Transportation is the lifeblood of any supply chain, but a company's logistics department tends to be an invisible link in that chain. If senior management thinks about freight transportation at all, their thoughts tend to focus on questions like, “Why are we spending so much on trucks?” or “Why are our products always shipping so late?” Those are fair questions to ask, especially when you consider that US companies spend more than $1 trillion each year on transportation, and what's more, transportation costs account for between 5% and 15% of the cost of goods sold. And yet, the supply chain professionals who manage that spend are rarely given credit for keeping costs as low as possible.

Freight transportation—the physical distribution of goods—involves four major modes: highway, rail, air, and water carriers.¹ Many shipments move on two or more modes, such as from a railcar to a truck, and these shipments are classified broadly as intermodal.² Because more than 70% of all goods in the United States at some point are transported on a truck (and 80% of all transportation costs are for motor carriage), this chapter will by design concentrate largely on best practices when dealing with motor carriers.³

The reasons why transportation costs are so high are almost as numerous as the types of goods being transported, which is another way of saying there is no single set of best practices that will work for every company, every time. The basic rule of thumb is: The higher the level of service (including speed of delivery), the higher the cost. The cost per pound for shipping goods by rail, for instance, is proportionately less than if they're shipped overnight by an expedited courier. And not coincidentally, the value of the goods generally determines what mode is chosen: high-value electronic components are frequently shipped by air, while steel moves by water and grain by rail. There are numerous exceptions to every typical scenario, but historically those are the mode basics that transportation managers work from.

Reducing transportation down to its core elements, there are three entities involved in any movement of goods: the shipper, who owns the goods (e.g., a sporting goods manufacturer), the consignee, who is the one receiving the goods (e.g., a discount retailer), and the carrier, who physically transports the goods (e.g., a trucking company). In this example, the manufacturer (shipper) sends a full truckload of its basketballs on a 53-foot truck (carrier) to the retailer's (consignee) distribution center.

Out of this basic structure there are countless possible configurations. Companies both ship and receive goods every day, so at any given time, the only way to determine whether a company is a shipper or a consignee is to look at the bill of lading. For simplicity's sake, this chapter will look at best practices from the shipper's point of view.⁴

Riding the Roads

The most economical motor carrier mode is to ship by truckload, which is exactly what it sounds like: A shipper fills the entire capacity of a truck with its products, whether the truck is part of the shipper's own private fleet or is owned by a contract carrier. However, most shipments by truck are less-than-truckload (LTL), where any number of shippers occupy a portion of the same truck's capacity to carry their goods. Because the carrier has to handle many shipments and make many more stops, LTL rates tend to be much higher than truckload rates. For that reason, shippers are always looking for ways to shift as much freight as possible from LTL to truckload. The challenge for a shipper is to configure its supply chain so that it's usually shipping out full truckloads, which takes a lot of planning and is a relatively rare event for most small and medium-sized manufacturers.

An alternative strategy for domestic transportation—particularly during periods when capacity is tight (meaning there aren't enough trucks or drivers available to transport all the goods at any given time in certain areas of the country)—is to bypass the motor carriers entirely for most of the transportation period in favor of an intermodal strategy. Certainly the use of river barges and the railroads to move goods throughout the country has a much longer history than the use of trucks, but as previously noted, there's a reason why three-quarters of all freight transported in the United States is on a truck: It's faster and more reliable than rail or water, and it's cheaper than shipping by air.

The least economical method involving a motor carrier is expedited or express service. Although the public used to think same-day, next-day, and overnight deliveries were always accomplished via air transportation, expedited shipments usually travel all or most of the distance on a truck and the last mile in a courier van, and may never be put on a plane at all. This is made possible by the use of regional fulfillment and distribution centers located strategically across the county or the globe. (We'll look at this in much greater detail in Chapter 8.)

Most of the tractors on the nation's highways are pulling dry van trailers, which means they are completely enclosed but accessible by one or two doors. Other standard types of vehicles include flatbeds; tankers, which carry liquids; and refrigerated vehicles (or reefers), which carry food, pharmaceuticals, or other goods that need controlled environments.

Regulations and Deregulation

Coincidence or not, the idea of supply chain management started becoming popular just as a spirit of deregulation was sweeping through Washington, DC, in the late 1970s and early 1980s. In quick succession, the Airline Deregulation Act (1978), the Motor Carrier Act (1980), and the Staggers Rail Act (1980) effectively deregulated three core transportation industries, which opened up the whole nature of shipper/carrier relationships.

Since deregulation took effect, the rate structure of the motor carrier industry has been largely influenced by supply, demand, and cost of service—the major forces of the marketplace, explains Gerhardt Muller, a professor (now retired) with the US Merchant Marine Academy. Before deregulation, he notes, interstate and intrastate rates were set by government regulations and agencies, such as the Interstate Commerce Commission (ICC).⁵ The ICC was terminated in the mid-1990s and was replaced by the Surface Transportation Board, which operates within the US Department of Transportation.

Despite operating under an aura of deregulation for more than four decades, transportation is still a heavily regulated industry, almost to the point that it's astonishing that anything can actually move from point A to point B according to schedule. Consider just a brief list of transportation activities and areas that come under the jurisdiction of a government agency:

• The number of hours in a day and in a week that a driver can be behind the wheel of a truck, and the devices that automatically record driving time.
• The carriage and movement of hazardous goods, including routes, parking, surveillance, packaging, and placarding.
• The type of fuel used in motor vehicles, as well as the engines themselves.
• The tracking and tracing of pharmaceutical and food products throughout their lifecycle.
• The filing of electronic manifests before crossing international borders.
• Compliance with homeland security requirements, such as the Customs-Trade Partnership Against Terrorism (C-TPAT) and the Container Security Initiative (CSI).

Fuel for Thought

The one question transportation managers get asked by their bosses more often than any other is: “Why are we spending so much on transportation?” The regulatory issues noted previously are just a small component of the factors that make transportation so expensive.

Of course, the trick is to be able to anticipate when fuel prices will drop precipitously, as they occasionally will do (for instance, when the OPEC nations decide to flood the market with cheap oil in an attempt to gain back market share), and when they will spike so high that rationing and alternative fuel sources will be proposed by various pundits and politicians (often due to natural disasters like hurricanes crippling offshore refineries). We've seen both scenarios play out in this century, and fortunately both extremes tend to be short-lived. (Risk management, a strategic best practice based on contingency planning, will be discussed in detail in Chapter 12.)

Ultimately, it's not the temporary spate of price spikes or valleys that wreaks the most havoc on a transportation plan, but rather, price volatility. To that end, fiberglass manufacturer Owens Corning took a proactive approach to managing its costs when it developed a fuel reimbursement program for its carriers. The goal was simple: achieve better and more predictable transportation budgets and forecasts. At the time the program was launched, Owens Corning was spending $350 million on freight per year, spread among 400 carriers, mostly for truckload freight, and the program was set up to help the company recover a portion of the fuel supplement paid to carriers.

Owens Corning changed the formula it uses for its current base fuel program, converting from the standard weekly retail survey of pump prices generated by the US Department of Energy to a New York Mercantile Exchange (NYMEX) base. The advantage of the program came in allowing carriers to monitor their fuel reimbursement throughout the month as they could see how fuel prices were established and how the system worked.

The formula didn't change how much Owens Corning paid the carriers; the change came in how the information was accounted for. The company offered side-by-side comparisons of the two fuel programs on its web-based supplier portal.⁶

A Capacity for Change

As global supply chains become increasingly complex, so too do the factors that affect the cost of moving freight from door to door. A constant challenge in transportation this century has been managing the fluctuation in available capacity, particularly when it comes to motor carriers. It's a two-fold problem, directly impacted by the state of the economy: When the economy is robust, there are not always enough trucks or truck drivers to deliver the amount of freight that needs to be moved. Conversely, when the economy is in decline, it becomes much easier—and cheaper—to find a trucking company willing to move your freight, but the challenge then is finding customers who want to buy your goods in the first place.

Prior to the economic recession caused by the COVID-19 pandemic of 2020, the American Trucking Associations (ATA) was predicting that the United States was on the verge of a severe shortage of long-haul, over-the-road truck drivers. The ATA estimated that the industry was short by more than 60,000 drivers per year to handle freight moving on US highways, and forecast that the number could exceed 160,000 by 2028. Reasons for the shortage, according to the ATA, include an aging driver population, increases in freight volumes, and competition from other blue-collar careers.

“The trucking industry needs to find ways to attract more and younger drivers,” explains Bob Costello, chief economist of the ATA. “The average age of an over-the-road driver is 46 years old, and almost as alarming is that the average age of a new driver being trained is 35 years old. Whether by removing barriers for younger drivers to begin careers as drivers, attracting more demographic diversity into the industry, or easing the transition for veterans, we need to do more to recruit and retain drivers.” Some of those measures include increasing pay, improving lifestyle factors that would let drivers spend more time at home, and improving conditions on the job like reducing wait times at shipper facilities.⁷

According to Bill Sanderson, chief administrative officer with Golden State Foods, a supplier to the food service industry, one of the reasons for the recurring driver shortage is the image of the job itself. The lifestyle of a long-haul driver—who often spends a week or more away from home, and frequently has to sleep in the cab of the truck—tends to turn away many eligible young men and women. After all, there are plenty of other jobs, such as construction and service industry occupations, that pay comparably well and let their employees go home every night. Until the trucking industry directly addresses these quality-of-life issues for drivers, Sanderson notes, carriers will have to keep paying more to attract them, and as a result, transportation costs for shippers will continue to increase.⁸

Also contributing to a shortage of available capacity has been the consolidation of many major trucking companies, and the bankruptcy of many smaller companies. According to analyst Donald Broughton with Broughton Capital, nearly 800 US trucking companies went out of business in the first three quarters of 2019, idling nearly 24,000 trucks and putting more than 3,000 drivers out of work. That's more than twice as many trucking company failures as the previous year, he notes. There is every reason to expect that these volatile capacity swings will continue into the foreseeable future, and given that transportation best practices are very much characterized by collaborative relationships, shippers will have to stay adept at establishing and reestablishing relationships with those carriers most likely to stay in business.⁹

Know Thyself, and Thy Carrier, Too

As Steve Huntley, former director of logistics operations at medical device manufacturer Covidien/Tyco Healthcare and now president of Resource Logistics Group, sees it, “Transportation is not a commodity—it's a service. Without transportation there is no supply chain.” From his experience with manufacturers, best practices in transportation start at the grassroots level—developing a partnership with the carriers. “There's a difference between a relationship and a partnership,” Huntley points out. “A relationship simply means you know somebody. With a partnership, however, you understand what their needs are, and you know what you can do to help them.” That takes not only knowing your operations inside and out, but understanding the carrier's operations as well.¹⁰

Carriers are always going to ask for rate increases; that's just the way the supply chain cycle works. However, Huntley suggests that you find out why the carriers are asking for more, because there's a good chance you might avoid the increase if you can change your operations to make the rate hike unnecessary (e.g., by making your loading dock more efficient, you might be able to avoid unloading charges).

You should empower everybody on your team to ask what they can do to make the partnership work better, Huntley urges, and that openness should extend to the carriers as well. Good communication can lead to opportunities to share ideas and discuss operational challenges.

On the distribution side, you need to look closely at whom you're shipping products to and how often. “When is the last time you looked at your transportation and distribution patterns?” Huntley asks. What mode of transportation do you use most frequently, and can you shift to a less expensive mode while still maintaining service levels? What are your inventory levels compared to your customers' inventory levels? “Do not let your customers use your facilities as a warehouse,” he urges. And make sure you measure your costs on a month-to-month as well as a year-to-year basis so you can consistently track how well you're doing.

Collaboration Is a Two-Way Street

When analyst firm Aberdeen Group asked 286 companies which transportation best practices had been the most important in driving supply chain improvement, by far the top answer was collaboration.¹¹ Here's a look at the results of Aberdeen's study, indicating how prevalent each best practice is among respondent companies (respondents could answer yes to more than one choice):

• Collaborate with carriers, suppliers, and customers to create more economical transportation processes (88%)
• Centralize transportation planning across the company via a load control center (77%)
• Reconfigure transportation network to optimize total delivered cost (76%)
• Create a more customer-centric transportation process (73%)
• Take greater control of inbound freight (69%)
• Synchronize activities across corporate functions (66%)

Now, collaboration happens to be one of those buzzwords that suggests a high level of something is going on, but it's often unclear exactly what that something involves. Let's look at how a couple of companies have demonstrably improved their transportation by working together in a spirit of cooperation—rather than confrontation—with their key supply chain partners.

PolyOne,¹² a supplier of polymer products, uses a dedicated carrier to ensure that it has sufficient capacity to meet the needs of its customers. With 30 plants and 30 regional warehouses located near its major customers throughout North America, the company used to operate its own private fleet, but shifted to a dedicated carrier to better service its regional network. To ensure that it has sufficient capacity to satisfy its customers, PolyOne has not only increased the size of its dedicated fleet but has also significantly increased its use of rail and intermodal transportation. The company also uses transportation brokers for those specific lanes where capacity isn't readily available from its dedicated carrier.

An additional strategy to circumvent capacity challenges is to provide more lead time to the carriers. “We used to give them 24-hour advance notice on pickups,” notes Steve Feliccia, PolyOne's director of global sourcing, logistics, and field services. “Now we try to provide a minimum of two days advance notice on all pickups, particularly in those areas where we've historically had trouble.”

Transportation for Cargill Food Distribution, one of the largest beef suppliers in the United States, used to be primarily provided by the larger-sized motor carriers. To improve its availability to capacity whenever it's needed, Cargill supplemented its carrier base with some smaller carriers. Roughly 10% of all transportation activity is accomplished by its own in-house carrier, Cargill Meat Logistics Solutions (CMLS).

“We basically use CMLS for perspective,” explains Jon Meier, the company's vice president of operations, warehousing, and transportation. “We run it not only to have available and flexible capacity when needed, but also to be able to relate to and occasionally challenge our contract carriers.” CMLS also has its own in-house brokerage business, which has allowed it to offer backhauls to some of the smaller carriers who might otherwise be stuck with empty trailers on the return trip. “Our goal is to be a preferred shipper for carriers,” Meier states. “We are open to collaboration with our customers and carriers and other shippers.”¹³

A Carrier by Any Other Name

Choosing the motor carrier that best serves your company's shipping needs is a decision that involves weighing numerous variables. However, you can simplify the process by answering these three questions:

1. Does the carrier have the equipment your company needs?
2. Can the carrier meet your service requirements?
3. How much will it cost?

According to Edward Marien, long-time director of transportation and logistics management programs at the University of Wisconsin–Madison (now retired), it's gotten more difficult for companies to make the right transportation choice because carriers have begun to offer overlapping services. He cites these four areas of supplier services:

1. At the most basic level, a motor carrier furnishes its own equipment (i.e., tractors and trailers).
2. Going beyond just providing transportation, many carriers now also offer consulting services, such as shifting the balance of distribution to capitalize on the most efficient routes. (This trend is largely responsible for the terminology shift away from “transportation” providers to “logistics” providers.)
3. Some carriers also function as third-party logistics providers (3PLs), where they assume many of the traditional management roles companies are outsourcing, such as warehousing (see Chapter 11).
4. As technology has increased in importance, some carriers offer their own software solutions, such as transportation management systems.¹⁴

Automate to Consolidate

Consider how many decisions a supply chain manager has to make regarding the transportation of goods: What modes should we use? What carriers should we hire? What rates should we pay? What paperwork do we have to file? What route should the driver take? Those sorts of questions, and dozens more, have to be answered for every single shipment that leaves a company's loading dock.

For instance, Pella, a manufacturer of windows and doors, faces a constant stream of shipment consolidation challenges. The company utilizes a number of production facilities throughout the United States, and it's not unusual for a customer to request, say, vinyl windows made in one area of the country, and a mahogany door made in another. Pella's customers, however, expect the full order to arrive at the same time on a single truck. Since most of Pella's freight is shipped via LTL carriers, delivering the complete shipment to the customer requires a considerable amount of consolidation and deconsolidation planning.

Pella, like numerous other companies, opted to automate its logistics planning by implementing a transportation management system (TMS). A TMS is a software program that automates many key transportation functions, using analytical capabilities within the software to optimize the best shipping choices, whether they be carrier selection, load building, fleet management, routing and scheduling, or freight audit payment. Although these programs can be expensive—from $50,000 for a stripped-down module to more than $1 million for a best-of-breed implementation—they have become a popular solution for a simple reason: They're designed to help companies cut costs, and the return on investment for a TMS is generally less than a year.

For Pella, adopting a TMS has helped to eliminate inefficiencies that were the result of manual plans, such as the scheduling of LTL carriers arriving at cross-dock facilities, where shipments are moved and consolidated onto other trucks without having to be warehoused (see Chapter 8). The TMS automated a process that formerly relied on Pella having to print and fax reports to the individual carriers. The TMS helps the company keep its trucks filled and running on schedule, while reducing manual processes in its outbound planning operations. As a result Pella is better able to plan out trailer loads, carrier schedules, and network routing.¹⁵

Here are some more examples of how companies are leveraging TMS technology to gain competitive advantage by improving their time-to-market delivery cycles:

• The Dannon Company produces a lot of yogurt—shipping roughly six million cups per day, which translates into hundreds of loads every day moving from the company's three manufacturing plants to its six distribution centers and ultimately to its customers (primarily retailers of all sizes). As the company's products became more popular, retailers became more insistent on better scheduling options and more on-time deliveries. That required a shift from the old method of phone calls, faxes, and e-mails to an automated solution that would provide true supply chain visibility. After adopting a TMS, Dannon was able to track priority deliveries, automatically calculate fuel surcharges, and monitor arrivals and departures in real-time. As a result, the company has been able to shave 1.5 hours off each internal employee's workday formerly devoted to manual processes, while increasing customer service and satisfaction.
• Building products manufacturer Aeroflex was hampered by inefficiencies throughout its supply chain. Like Dannon, Aeroflex was relying far too heavily on manual processes and traditional phone and e-mail communications to manage its logistics network, which includes truckload, LTL, and ocean carriers connecting to numerous distribution centers. Using a cloud-based TMS, the company has been able to centralize and automate carrier selection and tendering, no longer needing to reference individual carrier websites. The TMS also allows Aeroflex to maintain carrier contracts in a centralized location, view customer orders in real-time, and manage orders for remote warehouses. Freight rates can now be quickly and more accurately calculated.
• Sonoco, a manufacturer of consumer and industrial packaging solutions like Dannon and Aeroflex, was a large company that nevertheless was still trying to get by with manual processes in its shipping environments. With well over 200,000 shipments every year, having an employee involved in managing every one of those shipments just wasn't getting the job done efficiently. Going the TMS route, Sonoco was able to automate the assignment of loads to trucks. The TMS allows Sonoco to react more quickly to market conditions, and has helped reduce the cost of shipping the company's large inventory of packaging products.¹⁶

Autonomous Vehicles on Land, Sea, and Air

With the ever-increasing demands for products delivered ASAP, inevitably companies have started looking to technology to provide the kind of service that traditional processes just can't quite keep up with. With labor costs by far being the most expensive component to transportation, it's also inevitable that the idea of removing humans entirely from the delivery process would become a popular, if still somewhat fanciful, alternative to warehouse staff and truck drivers. Additionally, hours-of-service regulations on the amount of time a driver can be on the road have been in constant flux for decades, with each change causing shippers and trucking companies alike to have to rethink and reevaluate how many drivers to have on the road. Even the electronic logging device mandate, which was enacted by the Federal Motor Carrier Safety Administration (FMCSA) to monitor hours-of-service compliance, hasn't necessarily reduced highway accidents.¹⁷ So the idea of driverless trucks has achieved a level of cachet as the technology has started catching up to the promise.

But let's be clear: It would be premature to refer to autonomous (aka self-driving) trucks as a best practice, for the simple reason that despite all the hype and pilot tests and long-term projections, they're still just an experiment. At this writing (2020), no company has yet put an entirely driverless truck on the open highways, nor is that likely to happen any time soon. The state of robotics and artificial intelligence isn't there yet, and the public's taste for new-fangled technology notwithstanding, the idea of commuters sharing the road with pilotless vehicles has a long way to go before it catches on. And that's despite the sobering reality that an average of 40,000 people are killed on the highways every year,¹⁸ which includes roughly one thousand truck and delivery drivers, making “driver” one of the most dangerous occupations in the United States.¹⁹ So while safety advocates for years have been urging stricter hours-of-service rules regulating how often human truck drivers can be on the road, they haven't yet fully warmed to the idea of removing all drivers from the road.

Of course, that doesn't mean a lot of companies aren't kicking the tires, so to speak, with pilot tests and partnerships aimed at reducing costs (largely in labor) and increasing efficiencies. Beer producer Anheuser-Busch, for instance, has teamed up with a division of Uber to evaluate the potential benefits of using autonomous trucks to transport its products on the highway. Using a 53-foot trailer loaded with the company's beer products, the self-driving truck traveled more than 100 miles along Colorado's Interstate 25, going from Fort Collins through Denver to Colorado Springs.

The catch, though, was that a human was behind the wheel at the beginning and the end of the journey, and was responsible for entering and exiting the highway. And in fact the human remained in the truck cabin for the entire journey to monitor the situation. But for all intents and purposes, the truck drove itself for the majority of the beer run. “We hope to see self-driving technology widely deployed across our highways to improve safety for all road users and work towards a low-emissions future,” notes James Sembrot, Anheuser-Busch's senior director of logistics strategy.²⁰

Part of the transition process that will make autonomous vehicles a more credible option for shippers will involve a redesign of the trucks themselves. “The design of commercial trucks will dramatically change, driven by the need to increase their durability to much higher utilization rates, but also by more stringent imposition of safety requirements, as well as the need to enable frequent technology upgrades employed over the life of the vehicle,” explains consultant Ron Giuntini, principal of Giuntini & Company. Trucks will be designed to be remanufactured or upgraded periodically, which will require truck manufacturers to adapt their business model to the shift toward autonomous vehicles. Giuntini believes that human truck drivers could eventually be phased out entirely, though he admits this will be a gradual process that could take 20 to 40 years or more.²¹

One way of shortening that long gap between promise and reality is through the development of intelligent highway infrastructure and interconnected autonomous vehicles. Consulting firm KPMG has predicted that an emerging mobility services segment of the transportation market, centered on connected vehicles, could be worth more than $1 trillion by 2030. This presumes the continual development—and acceptance—of artificial intelligence tools; sensors capable of providing machine vision capabilities to trucks, delivery vans, and material handling vehicles; on-board computers allowing these vehicles to be autonomous; near ubiquitous and always-on connectivity via vehicle-to-vehicle (V2V) communications; and, just as important, a business model to embrace all of these technologies, explain Tom Mayor and Talley Lambert, consultants with KPMG.²²

Pilot tests have already demonstrated “the feasibility of fully autonomous on-highway operation and offer the potential to safely open up four to six productive, on-road travel hours a day during which today's two-driver rigs are parked for crew rest,” the KPMG consultants explain. They point to experiments in platooning (sometimes referred to as “truck trains”), which use V2V communication systems that allow multi-truck convoys to safely follow (draft) off a lead truck. Potential fuel savings have been reported between 7% and 14%.

According to consulting firm McKinsey & Company, it will take at least another decade for fully autonomous trucks to begin operating on public highways, using V2V communications and AI technology. This evolution will likely involve four different waves:

1. In the first wave, two drivers will platoon two trucks on an interstate highway, but each driver will be independently driving on regular roads.
2. In the second wave, the second truck will operate autonomously while on the interstate, needing a human driver only for off-interstate driving.
3. In the third wave, the lead truck will have a human driver, and unmanned trucks—in a fleet of at least three vehicles—will follow close behind. Human drivers will board the trucks at interstate exits to transport them to the final destination.
4. In the fourth wave, fully autonomous trucks will operate the entire process, from loading to delivery. This probably won't happen until at least 2030, and even then it could be many years before autonomous trucks replace traditional human-driven fleets.²³

Of course, autonomous vehicle research isn't limited to just trucks. Drones have certainly caught the fancy of consumers and businesses alike in the nearly effortless way they can navigate through the skies, whether at large public gatherings or to enable delivery of products to remote or dangerous areas, as well as enabling more convenient last-mile capabilities that other modes lack. Drones, for instance, have been used for such mundane activities as pizza delivery, for humanitarian purposes, such as delivering medical supplies in isolated rural areas in Rwanda and Ghana, and for delivering MRO supplies to offshore oil platforms.

“Drone use promises to impact businesses' bottom lines as labor costs virtually disappear from certain monitoring and shipping functions now performed by manned aircraft, over-the-road vehicles, or even on foot,” explains transportation attorney Enan Stillman. “Drones can also reduce risks and insurance costs by replacing humans on dangerous tasks such as inspecting cellphone towers, landing in antiquated rural airports, transporting or escorting high-value freight, monitoring wildfires or other natural hazards, and conducting search and rescue operations for missing assets or personnel.”²⁴ Technical and infrastructure challenges are numerous, but as of 2020 the Federal Aviation Administration had already given approval to Amazon and UPS for delivery drones, and small-scale customer trial runs had already begun.

Other autonomous vehicles in development include self-sailing cargo ships, self-optimizing forklift trucks, and autonomous trains, and while there's no reason to expect to see these anytime soon, both Walmart and Amazon have revealed plans for flying warehouses that would carry limited supplies of fast-moving items, from which drones could be deployed for local deliveries.

Do-It-Yourself Logistics

We've looked at how autonomous trucks, delivery drones, and other AI-powered technologies can help alleviate the labor situation while allowing products to be delivered even faster than imagined just a few years ago. But for every advancement in technology, there's also a workaround solution that doesn't really involve much high-tech at all. Call this the BYOV (bring your own vehicle) movement, a trend that's being heavily promoted by retail giants Amazon and Walmart, among others.

The idea is almost deceptively simple: A retailer pays independent drivers to use their own vehicles to pick up packages at local warehouses or distribution centers and then deliver them to a consumer's house. It's similar to the model Uber uses with its drivers, and in fact Uber itself has created a freight division for independent truck drivers to pick up entire loads and deliver them to customers' docks, using an app similar to what consumers use when they want to hail a car.

One of the key components of the Uber model is the commodity-like nature of the ride-hailing service, points out Evan Armstrong, president of Armstrong & Associates, a consulting firm focused on third-party logistics. The idea behind digital freight matching, he explains, is the use of a digital platform (i.e., app) to match a company's freight with available trucking capacity. It gets more complicated than that, though; whereas a consumer might use Uber or Lyft to be transported a short distance within a single metropolitan area, using a similar app for domestic transportation involves a lot more considerations, such as the type of equipment needed (e.g., flatbed, refrigerated, hazmat); the need for multiple modes (e.g., a shipment moving from ocean carrier to railcar to truck); and customized services as needed (equipment failures or weather-related incidents). “Shipments are high-value and time-sensitive,” Armstrong says, “so placing an Uber-like app atop a complex industry doesn't truly address the problem.”

“The commoditization of freight is a lot different than the Uber model of passenger pick-ups, due to all of the exceptions and requirements in freight carriage,” adds John Wiehoff, CEO and chairman of third-party logistics provider C.H. Robinson.²⁵ Even so, numerous freight-hailing services have arisen to offer shippers the opportunity to summon a driver and a truck at short notice, with full visibility into where the vehicle is throughout the entire journey from pickup to delivery.

Major retailers, meanwhile, are constantly developing alternative business models that effectively transform consumers into drivers, particularly with a strategy known variously as buy online pickup in-store (BOPUS) or click-and-collect. During the COVID-19 pandemic, BOPUS became particularly popular as customers opted for curbside pickup—so not technically in the store, but at least in the parking lot. It allows consumers to do all their shopping online, but rather than waiting for a delivery truck, they can pick it up themselves, without incurring any shipping charges.

The Last Mile

These self-service logistics options are part of the push to address what's known as “the last mile” in logistics, the point at which a delivery is made to the customer's loading dock or doorstep. And as e-commerce continues to grow in importance—not just for consumer purchases, but for corporate and industrial purchases as well—fulfilling on perfect orders all the way to the last mile is a crucial part of transportation management.

“The last mile in the world of logistics has quickly become one of the most mission-critical areas for shippers to address, as issues that occur here have a major impact on brand perception, reputation, and customer satisfaction,” says Ken Toombs, global head of Infosys Consulting. “A mix of enhanced data along with emerging technologies (such as artificial intelligence) can play a key role in meeting the ever-increasing demands of today's enterprise customers.”

John Langley, director of development at Penn State's Center for Supply Chain Research, notes that “last mile” in some cases has been shortened all the way down to the “last yard,” which he says refers to “what happens to a shipment once it is delivered to a customer or consumer, and then how it is routed to a specific location where it may be needed or used.”²⁶

Jim Tompkins, chairman of supply chain consulting firm Tompkins International, also shies away from using the “last mile” term, preferring the phrase “final delivery.” What we know about final delivery, especially when it comes to e-commerce shipments, is that the delivery must be quick and inexpensive, he notes. “Unfortunately, final delivery choices are often fast and expensive or slow and inexpensive. With the customer wanting fast/inexpensive and the options given are fast/expensive or slow/inexpensive, what can be done? The answer lies not only in how you deliver, but also in how far the delivery is.”

The quicker a firm delivers, Tompkins points out, the more they will sell. So final delivery has be fast/inexpensive. For that to be possible, companies need to implement “a distributed logistics network where they can locate inventory in multi-client, automated fulfillment centers that are close to the customers. Trying to solve the final delivery via a traditional network is folly.”²⁷

A successful last-mile strategy should begin with “an extensive review of how your end-to-end supply chain network is designed, and how your inventory is deployed, postponed, configured, and distributed across channels to meet [your] customers' shopping and delivery preferences,” states Burton White, vice president, industry supply chain with consulting firm Chainalytics. He recommends the following six strategic keys to last-mile delivery:

1. Don't lose sight of what matters to your customers, and learn what influences their buying behaviors.
2. Learn how to alter your customers' expectations by offering incentives, such as bundling product shipments, to reduce your last-mile delivery costs.
3. Explore alternative distribution solutions, such as incorporating brick-and-mortar stores into the network to make same-day fulfillment a viable option.
4. Optimize your transportation solutions to best satisfy the demands of last-mile delivery.
5. Keep inventory flexible and generic until the actual point of need to gain a strategic advantage.
6. Focus on an efficient returns management process by reducing the number of touchpoints.²⁸

Get It There on Time

In the final analysis, what matters most to your customers is not what technology you use, what kind of vehicle the products are being transported in, or what route a driver took to reach the final destination. For your customers, Transportation Rule Number One is: Get it there on time. Based on analysis conducted by Aberdeen, best-in-class companies have an on-time delivery rate of 96.6% or greater. Average companies, by contrast, are on-time 90.8% of the time, while those Aberdeen describes as laggards have only an 83% on-time rate. In terms of dollars-and-cents, laggard companies are continually compensating for their delivery inefficiencies by resorting to costly expedited service. There's something wrong with that picture when a company spends more but consistently delivers less. Best-in-class companies, on the other hand, use expedited service only 2.9% of the time.²⁹

“As we continue to evolve into an instant gratification society, being able to exceed the customer's expectations is becoming more and more difficult,” notes Tompkins. “Reaching your customer when they want it, as they want it, continues to strain traditional supply chains.” Hitting that sweet spot of quick and inexpensive delivery will require companies to deploy inventory via distributed logistics. To stay competitive in that “instant gratification,” omni-channel-driven world, Tompkins says, companies will need to get better at managing the inventory flow as opposed to managing the inventory storage.³⁰