Does Tech Matter Amid Freight Rate Chaos?
Welcome to the 55th edition of The LogTech Letter, a weekly look at the impact technology is having on the world of global and domestic logistics. Last week, I asked: who will eventually be LogTech’s frontman? This week, I ponder whether technology investment in global logistics even moves the needle in the current environment?
As a reminder, this is the place to turn on Fridays for quick reflection on a dynamic, software category, or specific company that’s on my mind. You’ll also find a collection of links to stories, videos and podcasts from me, my colleagues at the Journal of Commerce, and other analysis I find interesting.
For those that don’t know me, I’m Eric Johnson, senior technology editor at the Journal of Commerce and JOC.com. I can be reached at eric.johnson@ihsmarkit.com or on Twitter at @LogTechEric.
I’ve joked internally with my JOC colleagues that I sometimes feel like I’m playing the violin on the deck of the Titanic this year. Is investment in global logistics technology just background music while the ship slowly sinks? Am I just amusing myself while shippers grapple with their transportation budgets being torn to shreds? While logistics companies struggle to overcome a massive gap in available ocean and air capacity versus demand? While container lines inject capacity but can’t wedge it into congested ports?
I’ve wondered what the math looks like for, say, a shipper. If a new TMS offers an 8 percent annual decrease in costs associated with transportation spend, does it even matter when freight rates are up 300 percent? If tariffs on Chinese-made goods are still at 25 percent, does a documentation automation tool move the needle? If your goods are stuck on a containership outside a port, does visibility into those goods matter as much?
To be clear, the value of most systems in incremental and should be designed to deliver benefits in any outside environment. A TMS or visibility tool can’t only be valuable in an elevated or depressed rate environment, or even just a highly volatile one. It needs to be valuable when things are stable as well.
I’ve actually been fascinated with one particular aspect of the container shipping industry that matters a lot right now, and where technology can and must play a role: allocations. Let’s first define what we mean.
First, there is the space that a container line allocates between any two port pairs on a sailing. If a sailing sweeps up cargo at four ports in Asia and delivers them to three ports on the US West Coast, it will allocate a certain percentage of the space on the vessel to cargo that is likely to move from one of those origin ports to one of the destination ports. All of the cargo on a full ship has similar calculations between all the various permutations.
Then there is the allocation that a container line provides to capacity buyers, either contract or spot. Those long-term allocations tend to be spread over the period of a contract with a particular buyer. So on, say, a 12-month contract with a retailer, an allocation of 520 TEU means that 260 40-foot containers could move at any point in that 12-month period. Generally, it’s understood that would mean the retailer would get 10 TEU of space every week, as most contracts have an unwritten “total allocation/weeks in the contract” rule applied. As an aside, those equations have been blown apart in this environment.
The need for allocation management tools has never been bigger, on all sides. Shippers need to predict their forecasted volumes as many weeks out as possible so they can give their forwarders and carriers a better sense of what’s coming. The information that underpins those forecasts isn’t generally available or generated in a “logistics system,” but rather in demand planning, inventory management, or sales forecasting systems.
Carriers, meanwhile, need to get around gaps or inaccuracies in their customers’ forecasting to plan their networks: how to structure the rotation of a service; what type of vessel to deploy on that service; what percentage of space on the vessel to allocate to each specific port pair; and how much expected space will move contract volume versus what they might want to make available to spot volume.
Every carrier is thinking along these lines, and some are really drilling down into booking behavior – i.e. does a customer tend to cancel bookings 15 days out or two days out? Do they book and not produce the container ahead of the sailing? Years ago, the container freight booking portal INTTRA was providing this to carriers under a “decision-making dashboard” moniker. But freight rates were in the toilet at that point, so it was kind of like “what’s the point” if even our best customer is barely going to give us $50 more per TEU. Now, knowing that difference might mean thousands of dollars of revenue per box. Especially if a carrier is sophisticated enough to also factor in how repositioning costs of equipment affects the profitability on a certain rate.
Software can still matter in environments such as these, but it’s often the entity that owns the leverage that finds the value more consequential, not because there’s more budget to invest in systems, but because the delta between not having the capability and having it is too difficult to ignore.
Here’s a roundup of pieces on JOC.com the past week from my colleagues and myself (note: there is a paywall):
I wrote this week about a framework for shippers to think about their investments into visibility technology, built around the idea that providers can be grouped into generators and aggregators, and then into milestone-based or sensor-based. To be clear, there is no right or wrong here. Each company needs to examine their requirements and find the right fit.
As ports are being encouraged to digitize, they must also harden themselves as targets of cyberattacks. This week the International Association of Ports and Harbors (IAPH) released guidelines on how to prepare, withstand, and recover from such incidents.
And here are some recent discussions, reports, and analysis I found interesting:
Jonah McIntire and Jochen Gutschmidt talking container shipping? I’m in.
From July, but it’s about how high the freight market can go, so obviously still relevant…
Meeting of the VC minds here, as Dynamo’s Santosh Sankar chats with Maersk Growth’s Jeppe Hoier.
Not logistics-related but this is a great piece on the evolution of the sales funnel in a modern marketing world. Hat tip to Carol Kraeutler Lerner for flagging this one.
Enabling drivers to get access to credit and debit cards tethered to software platforms is de rigueur. Good cross-industry examination of the benefits/pitfalls of such an approach here.
Sarah Barnes-Humphrey and Lora Cecere riffing on supply chain innovation.
You should already be subscribed to my colleague Bill Cassidy’s Substack, but in case you aren’t, check out this one on “violated assumptions” in managing safety stock.
Likewise with Cathy Morrow Roberson and her Substack. This week she tackled the relevancy of physical stores.
Definitely definitely definitely not moving to Texas or Florida now.
Some upcoming events I’ll be involved in:
The latest episode of LogTech Live streamed this morning and is now available on demand. My guest was Joanne Lin, principal at Newark Venture Partners. We had a great chat about investing into supply chain, the crazy VC world right now, whether VC Twitter is valuable and why missing out on early-stage companies is just part of the deal in VC.
I’ll be speaking at the Container xChange Digital Container Summit, held virtually, at 8:30 am EST/14:30 CET Sept. 15. I have the honor (or challenge) of being wedged between Lars Jensen and Patrik Berglund on the agenda, so good luck to me! Use this code to get 30 percent off the registration fee.
I’m leading a session (in-person!) at CSCMP Edge at 2 pm EST Sept. 20 in Atlanta. The panel, How Leading Retailers use Technology to Effect Supply Chain Transformation, includes Sarah Galica, VP of transportation at The Home Depot, and Ben Pivar, CIO at Carter’s. Please stop by if you’re the event – I have 18 months of in-person catching up to do! Details on the session can be found on the agenda page.
Disclaimer: This newsletter is in no way affiliated with The Journal of Commerce or IHS Markit, and any opinions are mine only.