Amazon, a Blessing in Disguise for Carriers? (Part 2)
In Part 1, we looked closely at how Amazon’s seemingly aggressive expansion into the freight industry could have positive impact on carriers, rather than wiping them out, as many feared at first. Here, we will share our experience of observing the ‘Amazon effect’ on a major carrier and how growth of Amazon and other e-commerce companies is benefiting American carriers.
Paradox’s Experience with the ‘Amazon Effect’
We, at Paradox, have witnessed firsthand the ‘Amazon effect’ on major carriers like Covenant. We recently completed an analysis to help a top twenty truckload carrier in the US respond to bid request from a leading global e-commerce retailer. Scope of the bid involved dedicated contract carriage services to handle all truckload moves for the retailer across its distribution network that includes 43 Fulfillment Centers (FC) on the east coast and Midwest. Given our longstanding relationship with the carrier and its lack of in-house tools to model truckload optimization, we were asked to complete the analysis required to respond to the RFP. The fact that another consulting engagement we completed for the carrier earlier this year won them the business also worked in our favor.
For this analysis, truckload optimization functionality in our Continuous Move Planner (CMP) ® tool was a perfect fit. CMP is used by major US carriers for truckload network optimization through continuous move planning helping them reap significant transportation cost savings. We completed the analysis for this project in the following sequence:
Build continuous moves for the sample week’s truckload data provided where each continuous move is a combination of loaded and empty moves on a closed loop trip. Optimization, while targeting deadhead minimization, included use of mix of single and team drivers given the range of distance covered on the loads.
Treat origins of the continuous moves as potential domiciles and schedule trucks and drivers required at each of the origins to execute trips originating from them. This set of origins forms a nodal or terminal network to position trucks and drivers to complete pickup and delivery for the truckload moves.
Map the origins to the carrier’s terminal network to present ‘network fit’ – i.e. how carrier’s transportation network aligns with retailer’s distribution network when the truckloads are converted to continuous moves.
For this dataset that included 3,460 loads, CMP matched 1,992 loads to generate 755 trips or continuous moves. Fleet requirements were estimated to include 492 trucks, 268 single drivers, and 230 team drivers. 80% of the continuous moves originated from only 17 of the 43 load origins as a result of consolidation of 60% of loads into trips thereby making a strong case for dedicated capacity. Also, these 17 origin points matched well with the carrier’s terminal network and justified bidding for this business, which, at around 500 trucks, is significant in scale and revenue potential. These insights were derived from CMP in less than a week of receiving the data.
Our analysis engagement is proof to how carriers like Covenant are getting a bite off the e-commerce pie by catering to the leading e-commerce retailers whose massive distribution networks require transportation services from multiple carriers above and beyond their own fleet, if any. With shipping cycles getting trimmed and heading towards same-day delivery, distribution networks have to get bigger especially when serving large geographic regions like those in North America.
With the model where retail stores take on some of the fulfillment of online orders not generating desired results, traditional distribution needs to innovate by positioning projected inventory at several FCs to serve their respective delivery regions within a day or, at the most, two. As distribution networks scale up to meet promised delivery timelines, it automatically forces transportation networks to scale as necessary. It is no surprise then to see carriers like Covenant benefit from this demand though we hear and read mostly of the innovative local delivery models targeting last mile.
Who said Amazon has not been good for American trucking industry? What do you think? Leave your comment below.