Still recovering from the disruptions of the past three years, transportation organizations are bracing for continuing logistics and supply chain challenges in 2023. On the one hand, logistics service providers (LSPs) are experiencing some signs of relief as U.S. container imports have fallen back in line with pre-pandemic 2019 levels. On the flip side, some of the lingering challenges of the pandemic period continue to cause headaches for LSPs and for their shipper customers.
Escalating costs of raw materials and finished goods—compounded by inflationary pressure, geopolitical upheaval, and near record low unemployment rates—are forcing companies to focus on cost containment as they try to minimize transportation costs through rate shopping, increasing transportation diversity, and strategic sourcing. Driver shortages also continue to wreak havoc with performance and profitability for transportation organizations. According to the American Trucking Associations, the industry’s current shortage of over 80,000 truck drivers could grow to more than 160,000 by 2030. The ongoing shortage of warehouse laborers also threatens to put further pressure on supply chains.
As the new year unfolds, what new global supply chain surprises, economic uncertainty, or industry upheaval might transportation providers face? And what steps do companies take to survive and, ultimately, thrive? While the past few years have taught businesses to expect the unexpected, transportation organizations can capitalize on three key trends in 2023 to help contain costs and foster resilience in the midst of ongoing and future supply chain challenges.
- Customer DEMAND for SERVICE
The past several years have taken a severe toll on transportation service levels, damaging shippers’ relations with their customers. Today’s customers demand a higher level of service than ever before and have become much less forgiving when it comes to mediocre service experiences. While shippers will ask carriers and LSPs to “sharpen their pencils” on costs, they will also focus heavily on transportation performance, measure it much more precisely and often and even pay a slight premium for it.
Shippers will also focus on carrier and LSP digital service capabilities as customers demand greater shipment visibility and the ability to control shipments in transit. Both B2C and B2B customers expect a granular level of real-time data about their shipments, with the ability to track goods through every stage of the transportation journey. Shippers must find a way to shine a light into the supply chain from the time an order is picked and packed in the warehouse to the time it is loaded onto the truck and in transit. In fact, real-time shipment visibility, ETAs, and electronic proof of delivery (POD) will become a base expectation in 2023 across all modes of transportation.
- The Opportunity of Sustainability
A recent survey of more than 8,000 consumers across Europe, the U.S. and Canada, which examined consumer sentiment of sustainability practices around delivery operations, found many consumers prefer to buy from retailers with eco-friendly delivery options that simultaneously reduce environmental impact and transportation costs. In fact, more than 50% of those surveyed indicated they were “quite/very interested” in environmentally friendly delivery methods.
Similarly, 54% of consumers indicated they would be willing to accept longer lead times for an eco-friendly delivery. Longer lead times provide more transportation options for companies to improve the efficiency of the delivery, typically resulting in a lower carbon footprint. In addition, 20% of respondents indicated they would pay more for a delivery from an environmentally-friendly company—a premium that can translate to millions in incremental revenue.
Providing sustainable delivery options is not only an important strategy for improving the customer experience and capturing a bigger share of the market, but also presents a financial opportunity to reduce transportation costs: eco-friendly deliveries are more efficient and cost-effective than traditional deliveries, in part because they drive delivery density.
Plus, Environmental, Social and Governance (ESG) reporting requirements will see companies look to measure CO2 footprint across the supply chain and all modes of transportation. In the U.S., companies can leverage this information to take advantage of eco-based tax incentives, such as the plug-in vehicle credit, alternative fuel vehicle refueling property credit, and energy conservation subsidies.
- Building resilience through innovation
The fallout of the pandemic highlighted the vulnerability of transportation organizations and the need for innovation to promote agility, responsiveness, and resilience across the supply chain. A recent study examining how technology innovation is changing supply chain and logistics operations and executives’ plans for continued investment found that 59% of companies accelerated the pace of their innovation initiatives over the past two years; an even greater number (65%) plan to invest more heavily in technology for logistics innovation in the next two years.
Not surprisingly, a higher level of senior management importance placed on supply chain and logistics technology innovation goes hand-in-hand with better financial performance and lower employee turnover. Respondents who said that innovation was important to senior management were 20% more likely to be better financial performers and 13% more likely to experience lower employee turnover.
In light of the value of supply chain innovation, embracing logistics digitization is a vital pathway forward for LSPs, carriers and shippers alike to enhance performance and profitability. When looking at the top digitization programs where companies were focusing their efforts, the study identified transportation processes (44%) as a key initiative. With the pressure of declining demand and excess capacity, the digital transformation of transportation processes will not only be critical to help contain costs, but also to enhance customer service and competitive differentiation.
For example, digitization optimizes the customer experience by giving customers the ability to rate, quote, and book ocean shipments in seconds as opposed to waiting days. Digitization also provides shippers and carriers with the ability to determine, on demand, the status, location, and ETA of their freight, instead of having to pick up the phone or access a static view.
While efforts in innovation are accelerating, many companies are relatively early in their journey. Given that standing still is not a viable option, forward-thinking transportation organizations will leverage supply chain and logistics technology innovations to embed flexibility and agility into their transportation processes to better manage challenges.
The pressure on transportation providers to deliver high levels of performance at lower costs is real. Although advancing technology-enabled capabilities to be more agile and cost-effective while simultaneously optimizing the customer experience and reducing environmental impact is a big ask, companies that prioritize customer expectations, sustainability, and technologies for logistics innovation can drive greater resilience and adaptability into their transportation operations.
