Key Factors Impacting Transportation Logistics in Supply Chain Management

Written by Vikneswaran Thevar, MSIPMM

Key Factors Impacting Transportation Logistics in Supply Chain Management

Written by Vikneswaran Thevar, MSIPMM

by Vikneswaran Thevar, MSIPMM

The emergence of digital technology is redefining the world of transportation logistics in supply chain management. Due to increasing mobility demand, challenges like financing, dealing with emissions and volatile oil prices are accentuated. Decision-makers in the areas of policy and planning have to address these challenges and have try to develop a transportation system capable of meeting the future needs of society and the economy.

There is a need for conception of future system as guidelines for decisions. Besides developing new mobility solutions, there is also a need to adapt to a changed world of energy dependencies and to address social developments.

The three key factors that will impact the logistics of transportation are.

1. Going “green” (or Sustainability)
2. Transformation of Consumer Goods
3. Last-Mile Delivery (or LMD)

Going “Green” (Sustainability)

The transportation sector is a major energy consumer, heavily dependent on fossil fuels and their price development. Scarcity of energy would not only affect transportation significantly; the role of transportation in energy consumption makes the sector one of the main starting points for changes when it comes to a transformation of the energy system and source.

Demand for “greener” vehicles.
The demand for more fuel-efficient vehicles is creating innovation opportunities, but at a higher capital cost for transportation providers. Leading providers such as UPS and FedEx have been working with auto manufacturers for years to test delivery vehicles that use alternative fuels, including electric, liquefied natural gas (LNG) and bio diesel vehicles.

Lower volumes.
Lower value bulk commodities such as steel, coal and chemicals are particularly sensitive to increased fuel and emissions costs, and less output will cause fewer total ton-miles transported.

Increased complexity.
As customers expect service providers to comply with their “green” mandates, there will be more and different regulations to deal with around the globe. Yet, as compliance costs increase, so will the opportunities for differentiation as customers will favor transportation companies that stay ahead of the compliance curve.

high-efficiency 10-wheeler long-haul truck

The diagram above shows a high-efficiency 10-wheeler long-haul truck.

Transformation of Consumer Goods

Consumer electronics manufacturers are focused on “miniaturization” making thinner, smaller and lighter products, thanks largely to advances in microprocessors and batteries. But it costs more to transport these goods as many of these products must be handled with greater care, which means shipments are more labor-intensive. The added value per shipment increases supply chain risk and more security is required as more products can fit into a single container.

Additionally, the elimination of physical goods, or through digitized content such as e-books, mp3s and online video is reducing the need for transportation altogether. Within the next year or two music distribution will be primarily digital and Amazon’s Kindle e-reader, which can hold up to 3,500 books in its digital memory, has spawned numerous competitors, including Apple’s popular iPad.

What is the impact on transportation?

Higher Cost to Serve
As shipments of consumer goods become smaller, more frequent and of higher overall value, it will be imperative for transportation providers to reassess their risk profiles and supply chain security. Costs for tracking and security will rise while overall ton-miles fall.

Demand for More Value-Added Services
Even as the cost to serve rises, there will be opportunities to offer higher value-added services such as track and trace options and specialized handling. In addition, the current pricing model by weight and lane may no longer be relevant to the market.

Last-Mile Delivery (LMD)

The disproportionate expense of the last mile contributes to what’s known as the “last-mile problem.” This is because of the difficulty of reaching end users, especially in busy urban areas where retail stores, business and restaurants present congestion and safety concerns. This can translate to higher fuel costs due to the amount of time spent driving around making deliveries. Since business-to-consumer deliveries often involve one package per stop, as compared to large volumes for business-to-business deliveries, the problem is compounded on the consumer level.

With the increased number of online sales, the “last-mile problem” has become even more challenging. There are more home deliveries, but most deliveries are made when consumers aren’t at home. If deliveries require signatures or cannot be left unattended, this requires another delivery. Unattended deliveries pose a number of risks for parcels, including exposure to harsh weather and the risk of theft by “porch pirates.”

The last-mile is expensive not only because of failed deliveries but because of the likelihood of returns and half-empty delivery vehicles, as well as the high cost of driving vans and trucks.

last mile delivery

What is the impact on transportation?

Shorter Length of Haul
Smaller, more frequent deliveries will inevitably increase the frequency of smaller shipments through shorter length of haul. Transportation providers will be challenged to tailor their business models to meet the requirements of the home-delivery market.

Increased Complexity
Last-mile delivery presents two distinct challenges: (1) managing the fixed costs of a fleet of delivery, and (2) controlling the variable costs of irregular delivery patterns. Shorter routes can result in lower overall ton-miles transported per trip, further increasing costs.

Demand for more value-added services
Since last-mile delivery serves as the only link in the supply chain that directly touches the customer, it’s an opportunity to gain a competitive advantage by providing an array of customer-focused services, such as weekend, night or time-sensitive delivery schedules. Providing additional value-added, fee-based services, such as custom installation and pickup of returns, could also improve revenues. The explosion in returns management and other reverse logistics services should not be missed.

Traffic
Traffic conditions may not be a factor in rural parts of the country, but a five-mile trip in busy city can take time. In more congested areas, companies will need to consider more than just distance. If there aren’t additional centers, there will need to be more efficient means of transportation to prevent delays.

Conclusion

In my opinion, transportation is both a traded services in its own right as well as pre- requisite for trade in goods and services. Transport is an integral part of the production process and therefore has a direct bearing on a country’s economy and development. The issues that are achieving greater importance are sustainability and congestion.

As the transport industry becomes more complex, conventional approaches, focusing on a narrow range of factors, have to be replaced by more nuanced analysis and solutions. Thriving in this new environment requires not only understanding the shifting market dynamics but also rethinking strategies and executing the moves to best position your company for the future.


References:

http://www.atkearney.co.uk/paper/-/asset_publisher/dVxv4Hz2h8bS/content/the-new-normal-in-the-transportation-industry/10192

http://info.plslogistics.com/blog/key-factors-that-impact-the-transportation-industry

http://static.wixstatic.com/media

http://slideplayer.com/slide/4732315/15/15/images/3/Key+Factors+to+Consider.jpg

https://link.springer.com/article

About the Author: Vikneswaran Thevar has several years of experience in the Aviation and Logistics industry, and has developed a special interest in transportation logistics and delivery solutions.

He is a member of Singapore Institute of Purchasing and Materials Management (MSIPMM), and is currently completing a course at SIPMM Academy on Diploma in Logistics Management (DLM).

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