The U.S. economy and freight industry are growing again. Overall revenues increased eight percent in 2010, after falling 25 percent in 2009. And while most U.S. organizations are struggling to close the gap between their desired and achieved levels of transportation performance (see figure 2), they don’t consider certain performance metrics—such as carbon footprint—as key to their overall success.
What is quickly becoming clear to shippers and carriers is that the U.S. freight industry is fast approaching its “used-by-date” plateau in its ability to further lower cost-to-serve. This industry is converging towards its new equilibrium which promises to be a combination of two models—cross-firm collaboration and modal optimization with an emphasis on sustainability. The new equilibrium promises a $6 billion to $15 billion opportunity in the U.S. alone. And the speed of migration will depend on how rapidly the “first movers,” i.e., the shipper industry titans, gather momentum and provide scale to the new equilibrium. These and other findings are among the main results of an A.T. Kearney study of the U.S. freight industry.
Based on a survey of 154 decision-makers across consumer products, food & beverage (F&B) and chemicals manufacturing industries, AMR Research highlighted three primary challenges, amongst several others, which the industry and its participants face: deadhead miles and asset utilization; cost to serve; and sustainability.
Deadhead miles and asset utilization
Suppliers, manufacturers, retailers and transportation providers are all looking for ways to further reduce costs but can only make relatively small improvements. In 2010, the U.S. freight industry was estimated to be $655 billion, $523 billion of which was in commercial and private truck loads, according to American Trucking Associations’ “U.S. Freight Transportation Forecast to 2023” report. Deadhead miles accounted for about 10 percent of the mileage for the five major U.S. truck-load carriers, and even higher for private and dedicated fleets over the past five years (see figure 3). Our conservative estimates lead us to believe that completely reducing deadhead miles for commercial and private truck load moves could eliminate at least 64 billion miles of traffic or yield almost $60 billion in incremental revenues for the industry—if the empty mile cost can be captured in service. Part of the reason for these inefficiencies is structural (nature of transportation flows) and part of it is asymmetric information (lack of visibility to combined transportation networks). Which factor contributes to what degree of inefficiency is unknown. A.T. Kearney’s survey of large shippers suggests 10 to 25 percent of this opportunity ($6 billion to $15 billion) can be captured depending on the future operating model of the U.S. freight industry.
Cost to serve
Each transportation mode has unique challenges in maintaining the same service levels with fewer resources. Truckload suffers from strict regulations such as hours of service; insurance costs; rising fuel prices; and scarcity of capital to purchase new equipment. Intermodal is more economical than trucking but suffers from delays, product damage and limited network coverage. Air, which benefits from faster and more accurate delivery times, faces high fuel and equipment costs. Less than truckload (LTL), which offers cost advantage relative to air for overnight/second day deliveries, suffers from high overhead and handling costs.
The fact that the transportation sector contributes more than five percent (2,800 tons) of all carbon emissions in the U.S. is not lost on freight industry participants. More than 86 percent of the 150 companies polled have tried to (or plan to) improve their sustainability initiatives. Their options, however, vary in impact and effort required. Some involve the replacement of transportation vehicles while others involve the indirect efforts to reduce congestion.