Transportation accounts for a huge amount of expenses in the supply chain logistic overall cost and thus stands for the largest element in it. The backbone of any sustainable supply chain relies on a performing and reliable transportation network. Transportation has been a major component enabling trade for centuries. Its processes are a significant contributor to every supply chain as it makes its way from the beginning of the supply chain to the end-user’s hands. However, transportation challenges have become the most addressed matters considering the rapid evolution of technology, manpower, demand, and supply, amidst others.
Nowadays, the world is talking about implementing a responsive transportation which will allow a more effective and economical transportation network. Also, this system will enable executing strategic decisions with the intention of increasing customer service. Nevertheless, the future of transportation is influenced by some challenges which require immediate attention.
How important is transportation to supply chain?
Those who lead in the supply chain will perfectly understand that transportation is indispensable to most businesses. The past decade has witnessed considerable changes in transportation, which questions the current efficacy of transportation and its usefulness.
Transportation usually represents the single largest logistics cost for most companies. In 2015, The United-States logistics accounted for 7.85% of the Gross Domestic Product (GDP). Therefore in total, $1.4 trillion was spent on logistics, with transportation representing 63% of it. The figures provide a glimpse of how the various modes of transport are important to supply chain.
“The efficiency V/S effectiveness dynamic has changed in the 21st century”.
Transportation 2025 Megatrends & Current best practices,
Global Supply Chain Institute, April 2017
What are the current Transportation challenges?
- Sharp Fluctuations in fuel pricing
The sharp fluctuation in fuel pricing can be explained by the constant rise and fall in oil. The OPEC (Organization of the Petroleum Exporting Countries), led by Saudi Arabia, has often refused to curb production on the overall market which has resulted in an abundance of crude oil. This increase caused a disparity between the demand and supply of crude (which is later converted into other products such as fuel), with repercussions on fuel prices. The matter is still to be solved.
- Driver shortages
Though the future looks bright for the truck industry, the shortage of drivers is a result of various factors. Demographically, a lack of availability has been noted. Low wages have also contributed to a decrease in some drivers. One more important factor is the working conditions which apparently are unsatisfactory, taking into account the dangers and weather conditions while driving in extreme regions.
- Expansion in 3PL / 4PL providers
Charging higher prices for providing external services to a company’s logistic operations is a new addition to supply chain. 3PL and 4PL providers are third party and fourth party logistics company which manage part or the complete supply chain distribution. Obviously, if you need them, charges may be higher given that corporations have to cope with increased competition on the market, creating a need to provide better service. Or the service may be out of your demographic area.
- Commoditization of carrier pricing
Commoditization in transportation has a direct impact on whether a company dispatches its products or hires a third/fourth party provider to do so. The transportation services market, being heavily price-driven, results in consumers having less focus in distinguishing between companies’ products and services, but will put more emphasis on buying the cheapest alternative. Pricing is the only competition which transportation services rely on. In a recent article published in Logistics Management, Maersk was cited to finding an innovative way to increase the scope of its services through an end-to-end approach with a new trade finance offering to counter commoditization. IMD insights, in an article written by Professor Stefan Michel and Michael Sorell with Michelle Perrinjaquet, further suggested Pricing Excellence as an effective strategy to contain commoditization. The main driver is to create more value; a company needs to understand the core capabilities that influence organizational pricing and capture this value in its pricing strategy.
- Expanding use of technology tools
Many companies are still reluctant to adopt new technologies. Digital technology innovation is sure to transform the trends of supply chain and procurement in the future. However, a slow conversion to technology may give other companies which are digitally equipped, a competitive advantage.
- Increasing regulations
Regulations are imposed to create a clear and legal functioning in any field, which also applies to supply chain. Regulations on the hours of services, compliance, and safety, accountability are vital requirements. Fulfilling all of them without falling prey to legal complications is a real hassle. Some companies have a real trouble meeting this end.
Adapted from: Transportation 2025 Megatrends &
Current best practices
Global Supply Chain Institute
Page 3, April 2017
The focus of this article was to address the challenges in transportation and draw your attention to certain practices you can adopt. As you have noticed, transportation is a huge component of logistics and consumes a lot of your company’s capital. It is indispensable, but the right resources and techniques directed to transportation can help you reach your customers with an improved approach. At Supply Chain Academy, we have a large variety of transportation courses that stresses on best practices at your disposal, which can help you create your custom world class transportation model through training for your company. We look forward to helping you in this endeavor.