The freight industry has little leverage over the factors fueling inflation today, from the lingering effects of the pandemic to fiscal policy, to corporations raising prices. But it’s suffering the consequences nonetheless, despite recent signs of some inflation cooling.
Labor costs are increasing as demand for goods and services is recently decreasing, creating a perfect storm that is impacting profitability across every mode of transport, from sea to road.
Fortunately, shippers and carriers have the power to reduce the pain of inflation on their bottom line. First, let’s recognize that inflation is exacerbating long-standing, systemic inefficiencies. And then, let’s create the change we need to make us all more resilient in an unpredictable economic climate and beyond.
Inflation is a New Accelerant for Old Problems
A couple of years ago, shippers were focused on fulfilling orders at any cost to meet pandemic-fueled, e-commerce demand. Yes, that demand couldn’t always be met, but that was largely due to international lockdowns that made production and delivery challenging.
But as inflation increases the cost of living, consumers are cutting their spending. Less demand for consumer goods means less demand for carriers’ services — and more pressure on shipper and carrier margins. Inflation also increases carrier operational costs — fuel, vehicle maintenance and purchase price, and more.
Remember, if carriers’ costs are increasing, they have to find ways to pass that on to shippers, who will find ways to pass it on to end consumers. It’s a vicious cycle.
An increase in costs hurts even more when segments of the freight industry continue to rely on manual processes, physical documentation and other outdated practices that most other industries have phased out. The lack of widespread visibility into capacity and rates leaves shippers with only half the story (if they’re lucky) when it comes to managing their budgets.
Non-siloed data is also in short supply, and that impedes strategic decision making. So much information is spread across sources and platforms making actionable insights — which help us all get ahead of inflation and other larger issues — hard to come by.
Tackle Inefficiencies to Tackle Inflation
In 2021 and 2022, investors poured $2.1 billion into technology companies targeting the logistics industry. The goal is to identify efficiencies that can reduce costs or, at the very least, provide mechanisms to manage the ever-changing conditions, risks, and disruptions. This empowers shippers to maintain a certain degree of control over their expenses.
Companies that still rely entirely on manual processes are missing out on the well-documented benefits of digitization and automation. For example, freight consolidation streamlines movement, reduces costs, and improves operational efficiency for businesses of all sizes. It can also prevent loss of supply and high insurance claims. It’s typically a manual process, but it doesn’t need to be anymore.
New technology such as software that digitizes building partial truckloads (PTL) optimizes consolidation in food shipments. Turning multiple LTL shipments into one full truckload focused on dry, refrigerated, or frozen goods minimizes the risk of damage or spoilage since shipments get where they need to be faster and are less handled along the way. This is a new way of handling consolidation.
Distribution is another function to optimize. Amazon has set the gold standard for planning, with their approach of centralizing distribution within strategic hubs that minimize deadhead miles and reduce fuel costs. Even without Amazon’s resources, you can improve your operations by replacing manual processes with a “virtual warehouse.”
In a traditional warehouse, you have to pick up orders and consolidate them manually. An algorithmic virtual warehouse leverages real-time, centralized visibility into people, commodities, and destinations. You can combine compatible commodities into one shipment, optimize rates as you allocate capacity, and ultimately reduce excess costs that result from deadheading and delays.
Also, consider employing AI technology in customer service. Innovations like Voice AI — plugged into your other tools — can benefit human workers by taking care of mundane tasks. In the case of freight and logistics, think: where is my shipment? What time will it arrive? And more. That way, human workers have more fulfilling jobs taking care of tasks that require a human touch versus just following a script. And AI never sleeps, so customers get 24/7 support.
These examples aren’t the end of digital transformation. More tools are popping up to solve specific problems along the lifecycle of a shipment:
- Managing the freight consolidation process
- Financing operations
- Finding vetted carriers with load availability
- Smart quotes
- Data-driven demand modeling
- Analysis and forecasting
- Carrier recruitment
Not all technology is created equally, of course. To ensure that your investments pay off, ensure your software and vendors meet a couple of key qualifications.
Select Technology Partners Thoughtfully to Make Sure Your Investments Pay Off
A few years ago, all of the hype in the logistics industry was about technologies like blockchain and 5G — technology that was out of reach for all but the most well-resourced companies in an industry that struggles with technology adoption.
Some innovations that received breathless publicity upon announcement have been quietly shelved. Others have faded into the background as impact remains a distant goal and the industry realizes that their value is incremental, not transformative.
It turns out that incremental increases in value go a long way during times of crisis, when every dollar and every minute matters. You can increase that value by making sure the tools you procure, from a full-scale TMS to point solutions for specific problems, make coordinating easier, not harder.
A system that doesn’t automatically communicate with your other systems is just a digital step in a manual process. All software you buy should provide modern, open, publicly documented APIs so you can connect it with your existing systems. Better still, some solutions come with pre-built integrations for industry-leading tools.
We call this “digital minimalism.” Your tools should make your work life easier, not more challenging.
Rapid, dramatic advances in AI are making it possible to automate more sophisticated tasks. Choose vendors with strong engineering teams that are prepared to incorporate new technology into their software now, not ten years hence.
As inflation lingers, the tough times for the freight industry are likely to continue. But shippers and carriers have the power to combat rising costs. Technology is here to help you accelerate your capacity to move freight more productively and efficiently through an ever-changing world.
Fernando Correa is chief executive officer and co-founder of Cargobot.
