilization. As shippers, you're not only looking at capacity, but also for capabilities and flexibility, so they can scale if they need to.

Chris Russell:
Right. And then I think the customer side of this is the key right? Early in my career, I managed a dedicated fleet, with that Iwas able to ensure that my client felt they were getting the attention they deserve by having that same person deliver to them every week. They get to know that person, and as we know, it's hard to say no to someone you have a relationship with. But the cost is high. It extends the number of deadhead miles you're paying for roundtrip, you have drivers that are out that you have to pay for. So you get some value from a customer perspective, but it also drives the cost of your driver and underutilization up. And you have to balance that.

ElMarie Hugo:
Yeah, and I think dedicated fleets only serve the short and mid haul, which means that long-haul freight remains stuck in that volatility cycle. And as more and more shippers turn to the dedicated fleets, we’re seeing more empty backhaul miles, which makes this option more expensive. So the issue with obtaining reliable capacity evolves into the higher transportation cost, which is linked to the empty backhaul mile, so it becomes a self-fulfilling cycle.

Jagan:
And so at SemiCab, we said, what if shippers could get dependable capacity, lower costs, and sustainable relationships? Imagine having the benefits of a dedicated fleet with the flexibility of one-way carriage without the fixed cost and under-utilization associated with dedicated fleets.

What if carriers could get fully loaded miles and guaranteed minimums, without any risk and with access to the growing ecosystem demand?With SemiCab, you have access to a large growing demand of loads with shippers across the network. That's really what led us to the model of virtual dedicated capacity that we created at SemiCab.

ElMarie Hugo:
Before you go on Jagan, I just want to emphasize the true weight of what the SemiCab model really presents. Yes, you are bringing dedicated capacity, but you're also bringing security to shippers, and that makes SemiCab stand out from any of the other players out there. SemiCab is taking on the risk and the liability of the shipments, which in many instances is not the case. It's a huge cost saving, and it plays directly into your ROI evaluation in terms of your balance sheet and your income statement and your evaluation for shareholders.

So it's not only in terms of assets, but it's also in keeping truck drivers and the carriers happy, long-term, engaged, and busy. And with a shortage of drivers that we see in the market. That's a really important point. We've seen a huge deluge of people, due to their age and related demographics, leave the sector, and there's not an influx of players that is adequate to meet the deficit that is slowly growing. The average age of a driver in this country is a white male at age 55, who’s ready to retire, and has no intention to stay away from home anymore. He wants to sleep in his own bed at night, which is totally understandable. So this is what the virtual dedicated capacity really plays to. It's more than just the immediate tangible. There are a lot of intangibles embedded in there, too.

Noelle:
I think our audience is pretty familiar with dedicated capacity. But Jagan, could you tell us more about the concept of virtual dedicated capacity?

Jagan:
Yeah. So when we think about it from a shipper perspective, really the two primary objectives for them are reliable capacity with high quality so they can deliver service levels that they commit to. And then the second is managing costs and transportation budgets.

So what the virtual dedicated capacity model does is it provides all the benefits of dedicated capacity, but with the flexibility of a one-way lane-based model, delivering to all of the objectives of the shipper: quality service levels, stable pricing, where shippers don't have to don't sign a multi-year dedicated IP contract. They can get access to capacity that's virtually dedicated to them. And because we're approaching it as a network model, we're creating efficiencies by bringing in shippers while eliminating empty miles from the overall transportation network. And that naturally flows to cost savings for shippers.

Chris Russell:
So Jagan, it sounds like virtual dedicated capacity is a solution to this volatility we're talking about. But you also get the best of both worlds, and that makes it quite different from the dynamic pricing model because it reduces volatility as opposed to amplifying volatility in pricing. With virtual dedicated capacity, you're saying that you'll be able to build long-term sustainable relationships just like the best of the dedicated carrier world, but still get the savings. Is that a good summary?

Jagan:
That's a great summary, yeah.

David Thomas:
Right. And dynamic pricing means capacity is sourced from small carriers and owner-operators, which is ever-changing as ElMarie just spoke about. With virtual dedicated capacity, shippers have access to capacity, but it's sourced from the shippers’preferred carriers. With dynamic pricing, in terms of safety, insurance, and compliance, there are some risks to contend with. And worst of all, it doesn't create any new efficiencies from a network standpoint. With virtual dedicated capacity, there's no risk and new network efficiencies are created with elimination of empty miles.

One of the many benefits to utilizing dedicated capacity is that flexibility around that one way carriage. And what you're going to really see with large companies going forward is that sustainability is going to be one of the key deciding factors that they focus on. Large shippers are going to be looking at sustainability, and how it impacts their carbon footprint. And this helps because you're not running empty miles that are creating that extra carbon footprint.

Chris Russell:
Yeah, that's a good point. Sustainability is moving to the top of everybody's agenda right now in the fortune 500 world. People are looking for ways to align with sustainability goals. But David, as a shipper in transportation, all of these decisions on technology and business change. They're all based on the bottom line. They're all based on value propositions. So how do you justify this to your business executives in your company?

David Thomas:
When you look at this it hits all the targets, you get the capacity, you get the delivered quality, which helps with that customer experience that we all strive for. And more importantly, is the ability to hit service times with the different penalty programs that retail shippers or customers have today. It really helps being able to guarantee that service. It drives down cost, which helps from a margin and a revenue standpoint. So, how does it all work?

Jagan:
The whole model is underpinned by our platform where predictive optimization is the core. That's leveraging the power of the network. So what the predictive optimization does is it aggregates loads across one-way loads across the shippers in the network, and creates this kind of aggregate picture of the demand. And then it pulls together dedicated capacity by sourcing from shippers’ preferred carriers, so that you get all the benefits of collaboration, and the power of aggregation across shippers, without the overhead and complexities of managing any collaboration attempts that you may have had to deal with in the past. Technology is the operating model of SemiCab, bringing demand and supply together.

ElMarie Hugo:
I want to re-word what you've said Jagan. As we know, Gartner recognized SemiCab as a Cool Vendor in Supply Chain Management back in April of this year. The premise of that award was based on the fact that you've introduced something innovative into this industry, which has been pretty much a dinosaur in its being. We've seen very little innovation introduced into this market. People have blamed volatility on the ELD mandate, on a shortage of drivers and capacity, and now there are people who say there isn't a shortage of capacity, it's just distributed incorrectly. But I think that's where your solution plays such a pivotal role.

Virtual dedicated capacity really brings balance into the market with its unique value creation model. And it ensures that shippers are getting reliable access to capacity with guaranteed savings, and at the same time they are de-risking carriers with an all-miles-paid model. It gives them access to large volumes of loads without exposure to risk. So essentially, the benefits of a dedicated fleet are presented to a shipper without the cost embedded in the management they're outsourcing. And in addition to that, there's flexibility on your one way carriage, so you're really giving them the best of all worlds.

And I think this is a problem that many shippers have faced for a number of years. If you speak to the big 25 who are recognized by Gartner as Leaders in the supply chain, the PNGs, the Pepsi's, Coca Colas, blah, blah, HP as well, they’re all facing this same problem, right?

This is really what you're aiming to achieve. You need to get the product to the consumer, you don't have the time and the internal IP to work on problem-solving, and here it is being handed to you. You just need to introduce SemiCab as a no-riskintermediary solution to your business. So it really is about how they build sustainable relationships and how they can create an ecosystem where all players benefit. And it's, to use a corny cliche, a win-win. It really is beneficial to the whole ecosystem. And it goes from carbon footprint right through to the driver of the truck who benefits from the promise.

Noelle:
It's been a great conversation. And I know we've got some questions coming in. So let's switch gears and start taking some of those questions. Ajesh is going to help us run through them.

Ajesh:
Happy to do it. First, in terms of volatility, now that we have COVID vaccines from Pfizer and Adana coming in, do you think that will have a significant impact on volatility in the short-term in the next six to 12 months? Or is it still going to continue?

ElMarie Hugo:
I think it's going to continue for a long time still to come. I think the capacity to manufacture vaccines is a huge bottleneck. And in addition to that the supply chain challenges of distributing these products is going to pose huge obstacles in pharmaceutical distribution. Governments will need to be very proactive in establishing hubs in very central points from which they can distribute within the time limitations of product efficacy. And the leaders in the vaccine race will be the ones who have a product that is not going to be subject to a minus 100 degrees distribution requirement. I think the capacity simply isn't at the level to get us where we need to be, with products getting to consumers in a safe manner with secured product advocacy.

David Thomas:
Yeah, and overall, I think it's not whether or not the volatility is going to go away. I think we've entered into a new way of doing business as a result of this last upheaval, right? This last step, this disruption, there's a lot of risk and a lot of capacity. How many years have we been talking about building resilient supply chains? 10-20 years, and I think this just showed us how fragile our supply chains really are. And so, I think we'll be living with some form of volatility going forward as a new way of doing business.

Chris Russell:
Right. And I think COVID is a multi-generational event. But we deal with volatility and different events that have happened. Before this, it was the geopolitical events that were driving some of the global trade and shifting the networks around. So hopefully, we will never see it at this level again, but there's something that's going to follow behind this that we're all going to have to focus on.

Ajesh:
I don't know if it's such a good thing for shippers in general, but this is something underpinning the industry, I think the volatility has always been there, it's just becoming more and more extreme lately.

Another question: If dynamic pricing is one of the causes for freight marketplace volatility, why don’t shippers and carriers switch to binding contracts, would that not be a way to eliminate volatility?

ElMarie Hugo:
What could happen is that the binding contracts between the individual shippers and carriers will actually allow an equal network efficiency which could exacerbate the problem. And that's what we've seen historically, right? Shippers have historically maintained a split between dedicated and non-dedicated, where they've got spot markets because they're trying to find the best of two worlds. David, you’re probably best positioned to comment on that because you've been in that space managing it.

David Thomas:
Yeah, I was trying to think of how, if you look at it from a contractual standpoint, I need to have the ability to forecast and know that I'm going to have the same amount of volume every day that I can commit. The carrier has to have that equipment in the network on the same day so that he can commit. I think that's where the challenge is, I can't commit to a forecast and he probably has a better chance of making sure he puts equipment into that market on a daily basis.

Ajesh:
Right, so the next question that we are getting here is, if digital freight brokers added new capacity to the market, like owner-operators and small carriers, how did they do that? If that was new capacity, it should have helped stabilize the market, it should have added capacity in there. Is that your understanding? Was it new capacity or something else?

David Thomas:
Well, I think that capacity comes and goes. People were putting equipment against the network as a whole, I don't think there was any additional capacity added. And I think it makes it harder for the carriers. The demand has definitely been a challenge, the amount of equipment that's coming off the fence, and you have to add carrier drivers to that as well.

Jagan:
Yeah, if I may add to that, certainly digital freight approaches offer smaller carriers and owner-operators a broader level of transparency  to access loads from shippers. But the approach still remains very load-centric, they’re short-term load-centric transactions without fundamentally addressing the inefficiency and the opportunity that exists in the network as a whole.

David Thomas:
Yep, Jagan, you're addressing the holy grail of the structural problem in the marketplace, right? Just the number of empty miles that are out there, how do you take advantage of those? You can’t by only automating the marketplace. You're going to take advantage of those by taking the capacity like you folks are doing at SemiCab.

Ajesh:
Yes.
Another question. How does the SemiCab virtual dedicated capacity work from a high level? Is that a virtual marketplace for spare capacity?

Jagan:
Think about how a shipper goes into dedicated capacity. As the shipper says, “Hey, here is what my needs are. I commit to you running a dedicated fleet for my needs.” We're essentially taking that same concept and we're expanding it to the network we’re creating, where multiple shippers’ one-way loads are pooled together to create that aggregated demand.

Ajesh:
So in short, what we are saying is, it's not just a spare capacity, the concept is to address the truckload transportation problem in its entirety from an enterprise perspective, not just the overflow, not just the spot side of it, not just where you cannot find capacity. It’s a better way to utilize the overall capacity that is available to you through the same carriers, the same assets that you are not utilizing as efficiently as possible.

Jagan:
You may be asking, "I already have a dedicated fleet and it's not well utilized. Can I throw in that extra capacity I have and monetize it? Can you help me monetize those empty backhauls?” The short answer is absolutely. In the end, we're working to make the entire network more efficient.

Chris Russell:
So why can't the carriers or the shippers do this optimization of the capacity themselves?

ElMarie Hugo:
Because they don't have visibility on it?

Jagan:
Exactly. We've seen progressive shippers say in the past, “If I were to find like-minded shippers, can we collaborate with them? Pool both our needs?” Those approaches certainly have been attempted, but fundamentally, what we see lacking in those approaches is a technology platform that has the kind of predictive optimization that we're bringing in, that's essential to make this work.

Technology players in the past who attempted to do that approached it as a technology problem. It was all about what they get from shippers utilizing the technology, but not really ensuring that the operating model actually runs. And that's what SemiCab does. We bring the technology, we bring the operating model to make sure this aggregated demand and supply come together to create the efficiencies that we need.

ElMarie Hugo:
Jagan, is it fair to say that these relationships between 3PL and 4PLs with carriers are coveted within the space, that it's almost like a sacred cow that they don't want to touch, right? They don't want to disrupt that relationship. So how do you position yourself there?

Jagan:
In the end, the 3PL and 4PL service providers bring value to their shippers and we have no intention to disrupt that. What we say to them is, “You still get to keep your relationships with carriers if you choose to do so. Bring your shippers, loads, and those relationships that you have into the model. Let our platform drive the efficiencies that you are not able to create by yourself, within your private network.”

Ajesh:
Yeah, I think when we speak to 3PLS who are currently having an active dialogue on this front, it's always been the primary objective of the solution engineering team in every 3PL, every substantial third party logistics company, has been cost reduction for their customers. And it's a constant thing. It's a constant pressure. And so when they are looking at a solution like this, and the potential to be able to bring the costs down, that's something that's top of mind for them.  Dave, I think you guys use a 3PL for your transportation needs on the truckload side, right? How do they approach these kindsof things?

David Thomas:
We're always working with them, looking for those types of opportunities to gain efficiency, whether that's with capacity or utilization of trailers, but you're right about the type of relationship. You’re constantly faced with comments like, “I appreciate what you did for me last year, but what have you done for me lately?” That’s definitely the way these relationships typically work out. So we're continually working, trying to find the next opportunity because that's what we have to do to stay ahead of the curve. Worrying about the cost, margins, and how to improve all that is a lot of what I do, I’m continually working to look for those opportunities.

Noelle:
I think one question that I'd like to pose is, if anyone is interested today in learning a bit more about virtual dedicated capacity, what does it look like to join the SemiCab network?

Jagan:
We start with an assessment to determine overall value over the course of three or four weeks. We take a look at your past history, loads, routes, and what you've done in the past, so that we can better understand your needs. From there, we identify domiciles and lanes where we can eliminate empty miles in your fleet or provide capacity. After that, we go through an initial engagement to demonstrate value, a six-to-eight week process, where we're able to demonstrate how we can work best with your fleet.And we're already connected to the TMS that shippers have whether it's a Blue Yonder TMS, Oracle TMS, SAP TMS, mercuric, etc.. So we take the loads as they get created by the shipper's TMS and we pull those one way loads in from across the shippers. And then we let the platform and our predictive optimization do the magic that we've been talking about.

ElMarie Hugo:
Right.

Ajesh:
One last question from the audience. Jeff Hilar wants to ask, "Do you provide analytics back to the user? What do these analytics look like?”

Jagan:
Yeah, I think primarily, it comes down to two core objectives shippers have, right? One is service levels. For loads that I've been providing to SemiCab, how well SemiCab and the capacity SemiCab has brought to me, how well has that performed? And then the second is from a cost perspective. Has SemiCab stayed true to their commitment from a cost perspective? And am I continuing to stay competitive from prices that I'm getting from SemiCab? Those two form the core of the analytics that shippers will get access to.

And beyond that, we're aggregating a lot of data, both from a demand and supply perspective, and rates that we see in the market. Shippers get the benefit of that kind of macro analytics as well.

Noelle:
I just want to thank everyone for attending today's discussion. And again, our contact information for SemiCab is here if you'd like to send in any additional questions or get in touch. Thanks to all of our speakers for coming out today as well.