As a result of the tremendous growth in eCommerce, increasing customer expectations, and greater dependence on advanced inventory management technology, the nature of the supply chain continues to evolve. The role of interstate carriers is one area affected by this process. Traditional methods of warehousing and the transportation of goods will be increasingly supplanted by a more diffused system involving a larger role for less-than-truckload (LTL) services and a greater focus on regional warehouses that can directly serve consumers. These trends are moving even faster than many analysts predicted, and the industry could see revolutionary change by the middle of the next decade. By understanding the evolution of their role, interstate carriers can help ensure they effectively adapt to this new environment.
eCommerce and the Consumer Focus
To understand the changes to carriers, it’s important to look at other elements of the supply chain that are being affected by eCommerce. Parcel shipping has changed significantly. In the past, businesses represented the majority of parcel recipients; with a shift from brick-and-mortar retail to online shopping, the share of consumer recipients has grown drastically. UPS expects business-to-consumer parcels to exceed business-to-business parcels by 2019. On the other end the supply chain, eCommerce takes up a lot of the capacity at major ports like Los Angeles/Long Beach.
The overall trend here is that freight movement is becoming more consumer-oriented and logistics must follow suit. Consumers have high expectations based on the instant gratification that online retailers like Amazon provide. Included among these are fast shipping (two-day or less) and process transparency. Consumers want their products as soon as possible and they want to be able to see a snapshot of the progress at any point in the shipping process. Businesses with supply chains that can accommodate these expectations will succeed, while others may struggle.
A Changing Warehousing Model
In the past, products were shipped in very large quantities on pallets to large distribution centers, typically in rural locations. From there, they would be distributed to retailers or shipped directly to consumers. The rural warehouses were often located in the center of the country and getting items to consumers in big cities on the coasts would either take several days or require expensive expedited shipping. To a large degree, these days are waning – and soon they will be over. The increased consumer focus has led to shifts in where warehouses are located and how inventory is managed.
Shipments from large, rural distribution centers to consumers are either too slow or too expensive. Instead, many large businesses use smaller regional warehouses within large urban areas, in order to get products to consumers faster and cheaper. On the extreme end, Amazon has opened warehouses in urban areas throughout the country in order to facilitate same-day (or even two-hour) delivery of many products. Many analysts think Amazon’s practices point the way to future standards. Smaller, regional warehouses put inventory closer to the consumer; trucking practices have to adapt accordingly.
Changes for Interstate Carriers
Since regional warehouses are smaller and don’t require massive inventory, many of the shipments arriving at these regional urban warehouses are not full truckloads. Greater numbers of small warehouses necessitate a greater number of LTL shipments. This diffused, regional model leads to more frequent deliveries by smaller vehicles. One possible response to this could be an “Uber for trucking”: on-demand goods transportation based on fluctuating needs. A more likely possibility is that interstate carriers will more fully integrate with other aspects of the supply chain to adapt to this fast-paced, variable environment.
Since regional warehouses have more limited space, interstate carriers will have to be even more conscious of delivery times. Many businesses may want inventory in narrow time windows, so they have enough to fulfill orders but not so much that they exceed storage space. Precision will be key. One possible development is the user of automated vehicles. This would allow “drivers” to focus more on other tasks, from optimizing deliveries to fit within time windows to seeking out additional transport opportunities.
As part of the future of eCommerce, transportation must be considered through the entire supply chain, not just at the end. Omni-channel marketing, in which the retail experience is integrated across both physical stores and eCommerce, is fast becoming the new standard. Therefore, consumer buying decisions on the retail end could affect both how goods are moved and stored, and inventory level will affect both what items are recommended to consumers and their prices. Logistics and supply chain management will end up being based on real-time consumer behavior. Greater interdependence throughout the supply chain will be managed by sophisticated software. Since orders come in at all times, interstate carriers must have the technology available to integrate with next-generation warehouse management in order to adapt to the needs of these clients.
Much of the changing role for interstate carriers is due to the rise of advanced eCommerce technologies and an increasingly consumer-oriented supply chain. Regional warehouses with smaller storage space are a key marker of this change, and trucking carriers need to adapt to the requirements of these facilities in order to remain competitive.
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