The future of transportation procurement

Tarek Alaruri
COO & Co-Founder
Fairmarkit
5-minute read

Like many other industries, the transportation industry is in the midst of an ongoing transition brought about by the incursion of multiple strains of technology, and this has major ramifications in terms of the procurement aspect of transportation.

On  one hand, transportation procurement is affected in much the same manner as many other industries by the general shift toward data-driven decision making. However, the influence of the technologies that are directly involved in the shipping aspects of business has also been profound. This being the case, procurement leaders in the modern transportation industry must make themselves cognisant of all the ongoing changes within their  industry in order to fully grasp how these changes will continue to shape the industry’s overall landscape, and continue to transform their jobs.

Transportation procurement basics

Generally speaking, transportation procurement is all about acquiring logistics partners that can fulfill all of an organization’s shipping obligations at the lowest possible price points. Quite often, this results in individual companies relying on a wide assortment of partners to meet all of their shipment needs since the rates and capabilities of freight carriers often vary by geographic region.

Furthermore, shipping rates are further categorized based on shipping requirements and delivery speeds. These categories may include truckload (TL), less than truckload (LTL), ocean freight, airfreight, or multimodal shipments requiring multiple forms of transportation to move the freight from its point of origin to its final destination. Under ideal circumstances, shipping schedules can be arranged with enough foresight so as to minimize the use of the fastest, yet most expensive shipping methods, while also factoring in considerations like storage space and inventory turnover.

However, the truth of the matter is that nearly all businesses will have to make short-notice shipping arrangements at one point or another, and these exigent circumstances will frequently result in the need to piece together expensive solutions under problematic circumstances.

Driver shortages and their effects

In recent years, there have been serious shortages with regard to the number of truck drivers involved in the transportation industry, both in the United States and abroad. The shortage of truck drivers in the U.S. swelled from 10,000 to more than 60,000 between 2017 and 2018, and is expected to double once again in the coming decade. In Europe, the continent-wide driver shortage presently numbers into the hundreds of thousands.

Even with these present and projected shortages in mind, several technological advancements may progress to the point of rendering these shortages as entirely inconsequential. An impressive number of startup companies and established entities are testing and improving upon driverless truck technology. If this technology is fully mastered and embraced, it will emphatically reduce the amount of required physical human participation in the industry.

In the meantime, freight companies have had to pay higher wages to their experienced drivers to keep them satisfied, and have also had to pay higher entry-level wages to new drivers in order to attract them to the profession. Simply stated, the overall labor shortage in the supply of drivers has resulted in increased wages, which have exacerbated the costliness of shipments, and have led to a marked increase in shipping prices as internal cost increases are passed on to customers.

Data driven procurement

As the transportation industry is hindered by driver shortages and the rate increases that accompany them, transportation procurement leaders are more frequently engaging with software that enables them to make decisions that are informed by data. Modern software procurement solutions are commonly equipped to manage transportation bids and contracts, analyze transport data, and optimize shipment pickup and delivery within the supply chain.

As efficient as this software sounds, and as excited as one might expect software procurement leaders to be with ostensibly helpful tools like these at their collective disposal, this data-driven system is not without its well-reasoned detractors. In fact, there is evidence that transportation procurement teams should be wary of placing their blind trust in software, particularly in an era marred by labor shortages in transportation.

One concern is that some transportation software solutions over-commoditize transportation, which results in companies enjoying short-term gains on individual shipment transactions with no thought given to long-term returns on investment. In several cases, better savings might be achieved through year-long or multi-year contracts that are negotiated after both customers and shippers are allowed to explain their needs. Otherwise, without long-term deals in place, freight companies are under minimal pressure to negotiate rates when there are so many customers willing to accede to their pricing demands.

Other concerns are linked to the purported expediency associated with some transportation procurement systems, which are over-reliant on claims made by freight companies that have not been required to demonstrate their efficiency in performing their services for their customers before affirming their rates.

Therefore, an untested carrier may overpromise and be awarded a contract by a procurement team based on the low pricing it offers without ever having to perform a trial run to substantiate its expertise. In situations like these, procurement teams may be burned by their reliance on software if they fail to bring additional critical analysis to the table while searching for a transportation solution. Frankly, this has become a common occurrence since the services of most freight carriers are in high demand, and the failure to live up to the full extent of contractual obligations rarely results in any appreciable or enforceable penalties for the offending carriers.

Conclusion

Much of the future of transportation procurement is dependent upon how quickly driverless technologies can be embraced and actualized within the transportation industry. If predictions about the ongoing shortages of drivers prove to be accurate, the pricing structure will continue to favor the freight companies and minimize the savings that procurement leaders can generate under any circumstances. While the convenience provided by procurement software is legitimately beneficial, procurement leaders should continue to develop and make use of interpersonal relationships with shipping providers, because the present circumstances of the industry are rife with opportunities for freight companies to misrepresent the efficacy of their short-term services, rendering the projected savings meaningless in the face of the inconveniences that organizations might suffer over the course of such dealings.

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