How Logistics and Transportation are Impacting Businesses

Logistics and transportation are a perennially hot topic here in Columbus where we are within 500 miles of the two largest cities in the U.S. There are reasons that you should be looking at it now, if you have a significant investment in transportation assets. Central Ohio has always been a bit of a logistics center and recent trends like “Amazoning” commerce, distribution and home delivery are creating something of a tail wind for the transportation sector right now.

What I mean by “Amazoning” is the conversion of an activity, shopping, from an infrequent activity to a nearly constant activity. My mother and father shopped probably two to three times a week. Mom thought of Thursdays, when I was growing up, as grocery day. They would keep a list of things they needed on a piece of paper. There were probably weeks on end that Dad didn’t go to the store at all. And most of their trips to the store would have been grocery-oriented trips with perhaps a side trip to an office supply store or a hardware store, planned to coincide with grocery shopping “for convenience sake” so they didn’t have to make more than one trip.

Today, we think nothing of bringing up a browser or app and ordering an item immediately when we realize we need it – at the point in time when the need is recognized. Instant gratification. No list creation step required. We could discuss the impact of this on our wallets, on savings etc. But I focus here on the impact on transportation. That once a week trip is now an almost continuous flow of commerce. Results show up in the amount of transportation services required to shift our delivery model from one of warehouse to store to one of warehouse to home. From one of a single trip for many goods to a single trip for each item. This VASTLY increases the number of trips or legs traveled and shifts the transportation burden from the consumer to the seller/transporter. The result is the explosion we have seen in the parcel business over the last two decades. This creates massive demand for someone to handle the delivery from the warehouse to your house – or the last mile as my transportation genius friends call it. UPS and FedEx have been picking up the slack, but there is likely more than even they can handle without massive increases in transportation assets.

Distribution has been undergoing shifts as well. Distribution used to be something that was predominantly a business-to-business activity as we moved items from manufacturers to warehouse / distribution organizations and then out to retailers or other companies that finished goods for sale to consumers. Today however, distribution is becoming more and more dominated by business-to-consumer (B2C) traffic. Before the Great Recession, gasoline and real estate were expensive. So, we built large warehouses and optimized transportation networks using a relatively small set of long-haul routes between distribution centers and between distribution centers and store fronts. Post-recession, real estate was cheap and fuel prices were more stable, even falling as fracking made U.S. fuel sources more attractive than imports. This encouraged growth in the number of warehouses with more, shorter routes between, ultimately complicating the distribution problem and creating a need for new solutions.

Home delivery has pushed this even further and will continue to drive a shift in transportation. The impact is most recognizable at Amazon where everything is delivered to your home. But it can be seen in the food service industry, as well, where home delivery is rapidly becoming available. Even local stores are making home delivery a part of their business model, following Amazon’s lead. This further accelerates the growth of the last mile segment.

The nexus of all these transportation-related forces is last mile service. Tremendous demand is being put on our transportation infrastructure and labor pool in order to complete that last mile. I say labor pool because as this is written, the U.S. has a critical shortage of drivers. Thousands of positions are going unfilled and companies are bidding for drivers, stealing them away from competitors, which drives up wages. The challenge is further complicated by the fact that the last mile is fundamentally different than over-the-road type transportation. A 16-wheeler over-the-road truck cannot even navigate many residential areas due to the turning radius of the vehicle. So, transportation assets are expanding to include last mile-capable vehicles.

So, where’s the silver lining? The silver lining is for those that have a viable transportation network and fleet in place. Particularly, last mile-capable, but just about any network can be leveraged. For those organizations, there is demand from companies like Amazon to use your empty capacity and help pay for your fleet and generate return on your assets. Either filling your back-haul routes or filling and capitalizing on low utilization periods in your weekly schedule. Many of these organizations even have scheduling systems that will take care of filling and routing for you.

If you have a partially utilized fleet, you should be:

• Assessing the true capacity of your assets/organization;

• Determining the area in which you can operate profitably; and

• Seeking relationships with organizations that can place loads on your assets.

If you would like help assessing your situation, give us a call.

I hope you found something to apply to your business in this MBR. Let me know either way.