Carriers use technology to resolve supply chain inefficiencies

Carriers continue to face challenges related to supply chain issues amid a pandemic, and technology has improved shipping efficiencies. But more applications could be implemented to address the problems.

A recent Nasdaq whitepaper shows that the application of technology and a marketplace model can improve efficiencies in the supply chain. Improvements include creating electronic order books, implementing auction models and applying blockchain to reduce slower manual processes.

Some supply chain challenges regard capacity use and a lack of transparency for ocean carriers and trucking companies. The result costs consumers and the environment. Part of the solution to greater efficiency could be transparent marketplaces powered by technology. That would allow buyers and sellers of shipping capacity to use an automated platform to find prices on a two-way or a quote market request.

The platform would eliminate slower manual processes, and capacity forecasting could be improved, reducing the overbooking on ocean vessels and running of empty trucks. That would allow carriers to increase revenues, lower costs and achieve sustainability goals. The supply chain would also benefit from greater visibility, transparency, and predictability, which would improve customer service and forecasting for cost, revenue, and time spent on shipping.

Since 2014, Lowell-based carrier J.B. Hunt Transport Services Inc. has built upon its technology platform, J.B. Hunt 360. In 2017, the carrier announced a $500 million investment over five years to improve its technology offerings and improve supply chain efficiencies. In 2018, the company collaborated with project44 to enhance supply chain visibility by integrating project44 technology within J.B. Hunt 360. That allowed customers to view real-time shipment information regardless of the carrier and eliminated multiple platforms’ need.

In 2019, the carrier launched J.B. Hunt 360box as a trailer pool and drop-and-hook service for businesses and carriers. Carriers make offers to transport the trailers using Carrier 360 by J.B. Hunt, the company’s digital freight matching platform. The new service was to increase supply chain efficiencies. Later that year, J.B. Hunt announced the integration of its technology platform and JDA Software’s Supply Chain Management Platform to provide customers with greater pricing visibility and access to available capacity. On May 1, J.B. Hunt started to allow businesses and carriers to digitally sign bills of lading with its electronic bill of lading feature.

According to the whitepaper, overbooking and containers not being shipped on time have been perennial challenges in ocean shipping. Ocean carriers overbook by between 30% and 40% to compensate for vacant cargo slots, which hurt revenue.

However, ocean carriers’ uncommunicated changes to the earliest return date, or the earliest date a loaded export container can be delivered to the carrier, are affecting logistics teams and earnings for agricultural exporters in the United States, according to a new report. Washington, D.C.-based Agriculture Transportation Coalition and TradeLanes release released the report after surveying hundreds of U.S. agricultural exporters. They found the changes are such an issue that 92% of respondents want to pursue industry action jointly. These changes have happened amid disruptions related to the COVID-19 pandemic and trade wars.

“Costs and disruptions imposed by inaccurate and changing earliest return dates for containers are eroding margins,” said Peter Friedmann, executive director for Agriculture Transportation Coalition. “Restoring ERD integrity is a top priority for our industry.”

More than 75% of respondents said their carrier bookings don’t always include the earliest return date. Most respondents report that one-quarter of their shipments had changes to the earliest return date, with 36% of respondents reporting changes to more than half of shipments. Nearly 80% of respondents say at least 5% of shipments incur extra costs that hurt earnings.

“We know that technology alone cannot resolve this problem, but it can make a significant difference,” said Vijay Harrell, CEO of TradeLanes. “By getting information to shippers earlier, they can make better decisions for their business; and with data right at their fingertips, they can successfully negotiate reimbursement for any extra costs incurred for changes imposed by carriers.”

In September, global schedule reliability of container shipping declined to 56%, and on-time performance of Asia shipments to the U.S. West and East coasts fell below 50%, according to a Journal of Commerce article. Global on-time performance in September was the lowest so far this year. June has been the best so far this year, with the performance at 77.7%.

Container availability has impacted J.B. Hunt’s revenue as the carrier had to turn down new intermodal business this year. In the carrier’s third-quarter earnings call, Darren Field, president of intermodal, noted capacity challenges and labor shortage at rail terminals and among drivers. The terminal shortages contributed to slower unloading of equipment and terminal congestion, and the issues might have prevented the carrier from completing 20,000 additional loads in the quarter.

“I think we could have handled 20,000 more loads in the quarter, and that’s a soft-conservative estimate,” Field said. “We are turning down thousands of loads per week. We’re turning down eastern network growth opportunities because we have to struggle to find capacity to serve and honor these commitments we’ve made. We feel strongly that over the long-term, that will absolutely benefit us.”

Field expected the third-quarter challenges with rail terminal congestion to continue into the fourth quarter but some easing to occur in the first quarter of 2021.

In a third-quarter earnings report, analysts Justin Long and Jack Atkins and associates George Sellers and Wade Schaller, all of Little Rock-based Stephens Inc., said the carrier missed third-quarter earnings expectations because of weaker than expected intermodal margins.

“To summarize, this shortfall was a function of costs related to congestion, re-positioning of equipment and inefficiencies in the network,” the analysts said. “While we believe these were all well-known headwinds thematically, the impact in the quarter was tough to quantify.

“More importantly, we would highlight these near-term challenges are a function of a very strong freight market where demand is outpacing capacity.”

Credit Suisse reduced its 12-month stock price projection for J.B. Hunt to $131, from $140, after the third-quarter earnings report. It was neutral on the carrier’s stock.

According to the Nasdaq whitepaper, disruptions can cause equipment dislocation and a buildup in cargo sitting idle, creating issues across the supply chain. Typically, about one-third of containers globally are shipped empty, according to Boston Consulting Group, and empty container repositioning costs the industry up to $20 billion annually. Meanwhile, the trucking industry works to reduce the number of empty miles, or when a truck driver hauls an empty trailer to pick up a load. Another issue is when a truck is only partially filled when shipping a load.

These inefficiencies impact the economy and the environment as they contribute to fuel inefficiency, bad air quality, traffic congestion and waste, the whitepaper shows. The energy cost comprises between 60% and 70% of the total cost to ship goods. Carbon dioxide (CO2) emissions account for 78 million metric tons in domestic shipping, and 800 million metric tons in international shipping, according to Statista. According to Seattle-based Convoy, 72 million metric tons of CO2-equivalent emissions can be attributed to empty miles.

According to the whitepaper, automated freight booking platforms have improved supply chain visibility and the tracking and tracing of cargo. Carriers use app-based technology to allow sellers of capacity to find buyers, like drivers find rides in Uber.

In 2017, J.B. Hunt announced Marketplace, a technology to connect shippers to carriers in a single e-commerce platform, using “real-time data and artificial intelligence to match freight with capacity, pairing the right loads with the right carrier to create efficiency and cost savings.” Carriers will “make instant offers on available loads” while “shippers will be provided true market pricing of shipments. The system will automate carrier selection based on preference, ratings and reviews.”

Marketplace started in January 2017 as a pilot program and was integrated into J.B. Hunt 360 in April of that year.

According to the whitepaper, most existing marketplaces allow a shipper to ask for a service, and a price is given. But a marketplace allowing shippers to bid for a service by stating the amount they want to pay “could be a long-awaited disruptive force in logistics,” the whitepaper shows. “Price discovery and equilibrium is enabled through a dialog between the shipper and the carrier where they both have an equal role on a level playing field.”

According to the whitepaper, marketplaces in which the products and services become standard are more likely to attract participants and operate at higher volumes. For example, a 20-foot container could be set at a similar price and traded similarly, and this would be interchangeable no matter where it is traded. Following are examples of technology and a model to improve supply chain efficiency:

An electronic order book could be used to match buyers and sellers of capacity and create structure for a supply and demand marketplace. Shippers and carriers could place orders to buy or sell capacity at a set price and where there is a match, the transaction would be completed immediately. Second, an auction model would allow shippers and carriers to place bids and offers at the same time. The price at which the contract is traded is the highest price the shipper would pay and the lowest price the carrier would accept. Finally, blockchain, or distributed ledger technology, could eliminate manual processes and record and settle transactions. This technology ensures trust while improving visibility and traceability across the supply chain. Smart contracts, which are automatically carried out based on predetermined rules stored on a blockchain, can enforce contract terms and improve use rates. They can also be amended if a company needs to respond to market changes related to trade disputes, natural disasters or pandemics.