Freight Truck Shortages Are Changing The Face Of Logistics

TuSimple Holdings (NASDAQ: TSP) – in its most recent call with financial analysts – reaffirmed that they expect to have fully autonomous trucks on the road in 2024. Their CEO is projecting impressive profits following the debut of its 2024 driverless 18-wheelers in partnership with Navistar International Corp and Volkswagen AG’s trucking unit Traton.

Shortages of drivers is just one of the contributors to the difficulties shippers are having in securing the truck capacity they need. It is one reason experts on logistics are following the autonomous freight truck market and new approaches to freight procurement closely. Not all experts on freight logistics are quite so optimistic that we will have fully autonomous trucks on the road by 2024 like TuSimple is claiming. Michelle Sodomka, a Senior Director in charge of Open Sky Group’s transportation management practice has 15 years’ experience in risk analysis and mitigation within the logistics industry. She believes a fatal accident could lead to a more restrictive regulatory environment surrounding autonomous trucks and skyrocketing insurance rates. That would make autonomous trucks too cost prohibitive for most shippers.. Nevertheless, she believes the revolution in freight logistics is coming; it is just a matter of timing. Open Sky Group is focused on consulting and implementation of Blue Yonder’s warehouse, labor, and transportation management solutions.

Transportation management systems are used by shippers and carriers to more efficiently manage inbound and outbound shipments. Ms. Sodomka does not believe that the emergence of autonomous trucks will impact the planning and execution of transportation shipments. From her perspective, most transportation management system (TMS) solutions will be able to handle this. The configuration logic in a TMS already has equipment type as one configuration parameter. “This is just a different type of equipment,” Ms. Sodomka stated, “with a different cost structure, hours of service, and routes” (autonomous trucks will initially be driven only in the Southwest of the US). “A TMS configuration can already handle all of this today.”

Bob Hart – a Senior Vice President of Logistics Management at Inspirage – agrees that the configuration of autonomous trucks will be the same in the TMS as for existing carrier equipment. Inspirage is a consulting and system integration firm focused on implementing Oracle’s supply chain applications. However, freight procurement is changing. “There is a driver shortage. It is a brutal job. Carrier rates have historically been the driving factor in carrier selection. The carrier driver shortage has resulted in shippers tendering loads to their 2nd, 3rd, or 4th best choice on a lane due to the capacity crunch. The spot market has become more popular as a result.”

In logistics, we talk about strategic freight procurement and the spot market. Strategic carriers are like the lawn guy that comes week after week to mow your yard. The spot market is more like the tree guy that you call when a storm comes through and creates damage that needs to be cleaned up. Shippers go to the spot market when their regular carriers won’t take the load.

According to Mike Mulqueen, a partner at JBF Consulting, the percentage of tenders going to the spot market for many shippers is up to 30 to 40 percent. Before the pandemic, it would have been less than 10 percent. JBF’s consulting practice is totally focused on freight transportation and TMS implementations.

Leading TMS solutions already support spot tenders out to digital freight brokerages like UBER Freight. But now, autonomous trucking firms will also be providers of freight market services. At TuSimple, for example, while they anticipate most of their customers will buy their autonomous trucks, one business model they are developing is TuSimple Capacity. Shippers would access autonomous freight capacity in a service model and pay for this on a per mile basis. This will probably be more like a strategic carrier engagement than a spot market tender.

Mr. Mulqueen sees a solution from Emerge as a new, interesting solution to deal with the problems shippers are having procuring truck capacity. “The old way of doing business,” Mr. Mulqueen explained, “where a carrier has to commit to providing capacity (on a lane) for an entire year is not working anymore. There is a need for a nimble, continuous bidding process. That is what Emerge provides.”

I talked to executives at Emerge and got a product demonstration. It is a unique solution that has attributes of different supply chain solutions – spot procurement functionality from a TMS, an RFP platform for contract planning, and a managed transportation data model.

Managed trans providers have implemented a functionally rich TMS and then provide planners to procure and execute loads on behalf of their shipper clients. Managed trans providers have visibility to the procurement of all the shippers they work on behalf of. Large managed trans providers will have visibility to over $10 billion in freight spend. This is called freight under management (FUM) in the industry. A large FUM allows a managed trans provider to do better procurement on behalf of their shipper clients because they understand what the average shipper pays on a lane, which lanes are hard to source, and which carriers really like to work in certain lanes.

What Emerge has created is a free bolt on for shippers. Shippers can use their own TMS to decide which carrier they want to use on selected lanes. But the tender is sent through the Emerge Cloud platform. If the tender is accepted, there is no charge for using Emerge. But all these tenders by big shippers has given Emerge billions in freight under management; they believe by the end of the year they will have a FUM comparable to the biggest managed trans providers and brokers.

It is when the tender is not accepted, that Emerge can leverage their visibility into the dynamics of the market to help shippers find new capacity. The Emerge request for proposal is free for shippers. Simultaneously, Emerge is messaging carriers that they have a shipper that needs carriage on a lane that is a good fit for that carrier’s network. The carrier, often small carriers that get much of their business from brokers, does not continuously have to be looking on different load boards or broker portals to find a load. If the carrier is selected, the carrier pays Emerge a fee that is a percentage of the cost of that shipment.

Mr. Mulqueen also mentioned the guarantied rate feature of Convoy as an interesting solution to the capacity problem. Convoy is a digital freight broker. Convoy has a program called Guaranteed Primary. When Convoy is selected as the broker on a lane, they are able to provide an instant quote with a guarantied price for the move. Convoy is not asking carriers for their current rate – that introduces a time lag that creates friction. Convoy is using Big Data and machine learning to predict that at a certain price they feel is competitive, that they will be able to find a carrier that will accept the load. If they have to pay more for that load than their predictive pricing algorithm had predicted, they eat the losses.