How to enhance value in your supply chain

by Tyler Higgins

For those seeking to gain a competitive advantage within transportation, the time is now to lock in value for the rest of this year or, as the saying goes, forever hold your peace.

But buyers beware – it is not as simple as just taking advantage of the current market and playing hardball with your carriers. The focus instead should be on realizing financial value in key areas of your supply chain while also strengthening relationships with transportation partners.

Everyone knows shipping and trucking prices have fallen dramatically over the past year in our post-pandemic world. Long gone are skyrocketing shipping costs, as well as headlines about supply chain disruptions and images of container ships queued in the Pacific Ocean near the ports.

The reality these days is that the U.S. economy has been uneven. Due to rising interest rates and stubbornly elevated inflation, most experts predict the economy will continue to cool for the rest of the year, or even slide into a recession.

“Freight recession”

A few factors are at play. Inflation remains high and consumers are pulling back on spending, and retailers are working through excess inventories. Softening consumer demand is also hurting B2B and industrial companies, which is translating into lower freight volumes.

The trucking industry, not surprisingly, is getting hammered. J.B. Hunt Transport Services president Shelley Simpson said on an analyst call, “We’re in a challenging freight environment where there is deflationary price pressure for an industry that continues to face inflationary cost pressures. Simply stated, we’re in a freight recession.”

As the economy decelerates, organizations have set ambitious savings goals. From Fortune 500 corporations to the many small- and medium-sized companies with which you likely do business, many have a cost-saving target.

While a large percentage of businesses are relying on layoffs or similar corporate restructuring to achieve savings goals, there are other options. Many businesses can see an immediate impact on their supply chain-related spending by focusing more on alternative strategies.

Improve rate management

Just because the overall spot market has dropped does not mean that your rates have kept pace with that decline. Pricing for companies with dedicated transportation fleets have negotiated lower rates with carriers, but those in brokered relationships – and the entire sea freight market beyond contracted rates – have huge opportunities to realize substantial cost savings.

A few words of caution when it comes to rate negotiations. Right now, there is a race to the bottom in terms of pricing, and capacity is available.

But that does not mean you should put the squeeze on your transportation provider. You need a positive working relationship with them. Treat them like a partner, because at some point you will face a shipping emergency or need a favour, and that goodwill will come in handy.

Rethink your network

Consumer behaviour has changed, e-commerce has changed and buying patterns have changed. As a result, organizations have had to rethink their network and transportation structure. During the pandemic, many organizations added distribution centres to support more locations. But with transportation rates rapidly falling, that may not be the only way to reduce shipping costs.

The smarter option is to improve forecasting throughout your supply chain. During and shortly after the pandemic, demand forecasting was, at best, a wild guess as spot rates fluctuated significantly. While economic forecasts are across the board, spot market prices are much less volatile, and that will help you better forecast prices, transportation volumes and demand.

Optimize your backhaul

Backhaul represents another big opportunity to reduce costs in both dedicated and roundtrip transportation. Deadhead mileage is a major contributor to reduced transportation efficiency and profitability. The American Transport Research Institute trade group estimates that about 15 percent of non-tanker carrier miles were deadhead.

Backhaul efficiency was less of a priority when supply chains were disrupted. With demand stabilizing, now is the time to revisit deadhead trips to extract additional cost savings.

Revisit demand planning

If you are not already using or testing artificial intelligence and machine learning tools, then start now. Yes, AI is all the rage, but there is a reason. AI applications are now more affordable and easier to integrate into enterprise-level business intelligence platforms.

The technology can help improve forecasting and decision-making to let you deliver immediate value by enhancing transportation efficiency and reducing supply chain costs. The technology is so compelling that WalMart is now using it to negotiate deals with suppliers.

One of the underlying themes in these strategies is that they do not negatively affect your service quality and your expected delivery times across your network. These strategies allow you to reduce costs, improve efficiency, and cement and strengthen relationships with your transportation partners. Every day that is wasted by not finding and implementing new ideas is a lost opportunity to improve your bottom line.

Tyler Higgins is a managing director at global management and technology consulting firm AArete, where he leads the strategic profitability improvement group.