LTLs riding the high-tech wave
As razor-thin profit margins are squeezed by diesel costs, truckers are increasingly turning to technology to make their operations as efficient as possible—and in turn offering shippers better visibility than ever.
By John D. Schulz, Contributing Editor -- Logistics Management, 11/1/2007
Technology in the trucking industry comes in as many forms and functions as there are types of freight. There's technology to track driver performance, build complete loads, track and trace deliveries, compile profiles of shipper preferences and needs, manage trailers on a freight yard, and even warn drivers they're about to make an unsafe lane change on a busy highway.
Driving this technology revolution in trucking is the desire for carriers to press more productivity out of existing operations. Truckers are increasingly turning to high-tech solutions to give them an edge in these low profit-margin times. And this benefits shippers as well, who are now tracking and tracing their shipments to ensure on-time deliveries to demanding customers.
Bill Graves, president and CEO of the American Trucking Associations (ATA), says the one common denominator among all successful trucking companies today is that they have fully embraced technology. That's evident at any trucking trade show, where displays of software, trailer tracking devices, and other high-tech gizmos outnumber the latest in air brakes and transmissions.
“The shows are almost more about technology than they are about the movement of freight,” says Graves. “The industry has really figured out ways to gather, analyze, and use information to improve the effectiveness of how their organizations work.”
That commitment to technology is increasingly manifesting itself in the trucking executives who arrive in the CEO suite. When Schneider National was looking for a successor to founder Don Schneider a few years ago, the company didn't turn to an up-and-coming operations or sales executive. Rather, Schneider promoted Chris Lofgren who had been the company's chief information officer—and he's been head of the nation's second-largest TL carrier ever since.
As more tech-types move into corner offices, shippers can plan to see the commitment to investment continue. According to David Ross, trucking analyst for Stifel Nicolaus, after labor, trucks, and terminal real estate the biggest cost for an LTL today is capital expenditures on technology. Ross is finding that the most important pieces of technology for LTL carriers are dockyard management and as line-haul optimization systems to aid in equipment utilization and the ability to reduce empty miles.
“Shipper visibility is a part of that,” says Ross. “It helps management see where everything in the system is and it helps with load planning. But that's not the first thing you need. The first thing you need is the ability to run your network well.”
Everyone wants visibility
No matter how you slice it, the single most important part of an LTL IT network is the one that allows carriers to know the status of their trucks and everything on board. “That's a requirement,” says Satish Jindel, principal of SJ Consulting, an LTL sector analyst firm. “You just can't put your trucks on the road and tell shippers, 'the driver's on his way. I don't know where he is. But he's on the highway.' That doesn't work any more,” he says.
UPS and FedEx have long used driver hand-held mobile computers to track every one of their shipments. That technology in the package sector is now expanding into the LTL space where scores of carriers are moving in the same direction.
“As UPS and FedEx have made acquisitions and encroached into this space, they've changed the competitive landscape of what's required to win that core business,” says Jerry McNerney, senior director of transportation, distribution, and logistics solutions at Motorola. “In response to this competitive threat, the LTLs are trying to make appropriate investments so they can satisfy demands customers are putting on them. That IT investment is becoming table stakes for today's LTL carriers.”
Savvy LTL companies such as ABF Freight System, FedEx Freight, UPS Freight, Old Dominion Freight Line (ODFL), Pitt Ohio Express, and others are turning to either handheld computers or some version of wireless technology to enable them to record every piece of information on shipments that once was the exclusive domain of the parcel delivery sector.
And what will this mean for rates? “Everything impacts rates,” says Sean Bumgarner, director of industrial engineering for ABF Freight System, the fifth-largest LTL carrier. “The question is whether it's a positive impact. Increased supply chain visibility usually comes with a cost. But we use technology to directly offset the cost by maximizing our system's efficiency. Ultimately the result is added value for the shipper and a positive impact on their bottom line.”
That's the carriers' take. From a shippers' standpoint, it can have another impact, however. One byproduct of technology expansion that shippers can readily see is in the area of accessorial charges, which have rapidly expanded in the package sector. Because UPS and FedEx have the technology to easily track every shipment, those package giants can more readily access exactly what shipments cost. That has resulted in a surge of accessorial charges for everything from inside delivery, a wrong address, or an extra-early delivery time.
Who's taking the lead?
There are many examples of cutting-edge technology being employed by LTL carriers. But as far as the carriers are concerned, their top goal in any technological investment is to drive greater profitability through increased equipment utilization and enhanced use of drivers—increasingly becoming a scarce commodity in the industry.
ODFL, the 77-year-old LTL carrier based in Thomasville, N.C., had long used paper manifests, and most of its pricing was based on average costs of freight, not shipper-specific costs. Beginning around 2000, it turned to Motorola to help outfit its drivers with rugged mobile computers to capture real-time information for its pricing models.
Through these hand-held devices, drivers were able to communicate over a wireless data network that enabled ODFL to fine-tune its pricing model, increase driver productivity and, as a side benefit, offer real-time tracking and tracing to its customers. According to Barry Craver, director of freight processing applications, the move away from paper manifests to a completely handheld integrated solution has helped to provide more accurate pricing, productivity, as well as profitability.
The trucking company was able to increase the number of stops per hour that its 3,500 drivers make because drivers no longer have to wait on the phone to contact dispatchers. And, now that information is dispatched wirelessly, it has resulted in better load optimization so more trucks go out with more payload than ever.
Then there's the benefit known as the “Big Brother effect.” Because drivers know they are being closely watched, says Craver, they tend to be more productive workers.
Steve O'Kane, president of West Chester, Pa.-based A. Duie Pyle, a major Northeast regional LTL, says the company had three challenges that technology solutions have solved. One was providing continual real-time shipment status information to customers; the second was accurately measuring performance and hitting delivery appointment times; and the third was accurately measuring and recording overall performance levels on morning delivery service.
According to Kane, installation of Qualcomm's onboard computers enable “dashboard-to-desktop” technology that helped with dispatch, load-building, and greatly enhanced driver scheduling. “We are not only able to keep our shipment visibility up to date in real time via our website, but we are now able to allow customers to communicate directly with our drivers to obtain accurate estimated time of arrivals for the conditions the driver faces on any given day,” adds Kane. According to Kane, Pyle is now arriving at more than 92 percent of its scheduled appointments within 30 minutes of schedule. “Given traffic conditions in the crowded Northeast, we think that's pretty good.”
Pittsburgh-based Pitt Ohio decided to pass on hand-held computers in favor of onboard, in-dash computers for its 1,200 trucks. That has enabled the carrier to electronically automate its entire dispatching operation. Instead of the old telephone system, drivers are now automatically notified of pickup and delivery stops throughout its 11-state regional coverage.
What's next for Pitt Ohio? According to Scott Sullivan, Pitt Ohio's vice president of IT, “Customers are asking for proactive notification of any exceptions or problems in their deliveries, and we're working to roll out those innovations shortly.”
Down the road
McNerney of Motorola says the company is constantly looking at how it can provide carriers and shippers with even more visibility in their freight moves. One area of interest is expanding radio frequency identification (RFID) at the shipment level. While the cost is “really prohibitive right now, technical improvements should soon enable those costs to become more reasonable,” he says.
This is where passive RFID technologies might lower costs. As opposed to active RFID, which requires a costly battery as part of RFID tag so it sends out a signal, passive RFID just pulls information from a reader. One possible use of passive RFID, says McNerney, is yard management. A carrier could place an RFID tag on trailer to manage trailers more effectively. Once it's in the yard, a trailer could be monitored for location and content. A handful of companies are already testing such technologies, including third-party logistics provider Exel, which is exploring use with Shoppers Drug, a Canadian drug store chain.
“The cost is a big thing,” McNerney says. “But you're moving from an environment where tags cost $50-$60 and you need replacement batteries. A passive tag is below $10 with no batteries and the infrastructure costs are fairly nominal.”
The pace of change in IT, however, makes any prediction a dicey proposition.
ABF's Bumgarner believes many shippers will become more dependent on online tools to manage supply chains. In fact, the carriers' customers have grown so accustomed to routine service enhancements from ABF's website that he says the site now acts as a “virtual IT department” for managing transportation needs and enhancing customer loyalty.
Electronic onboard computers, or black boxes, would seem another likely component in the coming decade. “I see that coming,” Motorola's McNerney says. “It looks like that will become a requirement for driver logs.”
Jindel predicts that 10 years from now LTL carriers will move to capture more specific details on shipments in a move to dimensional pricing, which already has occurred in the package sector. “That will be a positive development for shippers,” Jindel says. “A few shippers will pay a little more but a lot of them will pay less.”
That's because instead of everyone subsidizing the mistakes of a few, the system will reward shippers for easy-to-handle freight. “If you provide a bad address, you're going to pay a premium,” he says.
The only downside may be that the commitment to technology is serving as a significant barrier to enter to the $34 billion LTL sector. “There have been no new entrants in the last 10 years and cost of technology is one of the reasons,” Jindel adds. “It's likely to create another round of consolidation, especially among carriers in the under-$100 million sector.”
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