2017 has been quite the year for the world of logistics. With e-commerce booming and the adoption of new digital technology on the rise, it’s no secret that change is on the horizon. The air, rail, and ocean sectors all showed improvements, and the importance of one-stop-shop 3PLs became much more prominent, while truckload (TL) saw interesting fluctuations and less-than-truckload (LTL) enjoyed a boost from e-commerce, last-mile delivery service, and investment in new technology.
3PLs: The Missing Link
As logistics needs continue to evolve, shippers continue to search for 3PLs that can offer a comprehensive suite of supply chain solutions to meet their diverse requirements. The growing trend for 3PLs seems to be focused on becoming a one-stop-shop for end-to-end logistics solutions and less as a transactional business model focused on a few specific services. The demand for this model is strong among both large and small businesses alike that view one-stop-shop 3PLs as better managers for global logistics networks and as an access point to larger volumes across various transportation modes. No doubt, 3PLs that can offer the right combination of integrated services and sophisticated expertise will differentiate themselves from competitors. Within the next five to 10 years, one-stop-shop 3PLs are expected to become the dominant business model. The key for shippers moving forward should be to form true partnerships with dependable 3PLs that can generate long-term value for their supply chains.1
On the roads, the trucking industry continued to see capacity tightened by different factors such as the continued rise in driver turnover and natural disasters. There were double digit gains in the turnover rate for both small and large fleets, with the turnover rate rising to 90 percent for large fleets and 85 percent for small fleets.2 In addition, multiple natural disasters such as Hurricanes Harvey and Irma affected supply chains throughout the United States causing spot rates to rise due to the increased demand and higher fuel prices. There’s also the upcoming ELD mandate, effective December 18, which will require truckers to adopt electronic logging devices to track how much time they spend driving their vehicle. This is expected to tighten capacity further as some drivers are threatening to quit when the mandate goes into effect.3 With all these factors in play, shippers could address potential capacity constraints with dedicated fleets which have also had a noteworthy story this year. 3PLs with strong dedicated contract carriage offerings grew 3.5 percent in the first half of 2017, reaffirming its value to shippers’ supply chains.4 With a dedicated fleet in place, shippers can minimize the difficulties of tightening capacity and maintain consistency in their supply chains.
Demand for warehousing also grew as a result of the strengthening economy and continuing boom in e-commerce. Availability for space dropped to a new low of 8 percent in the first quarter of 2017 and continues to tighten. With high consumer demand for same-day delivery, companies find themselves under greater pressure to move goods faster, adding complexity across operations, from networks to warehouse layouts and fulfillment processes.5
Planes, Trains, and “Ocean-mobiles”
Looking back, air freight has shown to be resilient in the face of continued e-commerce growth that has driven demand for cargo space. According to the International Air Transport Association (IATA), air cargo markets revealed that demand rose 8.5 percent in April compared to the same period in 2016. Just three months later, global air freight demand continued its double-digit increase for the third consecutive month, rising 11.4 percent in July thanks to continued economic growth. Over the course of the whole year, the IATA expects air demand to head for a healthy growth rate of 7.5 percent.6 Available capacity also rose 3.7 percent in July, allowing shippers to support strong growth by e-commerce and pharmaceuticals.7 While there is still room for growth, progress is being made, and as the industry continues to adapt to new technology and modernize, the need for reliable 3PLs to help streamline the flow of goods is paramount.
Sticking to its own tracks, rail and intermodal also experienced positive movement. The Association of American Railroads (AAR) issued data showing that U.S. carload volumes rose 6.8 percent (358,904 carloads) through the first five months of the year, with the weekly carload average for May up 8.4 percent, the highest average per month going back to February. On the rail intermodal side, container and trailer volumes were up 2.3 percent through May, marking the highest year-to-date tally through May for intermodal since 2015. Volumes for January through May 2017 marked the highest volume output for that period in U.S. history, according to the AAR.8 Railroads are continuing to become more efficient. Operating ratios improved 100 basis points on average as railroads focused on productivity, and service levels went up as they reduced dwell times and increased train speeds.9 This is good news for shippers, especially with the upcoming busy holiday season, who will be able to keep up with larger orders and stay on schedule with fulfillments.
Riding waves of increased imports, shipping ports around the United States took in near-record shipments in July. Just shy of the record, 1.72 million 20-foot containers came in to American ports in July. U.S. retailers and manufacturers are stocking up their inventories with newfound confidence heading into this year’s peak shipping season, typically when imports pick-up ahead of the holiday season. At the neighboring ports of Los Angeles and Long Beach, California, imports rose 15 percent, while both Savannah, Georgia and Houston, Texas experienced year-over-year increases as well.10 With demand for product rising as a result of e-commerce, retailers are stocking up inventories, which has resulted in a consistent need for international shippers to meet these requirements. The holiday season is quickly approaching, and with warehouse capacity becoming scarcer, it is crucial for shippers to manage their supply chains wisely. Handling cargo ranging from TVs to children’s’ toys, shippers will need to watch imports vigilantly to ensure that inventories stay stocked.
It’s time now to look forward as 2017 enters the home stretch because while these are just a few highlights from this year so far, the future is always in motion, especially for the world of logistics.