Last week, I attended one of the best Supply Chain conferences in NA. The invite-only BGSA Supply Chain Conference pulls together CEOs and top executives from across the industry to have honest conversations about what we’re seeing. This year’s BGSA Supply Chain Conference did not disappoint. Thank you to Ben Gordon and the team at BGSA for putting together a great week!
Below are my top 4 takeaways from this year’s BGSA Conference.
Impacts from the Alcohol and Drug Clearinghouse are Very Real
What we heard: The FMCSA’s alcohol and drug clearinghouse officially started on January 6th. The FMCSA released a statement that the clearinghouse will allow law enforcement officials to check for CDL drivers that have violated federal drug and alcohol testing program requirements, which is intended to increase the safety of roads.
The first-week average had 250 drivers restricted per day; the second week was up to 325 per day. At this rate, there could be as many as 50,000 to 65,000 drivers that are ineligible by the end of the year. Morgan Stanely predicts higher rates in 2020 due to lower truck capacity for trucks in one-way truckload. At this rate, that’s about 7% of drivers for those ineligible trucks.
What we think it means: The first half of the year may have excess capacity but that will shift as more drivers are found ineligible leading to a big shift the second half of the year; rates will skyrocket because capacity will be diminished. To be more specific, this means that shippers should prepare for tight capacity and correlated rate increases the second half of the year and brokers and 3PLs taking on heavy contracted freight should consider implications of purchased capacity costs going up.
Continued Impact of Increasing Insurance Costs on Small to Middle-Market Carriers
What we heard: Most small and medium-market carriers run around a 97 operating ratio (OR.) Up until now, insurance has accounted for up to 5% of companies’ total revenue. Because of the increase in nuclear verdicts in 2019, insurance is increasing at rates of 70%+ this year for carriers. This puts most small and mid-size carriers at or above a 100 OR, which means that they are effectively operating at break-even or losing money.
Altogether, the rising cost of insurance, high number of claims and lawsuits, and the nuclear verdicts are enough to kill smaller and middle-market carriers.
What we think it means: This is bad news for our industry. As more of these small to middle-market carriers (which make up a large portion of the total carriers in the industry) go out of business, it will continue to pull capacity off the market. This means that larger carriers could charge higher rates for their services, dramatically increasing costs for intermediaries and shippers.
Predictive Analytics, AI, and Machine Learning are great, but what about Clean Data?
What we heard: There was a lot of talk surrounding machine learning, artificial intelligence (AI), and predictive analytics. We know you have heard plenty about this, and sure, they are important, but at CarrierDirect, we do not think they are the most important; clean data is.
What is clean data? In its most basic form, clean data is all about having an organized platform of data. For example, on customer relationship management software (CRM), you can store and track contacts. Bad data would be to have duplicates and outdated/unserviceable contacts. It doesn't initially sound like too big of a problem, why would you not be able to just ignore it? The answer is simple: when you have bad data, you cannot do anything advanced like predictive analytics, machine learning, or AI. Why? Because these emerging technologies are designs to create automation based on observed behavior and data. If you try to train AI, ML or PA on bad data you’ll end up with bad automation. It’s the same concept as employee training. If you don’t train your employees correctly on basic processes, they won’t be able to do anything else correctly - because their foundation is not firm. Clean data is the firm foundation these emerging technologies need to progress.
What we think it means: The industry has bad data. As an industry, we need to focus on getting clean data and a foundational data strategy before we can put the effort into advanced technologies like AI, ML, and PA. We cannot progress without it.
Continued Emphasis on Technological Investments - the Industry’s Bullish Approach to New Tech Entrants
Cambridge Capital predicts a 60 billion dollar investment in the supply chain industry for 2020. That is a huge increase from 2010 when investments were at 30 billion.
This past decade focused primarily on venture capital-funded innovations, but Cambridge Capital predicts that the 2020s will be focused on private equity-backed projects in technology. Their predictions span over consumer wants too - predicting that a desire for fast delivery will drive innovation forward.
We also heard a case study on digital freight brokerage between Convoy and CH Robinson worldwide. To sum it up, incumbents are valued lower than ever before.
What we think it means: Part of the increased investment has to do with retail commerce shifting to primarily e-commerce platforms. For our industry, it means more attention around the final mile, creative distribution channels, and value-added services that use technology to augment and automate. Because of the success of e-commerce platforms, and thanks in part to powerhouses like Amazon, part of the competition will be to deliver speed, not just product. As the CEO of Cambridge Capital puts it, the industry is “ripe for disruption.”
The question is: what are you doing to prepare for the 2020’s freight market? More importantly, how are you preparing for the inevitable uncertainty surrounding our industry as you look at 2021, 2022 and beyond? At CarrierDirect, we thrive on questions like these and conversations surrounding ways to find your solution. Want to learn more? Let’s chat. Email me directly at prentschler@carrierdirect.com, or find us on LinkedIn.
Again, thank you to Ben Gordon and the BGSA team for putting together a great conference. Cheers to 2020!