Transportation Being the highest Cost of Logistics

How to Offset Transportation Service Costs within the Supply Chain

SkyBitz Q & A Discussion with Kerynn Holtzman, SkyBitz’ DVP Customer Operations

What is often the largest component of logistics costs? Most industry veterans would not be surprised to hear that the answer is transportation services. With 63% of logistics costs stemming from transportation services pre-COVID, and 77% of transportation costs being trucking {1}, it’s no surprise that the trucking and logistics industry took a massive hit in March 2020 when the pandemic hit.

Kerynn Holtzman is SkyBitz DVP of Customer Operations and responds to some of the industry’s top questions about how to remain competitive and profitable in 2020 as we head into the last half of the year.

Q1 – What Is Causing the Rise in Logistics Costs?

A: Even before the Coronavirus, the logistics industry struggled with a host of issues, including the graying out of experienced drivers, supply chain transparency, fuel costs, tariffs, environmental and regulatory issues, rising insurance rates, inventory management, and more. Now, and amidst the new era of COVID-19, we experienced a tremendous disruption within the supply chain as the entire world shut down for weeks on end and are now only slowly climbing back towards pre-COVID shipping figures.

Q2 – How Has Covid-19 & 2020 Impacted Transportation Costs?

A: The Coronavirus disease (COVID-19) pandemic accelerated the widespread adoption of technology advancements as carriers have had to retool their entire supply chain to deal with unforeseen business challenges in a matter of weeks. Also, protests in early Spring led to safety concerns, which halted the transport of goods into some major cities throughout the country. Still on the table for 2020, we have an upcoming national election, continued speculation of how COVID-19 will playout for the short and long-term, and growing sustainability concerns. The retail industry and the movement of goods is still nowhere near pre-COVID numbers. Technology seems to be the solution for many companies trying to squeeze as much out of their margins towards the last half of the year.

We have seen supply chains scramble to respond to an increase in online sales, especially as some industries like grocery stores and paper products spiked in sales and distribution during the early phase of the pandemic. This caused tight freight hauling capacity and drove up shipping rates. Despite the temporary lift of government regulations on driver hours of service, labor shortages were rampant as almost 80,000 employees lost their jobs. This led to boosted wages as carriers hustled to try and secure drivers for loads. Fewer drivers were driving more hours, translating to wear and tear on the fleet, increasing overtime compensation, longer idle times that contribute to higher fuel costs, and a rise in insurance premiums.

Q3 – How Can Trucking Companies Reduce Wasted Spend?

A:  According to the Annual State of Logistics Report by the Council of Supply Chain Management Professionals, there is an opportunity for shippers and suppliers to improve business by leveraging technology to drive tangible efficiencies. {2}

As volume continues to grow, carriers are looking to become more efficient across the entire operation – from fleet diagnostics and preventative maintenance to improving driver productivity and safety through in-cab technology, advanced trailer sensors, and other monitoring solutions. Carriers are now adding new features that will allow them to complete a 365-degree view of their entire operation through better data insight.

At SkyBitz, we have been working hand in hand with customers as they traverse this unknown economic terrain that is COVID-19, and the uncertainties it brings. For customers who have been using the solutions for many years, we start by reviewing their historical fleet run-rates to find and address inefficiencies that can quickly boost their margins. Fleet maintenance and ensuring the optimal health of the fleet is a massive priority for customers. Technology such as driver behavior programs or vehicle diagnostic monitoring is critical for ensuring that things like tire pressure and fuel management are constantly being scrutinized. Working with your solution providers to tap into this data is a no brainer right now considering the dip in shipments and inventory.

Q4- How Does Automation Play into Lowering Transport Costs? 

A: “Technology is changing every aspect of how logistics companies operate. ‘Digital fitness’ will be a prerequisite for success: the winners will be those who understand how to exploit a whole range of new technologies, from data analytics to automation and platform solutions. Those who don’t, risk obsolescence.”{3}

Companies across the supply chain need to be as lean as possible right now. Automating business processes will lead to better data accuracy, which will affect finance and human resources as much as it affects other areas of the operation, such as dispatch, driver satisfaction or fleet maintenance. Improving communication between shipper and carrier will also be vital. The use of AI-based technology such as trailer sensors and cameras will improve the relationship between shipper and carrier when it comes to detention billing, theft, and the accuracy of loaded or unloaded trailers ready for use. All of the above can have a snowball effect on charges, reputation, and profits across the supply chain but especially for the carrier and drivers.

There is no better way to provide transparency to your customers than with real-time, factual data with images, time-stamped records, e-signatures, and digital documentation that can be used across your operation to ensure safety, compliance, and billing are all consistent and correct.

Data Sources:

  1. https://ops.fhwa.dot.gov/freight/freight_analysis/econ_methods/lcdp_rep/
  2. https://cscmp.org/store/SearchResults.aspx?Category=SOL
  3. https://www.pwc.com/gx/en/transportation-logistics/pdf/the-future-of-the-logistics-industry.pdf

Kerynn Holtzman

VP of Customer Operations