Shippers should better understand freight as prices rise, capacity remains tight

Carriers often have a better understanding of a shipper’s freight than the shipper has of its own products, a logistics executive said.

In a recent podcast, Steve Ludvigson, president and co-founder of third-party logistics company Cerasis, explained the importance of executives understanding transportation cost details as freight capacity remains tight and prices increase.

Executives don’t know enough, but CEOs with a strong partner or internal team can help them see at a high level, Ludvigson said. A shipper’s transportation cost might rise 10%, but its costs might vary based on the freight the company is shipping. Freight costs might rise 20% for a shipper’s most profitable freight but only 4% for less profitable freight.

A shipper’s better quality freight might be subsidizing the lower quality freight, he said. Shippers need to understand the changes in the freight mix and how it will impact profitability. When things are running smoothly, executives don’t want to know those details, but as transportation costs have risen, they’re starting to ask about the rising costs.

In July, spot van rates rose 29%, according to DAT Solutions. Between July 22 and 28, truckload rates continued a seasonal decline but remained only pennies lower than the record highs set in June.

“The capacity crunch is real,” said Ludvigson, adding that carriers are doing what shippers should do, understand cost. With only so much available capacity, carriers have to pick what freight they can haul.

It’s difficult to go from not understanding freight to understanding, and this doesn’t change overnight, Ludvigson said. Some shippers just want the 10% price increase to go away, and those calls with customers are the most difficult, he said, compared to the ones who want to understand what goes into the price increase.

When asked about the role of blockchain in the supply chain, Ludvigson said it’s already arrived for a few international shippers. The shared digital ledger allows for good visibility across multiple transportation modes and improved access to information, he said.

One uncertainty is how detailed the information will be that its users can access. On Aug. 1, the University of Arkansas announced it was establishing a Blockchain Center of Excellence as part of the Sam M. Walton College of Business. Industry partners are funding the center and has an executive advisory membership that includes ArcBest, IBM, J.B. Hunt Transport Services, Tyson Foods and Walmart.

Lowell-based carrier J.B. Hunt and Fort-Smith based ArcBest, parent company of less-than-truckload carrier ABF Freight, are members of the Blockchain in Transport Alliance, which is working to develop common blockchain standards. J.B. Hunt and ArcBest recently reported double-digit second-quarter revenue increases as pricing improved and industry freight demand surpassed supply.

For J.B. Hunt, a 22% increase in operating income in its intermodal segment, the carrier’s largest by revenue and income, helped the company beat earnings and revenue expectations. Intermodal load volumes rose 4% in the quarter, and operating income was $134 million.

In a second-quarter intermodal report, intermodal volume in North America increased 6.2% to 4.741 million containers and trailers, from the same period in 2017, according to the Intermodal Association of North America.

“Continued intermodal volume growth was driven by the domestic market during the second quarter,” said Joni Casey, president and CEO of IANA. “Higher fuel prices, tight over-the-road capacity and a strong economic performance were factors attributed to this advance.”

Trailer volume rose 18.1%, leading growth in the intermodal sector. Volumes rose 12.8% in the Northeast-Midwest trade corridor, the best performing of the seven corridors the organization tracks.