Freight Revolution: The Supply Chain Will Never Be the Same

FreightWaves Publishing

Copyright © 2018

All rights reserved.

Edited by Chad Prevost

Layout and Design by Lexi Alvidrez

No part of this book may be reproduced, copied, stored in or transmitted into a

data retrieval system, or transmitted in any form, or by any means (electronic,
mechanical, photocopying, recording, or any other method) without written
permission of the publisher, FreightWaves Publishing.

ISBN: 978-0-578-40673-2

2
FREI GHT
REVOLUTION

3
TENTS
07 | Word from
the Editor

08 | Introduction
by Craig Fuller

CON-

4
01 Tech
revolution 02 blockchain in
application

12 | Connecting the 44 | The Hard Part: Moving

Data Dots: Integration’s Past Buzzwords
Important Role in the
BRIAN GLICK
Freight Technology
Revolution
50 | Eliminating Fraud
PHIL JOHNSON
through Blockchain Records
Based on Open Standards
16 | Transportation and
JAMIL DEWJI
Logistics 2.0: Reawakening
to Technological Disruptions
54 |Security in a
MIKE VALNEV
Data-Centric World

20 | Alternative Data BRIAN STRAIGHT

In Transportation
DANIEL PICKETT

24 | Up Close with the

Future of Transportation:
The Age of Hyperloop, Air
Taxis, and Autonomous Cars FreightWaves is a data and
content forum that provides
VISHNU RAJAMANICKAN market participants with
near-time analytics on the
30 | The Social Impact state of the freight market
of Coordinating and tools that provide
Cloud Computing actionable outcomes.

MICHAEL CARMODY

34 | Sea Change
in Shipping
MIKE ANGELL
Follow us on Social Media
38 | Lessons from @FreightWaves
Underdogs: How to Level
the Playing Field and Win
the Logistics Game
CHRIS RICCIARDI

5
03 Automation and
the Supply Chain 04 capacity
economics

60 | Lights-Off Logistics: 98 |How Does it All

Using AI and Advanced End? Resolving the
Analytics to Automate Supply Capacity Crunch
Chain Decisions
IBRAHIIM BAYAAN
GREG PRICE
104 |Hours of Service:
64 |An Industry Analysis: What’s Next?
How Clearly Are We Seeing
DEAN CROKE
Toward the Future Right in
Front of Us?
110 |Time, Money, and the
SAHEJ SINGH
Human Approach: How to
Attract and Keep
70 | The Cost of Convenience Qualified Drivers
MARIA BAKER ASHLEY COKER

74 |
Are You Ready for a $5 114 |
Upgrading Driver
Head of Lettuce? Recruiting
SUSAN FALL LAURA ZIELINSKI

78 |Technology and the 118 |

Is the Logistics
Future of Freight Brokerage Market Efficient?
FELIPE CAPELLA GREG CALLEGARI

84 |Digital 3PLs Paving 122 |A Look at What

The Way Trucking CEOs Said to
ALEX RYU Guess What’s Coming in
the Future

88 | Data-Driven Control of JOHN KINGSTON

Distributed Reconfigurable
Supply Chains
CHIP WHITE

90 | Technology Alone
Will Not Save the
Independent Broker
BRUCE MCGONIGAL
6
 WORD FROM THE

EDITOR
We asked industry experts and insiders in the logistics
industry to share their visions and articulate their hopes and
fears. We sought decision makers behind the biggest brands
and startups who create buzz around high-impact technology
across all industry segments: shippers, carriers, 3PLs, supply
chain management, manufacturing, and media.

We sought to codify, celebrate, disseminate and discuss

interesting and provocative ideas about the fascinating times
we’re living in as it relates to freight and innovation moving
into the short-term future. Like FreightWaves content, the book
will be free and available to everyone. We wanted something
provocative, readable and data-driven, and that’s just what
we got.

The sections aren’t hard boundaries—in fact, any given essay

might touch on a little bit of everything. We arranged them
according to the general audience approach. They all touch on
logistics, the supply chain, and the challenges and perils of
innovation in the logistics marketplace.

77
 THE
BOSS
SPEAKS

INTRODUCTION

It wasn’t even 20 months ago that FreightWaves began. Once we

found our footing the results have been spectacular, more than I could have
imagined. Every day I remain amazed at the people and places that mention
us, link back, and recirculate our news.
As we anticipate our second major conference, with the MarketWaves18
event in Grapevine, Texas, I wanted to hear from industry visionaries and
market leaders expressing their visions and articulating their hopes and
fears. We also wanted to contrast this with our previous book, which was
a long-term outlook. How clearly are we seeing toward the future right in
front of us? The challenge is to fit it all into a concise and incisive essay.
In covering the daily news on FreightWaves we don’t always get a
chance to look ahead. This collection of contributors from a wide array of
leaders in our industry does just that.
From my perspective, 2018 and beyond will see an accelerated
convergence of automated and autonomous technologies in the trucking
and freight industries. Blockchain proliferation in the industry will spread
like wildfire. A group of hundreds of logistics top players have come
together to form a blockchain consortium known as the Blockchain in
Transport Alliance (BiTA). The organization is developing industry-wide
standards for blockchain-enabled smart contracts that create trust between

8
unknown actors, increase visibility into the movement of trucks and goods,
eliminate fraud, and streamline payments.
Today, asset-based trucking carriers devote enormous resources to
the management of drivers: large fleets often contend with 100% annual
turnover in their driver pool and have to offer generous signing bonuses
and reimbursements for training programs to attract new drivers. Trucking
is a $700B industry, and a third of the costs go to compensating drivers.
As trucking becomes more automated, these carriers will shift toward
data-intensive analytics to add value to the supply chain. Not only will
wayfinding to avoid congestion and find cheap fuel prices be automatically
optimized, but even trucking contracts themselves will be sorted,
negotiated, and closed with the assistance of algorithms manipulating data
sets that are only now being assembled and collated for the first time. Voice
brokers, freight forwarders, and 3PLs with weak IT infrastructure that
lack transparency will see themselves disintermediated and replaced by
automated digital solutions.
Also, a new futures market is being created for trucking spot-rates.
These cash-settled futures contracts will enable trucking market participants
to hedge their shipping rates. This will, in turn, help to create index-linked
contracts and markets, further enabling pricing and capacity transparency.
It’s already all happening with SONAR. The future is here.

— Craig Fuller, CEO at FreightWaves

9
DATA IS
EVErywhere,
and has
always been
everywhere.
PHIL JOHNSON

10
 01
SECTION ONE

TECH REVOLUTION

11
 Connecting the Data Dots:
Integration’s Important Role
in the Freight Technology
Revolution
PHIL JOHNSON

12
LET’S TAKE A TRIP BACK IN TIME. As we travel a century or two into
the past, consider for a moment some of the natural resources and rare
earth elements that form the basis of modern technology: Lithium.
Beryllium. Cobalt. Titanium. All unarguably integral to semiconductors,
smartphones, aircraft and alternative energy. And all nearly inaccessible
(and unprocessable) until now. They’ve always been there, of course, but
these raw materials laid in wait until the technology was available to act
upon and transform them into finished products.
The freight transportation industry is on the precipice of broaching
this same frontier with data. Data is everywhere, and data has always been
everywhere. Freight data is ubiquitous, it is useful, and acting upon this
data has the potential to streamline operations, increase efficiency and
spark new growth within freight transportation like nothing else before
it—save for the internal combustion engine.
The industry’s ability to access, interpret and effectively utilize all
of this data, however, is still in its infancy. The problem with data being
everywhere is that it’s, well—everywhere, and it exists in all shapes,
sizes and schemas. In a perfect world, the freight industry would confer
to collaborate and construct a single unified schema to unite the disparate
data streams generated from classic EDI, ELDs, modern APIs, the IoT and
the imminent transition of data integrity to the blockchain-based ledger.
It’s estimated that the move to a universal data standard and
communication methodology will occur right around when pigs begin
to take flight. In the meantime, the expanding role of middleware and
integration technology providers will become the key to connecting the
disparate streams of freight data being unleashed upon the industry and
exchanged 24/7/365 between shippers, carriers and their trading partners.
Why will middleware providers still be needed? Isn’t it the goal in and
of itself to eliminate as many potential layers as possible between partners?
Data integration and translation between various applications,
partners, protocols and formats requires a specific domain expertise, and
devoting in-house technology resources to tackle project-specific tasks
can be a risky venture during a transitionary period such as the data and
technology revolution the freight transportation industry is currently
undergoing. Standards may shift (or fade), various partners can present
a wide variety of technological requirements or mandates, and an ever-
tightening market for the human resources required for implementing data
integration technology can result in a less-than-fruitful hiring endeavor.
The ability to implement and the agility to switch providers, applications

13
or approaches to technology to accommodate partners will be crucial to
navigating this transitionary phase of the data revolution.
We can explore two potential use cases in the freight transportation
industry that exemplify the benefits of working alongside a middleware
or integration provider in order to leap the technology gap in a more agile
manner, while also minimizing the exposure of investing in new technology
while standards and best practices are in flux.
The first use case details a freight transportation brokerage fully
invested in the EDI (Electronic Data Interchange) ecosystem in order to
integrate data with carriers, shippers and freight applications around the
globe. They explore moving to a fully API-based system to exploit the real-
time capabilities inherent in application-to-application communication but
quickly learn that while the technology exists, only a select few partners are
capable or willing to utilize it, there is a learning curve to implementation,
and they are lacking the internal knowledge necessary to build out the
project. In this scenario, a middleware or integration provider bridges
both the knowledge and technology gaps for the brokerage and empowers
them not to replace, but to extend their existing capabilities by providing
a flexible solution that can integrate all flavors of data formats, document
types, and communication protocols while scaling with their needs in an
agile manner.
The second use case entails the imminent rise of blockchain technology
and the competing interests certain to be at play during the frontier days of
the distributed ledger.
In a perfect world, freight shipment data, documents and transactions
would feed into and reside on THE immutable, centralized public
blockchain. In reality, private blockchains have gained a foothold as
individual shippers, corporations and partnerships prototype similar yet
separate solutions to maintaining supply chain data integrity. While the
current use of blockchain-based ledgers to record transactions is far from
mandatory, the diverging development presents the interesting scenario in
that customers and trading partners of these firms may not only be required
to have the ability to place data onto a private blockchain, they may have
to allow for the capability to integrate with multiple ledgers mandated by
their various partners.
Once again, the willingness and ability to engage a middleware or
integration provider capable of bridging this technology or skills gap will
enable the hypothetical firm to take the leap head-on into the fascinating
new world of freight data and application integration without the potential

14
risk of placing their eggs entirely into one basket. An extensible third party
will not only be able to manage the various relationships, the integration
provider’s breadth of knowledge, experience and technology lends a
degree of agility simply not found within the in-
house implementation process.
Data is Regardless of whether you decide to partner
everywhere, with a third party or blaze your own trail in
order to take advantage of new tools, this is an
and data has
extremely exciting time to be on the front lines
always been of the freight transportation data and technology
revolution. The readiness to finally take advantage
everywhere.
of millions of miles of data is palpable, and the
ability (and willingness) to finally shake off the
industry’s stodgy, technology-resistant reputation in favor of cutting edge
methodologies and protocols like the blockchain and APIs is clearly within
reach.

Phil Johnson is director of marketing at Kleinschmidt, Inc.

15
 Transportation and
Logistics 2.0: Reawakening to
Technological Disruptions
MIKE VALNEY

16
NEW YORK CITY IN THE YEAR 1900 held the same charm and bustle that
it has right now, but out on the streets, the picture was quite different. In
the place of swanky cars that whizz past on cemented asphalt roads today,
it held horse-drawn carriages on dusty streets with no visible signs of a
motor-powered vehicle in the vicinity.
What is fascinating is the metamorphosis of New York City—from
being a city driven around by horses to being a metropolitan that embraced
automobiles, the transition was by no means gradual. Pictures taken just
thirteen years after 1900 speak a thousand words—in the streets where
horse-drawn carriages were the norm they were now the exception, being
replaced almost entirely by cars.
Technology has the inherent ability to transform societies in a relatively
minuscule time frame. With technology makeovers happening nearly
every other week, the freight industry is certainly in a transformational
phase right now. To be fair, the revamping is not just freight-centric but is
ubiquitous across different verticals in transportation, with Uber being an
example. Technological disruption is key—businesses are now looking at a
market that is easier to navigate and more importantly, thrive.
Part of the technological evolution has to do with how data analysis
has helped redefine efficiency parameters in the industry. To an extent,
the ELD mandate—although vehemently challenged—paved the way for
fleet companies to collect copious amounts of data that could be used to
understand not just the truckers’ habits, but also the inner workings of the
truck itself. The data collected can be fed to machine-learning models,
which can determine the health of the truck engine and help understanding
when the said truck needs a maintenance stop.
Another technology that is redefining transportation is the prospects
of autonomous driving and the impact it could have on the freight industry.
Though this has long been a fascination in the field, the technology behind
fully-autonomous vehicles did not exist until recently. Automation comes
at different levels ranging from 1 to 5, with Level 5 marking a machine that
could effectively run across all possible terrains in differing environments
sans a human observer.
Right now, Level 3 automation vehicles are being perfected, with
vehicles having the ability to understand traffic and obstacles around it
intuitively and navigate tougher situations with the help of a remote human
controller. Scaling up levels would require not just technological precision,
but also a lot of data points from manual driving which would serve as the
backbone of automation.

17
 Concerning the freight industry, automation should be welcomed with
open arms. The robust growth of the U.S. economy over the last year has
lacerated an already worse driver numbers situation, with ATA projecting
that the industry would have to contend with a shortage of 176,000 drivers
by 2026 if the situation remains the same. Truck driving has always
remained a physically and mentally taxing job, which millennials might
not have the inclination to take up in the future.
Autonomous or semi-autonomous trucks could
Technology has help solve the issue.
While observing the growth curve of
the inherent
automation, the relevancy of government
ability to regulations should also be a subject of discussion.
transform If regulations are not on point, the whole idea of
autonomous vehicles on the roads might be moot.
societies in The situation requires governments to educate the
a relatively masses on the advantages of autonomous vehicles,
with test results and statistics to back up claims.
minuscule Also, with autonomous vehicles in the picture,
time frame. data collection and analytics become key—leading
us to a future where artificial intelligence and
automation would go hand-in-hand in defining
transportation. Data points from the vehicle and also the environment in
which it navigates would help optimize routes and planning schedules.
The growth in e-commerce exerts a tremendous impact on the last-mile
delivery patterns, which could extend to the first-mile as well, with
maritime shipping and drayage optimization coming under the scanner.
As logistics processes become bigger and sophisticated with the
influx of multitude stakeholders across the supply chain, it is critical for
the industry to look at solutions that could streamline data sharing and
data management across its breadth. Blockchain is one of the frontrunners,
considered as a technology that could solve data sharing issues as it
decentralizes the ledger that holds data, giving joint control to all the
stakeholders in the chain.
Many logistics companies and 3PLs across different verticals are
working on blockchain pilot projects, which is heartening. However,
it also is essential to understand that blockchain would be a technology
best served when it is clubbed with open standards, and not when it is
developed behind closed doors as a proprietary solution. Companies need
to evolve from being closeted businesses that are scared to share data, to

18
freely exchanging data through an immutable ledger like blockchain and
gain collectively across the industry.
All this being said, it is a fascinating juncture to be in right now as
the transportation and logistics industry is being disrupted across different
facets through technology. Ten years from now, we can envision an industry
which runs autonomous trucks on the road, shares data derived from its
processes through blockchain networks, and utilizes artificial intelligence
models to help optimize logistics of the future.

Mike Valnev is CEO of Fleetpal.io.

19
alternative data in
transportation
DANIEL PICKETT

20
HEDGE FUNDS AND PRIVATE INVESTORS are leading a new wave of
innovation when it comes to new sources of data for making investment
decisions. The conventional measures used to predict success of a company
are fairly obvious: sales, expenses, leverage, and the other basic building
blocks from freshman level Business Finance. The vast majority of
investors get their information from quarterly financial statement releases.
Some of the most savvy and successful investors have long sought to
obtain information about the results of companies from less conventional
sources, that can provide more real-time indicators of business activity.
Alternative Data has many applications outside the financial world, and
can help companies make better decisions from day-to-day operations up
to long-term capital spending plans.
Alternative data can come from many sources both within and outside
the target company (about whom the information is being sought). Rather
than waiting for a company to announce its sales and expenses, an investor
might go to a service provider to acquire anonymized/summarized data
on credit card transactions, or number of unique cell phone pings inside
a store. There are companies that sell custom satellite-based parking lot
monitoring, as well as higher quality photos from light aircraft in more
dense areas. There are categories of government data that are difficult, but
not impossible to acquire, like Customs & Border Patrol import documents
from ports. Data sets that are highly predictive of the total sales for a specific
company can be very expensive, and even more expensive to lock down
exclusive access. This effect is so dramatic, that a firm called CargoMetrics
originally set out to be a data provider to hedge funds, interested in tracking
the global supply of oil. The data-firm stopped selling data, and converted
itself to a hedge fund backed by some of the largest institutional investors
in the world.
The landscape of alternative data can be measured on three dimensions.
The simplest is predictive power. If a number, such as “unique cell phone
visitors to Best Buy” has an extremely strong correlation with total sales,
then it is a highly valuable data set. It is very rare that any indicator offers
such a silver bullet, though. Many of Best Buy’s sales come from online
activity that isn’t captured by cell phones. Conversely, many of those cell
phones that passed through the doors were just looking at a product in-
store, before buying it online from the cheapest vendor.
Another key dimension for measuring the usefulness of alternative data
is its timeliness. In the financial world, a company will make the results of
its quarterly operations available to the public about 6 weeks after the end

21
of a quarter. That is 18 weeks delayed after the earliest activity, which
might give some indication of market conditions. At the opposite end of the
spectrum, an unidentified person/organization has been flying drones near
Tesla’s manufacturing plant, in an attempt to determine up to the minute
production counts for the new Model 3.
The final dimension on which alternative data varies is fragmentation,
or difficulty of collection. Highly fragmented industries, like trucking,
where the largest players represent a few percentage points of market share,
can be difficult to monitor. No single company has a large enough sample of
data, to be representative of the entire national market, much less markets
in which they have especially low share. Gathering detailed information
on trucking markets requires a mosaic approach, where data from large
companies might be combined with anonymized/summarized data from
other vendors who have thousands of trucking carrier relationships. High
fragmentation poses one of the most significant challenges in alternative
data. Everyone with a piece of the larger puzzle wants to be compensated for
contributing, but the information is only valuable after a significant number
of pieces are collected and combined. This creates a tension between the
price of collection/combination/analysis, and the
value of information once it is assembled.
Alternative Information about the supply and demand
conditions for freight transportation in specific
Data has many
markets and lanes is highly fragmented and
applications opaque. In aggregate, manufacturers, brokers,
and truck/rail carriers hold millions of pieces to
outside the
the puzzle. Where are all the power units? How
financial shelf and temperature stable is the freight? What
world... is the cost of operation (price floor) for all carriers
available to move a particular load? How much
difficulty are similar companies having moving
freight at acceptable rates? Several venture capital backed startups, and a
few traditional transportation service firms, are aggregating disparate data
sets to answer questions like this.
The transportation industry is overdue for a wave of alternative data
that is still in its infancy. Day-to-day pricing and routing decisions are
the tip of the iceberg when it comes to potential uses for alternative data.
Running large fleets, and developing warehouse space require immense
capital investments. Timing can be everything for deciding to add new
equipment, versus trimming new capital expense. Transportation data

22
absolutely reflects changes in business and consumer sentiment before
government statistics like gross domestic product, unemployment and
inflation. In addition to making our own industry more efficient, the
alternative data produced by the transportation industry may become major
economic bellwethers for national and global level economic forecasts.

Daniel Pickett is chief data scientist at FreightWaves.

23
 Up Close with the Future
of Transportation: The Age
of Hyperloop, Air Taxis, and
Autonomous Cars
VISHNU RAJAMANICKAN

24
OVER THE LAST FEW DECADES, technological disruption in the
transportation industry has been sporadic at best, with the modes and
mediums of transport largely remaining constant. But as the future
beckons, we see visible interventions from a technological perspective as
the societal consciousness of global carbon footprint, sustainability, and
transit optimization are higher than ever.
Startups have mushroomed up in the transportation corridor, with ideas
that not just advance the cause of technology in transportation but also
develop novel business models that could help reduce traffic on the roads.
For instance, the Mobility as a Service (MaaS) concept is increasingly
gaining relevance in the cities of today, as it provides a way to remove
traffic off clogged streets.
MaaS is a concept that persuades people to opt out of personal mobility
vehicles and choose to look at transportation as a service to be used
whenever needed. In essence, MaaS in its simplest form would essentially
be public transportation options like a bus or a tram, but the idea could be
extended now to bring in sophistication, making it more attractive.
Uberpool from Uber Inc. could be an excellent example. In the nascent
stages when Uberpool was launched, the idea found little traction as
commuters had to withstand many detours on transit, while the car drove
around the vicinity to pick up more passengers. However, by using data
points from its initial runs, Uber found a way to tweak its routing systems
to drastically reduce detours, bolstering its MaaS solution and making it a
viable alternative for people to use.
MaaS also does not restrict itself to ‘shared’ transportation that puts
people side by side in a car, but could act as a business model where a car
is shared over the course of the day by different people. Car-sharing service
called Car2go in Germany experiments with this - cars from Car2go can
be driven around by people and once they have reached the destination, it
can be parked on vacant parking spaces, and can be taken out by someone
else thereon.

AUTONOMOUS VEHICLES ARE THE NEXT BIG THING ON THE ROADS

Of all the technological advancements in the transportation industry,
the premise of autonomous vehicles is what holds maximum water. Then
again, the idea of letting machines take the reins does not end with the
development of the technology that drives it.
Self-driving vehicles could only exist in an environment that has set
regulations in place and has distinctly defined liabilities extending from

25
the OEMs to the autonomous software development companies in case of
accidents on the road. Also, legislation that governments would look to
impose on autonomous driving must not be done proactively, as it could
likely inhibit technological growth.
That being said, though autonomous driving is in a phase where
companies are testing their vehicles on the roads, most of it is done under
controlled and idealistic environments. For instance, places like Phoenix
and Tempe in Arizona where a larger part of the testing is done, is known
for its near-perfect setting—straight roads, minimal traffic, and year-long
sunny weather. Accommodating autonomous vehicles across different
environments with various driving complexities is a hurdle that companies
would have to face ultimately.
Auto cybersecurity is another critical facet of having self-driving
vehicles on the road. Security is crucial in an all-autonomous vehicle, as
the driving software is subject to frequent hacking or malware attacks,
which could lead to accidents or the loss of data. Hackers could also use the
sensors on vehicles as surveillance devices, understanding the movement
of people leading to burglaries.
Stretching the analogy, autonomous car hacking could also lead
to besmirching the names of the OEM companies that manufactured it,
potentially tanking the company’s stock in the market and leading to
hackers gaining off it. Though this sounds far-fetched, it really is not—a
club football team bus in Germany was bombed by a man with motives that
were not primarily about creating terror. Apparently, the man had shorted
the stocks of the football club in question and was hoping that the incident
would cause the club’s shares to cascade leading to him earning on the
market.
With autonomous vehicles, three factors are paramount to their
success—technology, auto cybersecurity, and legislation.

VTOLS—THE SKY IS THE LIMIT

The Vertical Take-off and Landing (VTOL) is a concept gaining
steam, especially in cities that endure nightmarish situations on its roads.
Developing countries around the world have cities that have flourished
over the last few decades, leading to a migratory rush of people who have
settled in with dreams of a better livelihood. Over time, the cities that were
planned and built to host a specific number of people, have swollen to ten
times its intended capacity, leading to anarchy on the roads at the peak
hours.

26
 In densely-packed localities where expanding roads or building new
highways is not an option, VTOLs could be the ticket out. Though the
concept of flying taxis sounds straight out of a Jetsons episode, it is a reality
that some cities across the world have now been accustomed to.
The global VTOL market has over $1 billion in investment now, with
large airline companies like Airbus and Boeing in the fray. São Paulo, in
Brazil, is one of the first places to adopt VTOLs after people found it hard
to navigate through the dense gridlocks of the city.
Initially, the city had to make do with traditional
Auto cyber- helicopters that serviced people looking to get to
security is the city center from the airport, which was a ten-
minute ride away.
another critical However, the costs were too high to be
facet of having sustainable, with air taxi companies charging
$2,500 per ride, essentially asking people to pay for
self-driving a full hour instead of the ten-minute usage. Voom,
vehicles on an on-demand helicopter service was launched by
Airbus in São Paulo, with the intention of curbing
the road.
such unreasonable rates. It ended up disrupting
existing business models and has brought down
the costs considerably. Electric VTOLs are the future, which is said to
reduce costs even further, while making it more environmentally friendly.

AT THE SPEED OF SOUND—THE POTENTIAL OF HYPERLOOP

What was unveiled as a theoretical concept in 2012 by Elon Musk, has
now been taken up by several startups across the world, and is touted as a
revolutionary way to shuttle passengers and freight. Hyperloop is a mode
of transport that involves sending a pod through a vacuum sealed tube at
around the speed of sound.
The Hyperloop Alpha concept was published a year after Musk
mentioned it, and it envisioned the system to connect Los Angeles with
the San Francisco Bay Area—a distance of 350 miles to be traversed in
35 minutes. The idea of hyperloop has spun off a whole new market, with
startups like Hyperloop Transportation Technologies (HTT) and Hyperloop
One racing against time to construct hyperloop tracks across the world.
Over the last year, HTT has successfully signed partnerships with
France, UAE, and China, with a commercial track being built in Guizhou,
China - the province which holds Alibaba, Amazon, and Apple offices in
the country. Hyperloop One, has already built a 500-meter test track in Las

27
Vegas and has publicly stated that it would be delivering a fully operational
hyperloop system by 2021.
Though track construction is going on in full throttle, the promised
theoretical speeds have never been met. The fastest hyperloop pod speed
reached to date is around 300 mph, which is less than half of what was
theorized by Musk. Nonetheless, there seems to be progress and the yearly
Hyperloop Pod Competition conducted by SpaceX in California could help
achieve the target.
Technologies like these help further the boundaries of transportation,
and excited investors at the helm would hopefully speed up the development
process. However, it remains to be seen if futuristic technologies could
pique the collective interests of the society, especially since affordability
and business models play an important part in it. But if marketed right,
and if the technology is on the dot, they could well turn out to be the
‘Macintosh’ of the transportation industry.

Vishnu Rajamanickan is a staff writer for FreightWaves.

28
The Social Impact of
Coordinating Cloud
Computing
MICHAEL CARMODY

29
IT’S NOW A MODERN PHENOMENON that plays out across television
and internet screens across the country from all corners of the world.
Natural disasters are raging on every continent stretching resources to the
breaking limits and stressing the supply chains of NGO’s, non-profits and
governments reacting the unexpected devastation.
The world watches as Mother Natures wreaks havoc across communities
forever scarred with harrowing tales of destruction and survival.
Unfortunately, we collectively often hold our breaths as organizations
of volunteers of every skill level rush in to save any survivors, then the
donations pour in from the generosity of fellow humans worldwide.
When these events hit home domestically in the USA, they can directly
impact freight markets from Seattle to Miami, especially in America’s
largest logistic hub cities. Many of today’s trucking and logistics companies
are using modern technology to track and trace shipments in their network
from pickup until a load is delivered, even until the carrier or driver gets
paid.
Almost every company offering logistics today in the USA is using
some sort of technology platform(s) to organize and optimize their team’s
human support effort and their precious client data. Technology solutions
are pervasive today in our industry and widely available in desktop, mobile
and cloud versions to meet every taste.
More and more we are also seeing a movement across the country
with logistics professionals aligning with non-profits and NGO’s to
provide direct and indirect support to all sorts of organizations designed to
give back to some community. Often these organizations are strapped with
operational budgets that cannot react to events happening in more than one
location.
Observing the amount of effort and planning to get aid to the impact
zone and collaborating without technology can lead to logistic bottlenecks
and mis-directions that tie up equipment, burn up money, and worst of all:
waste people’s time and good will. Similar heart burn can be felt when
government funds run out in an impact zone leaving citizens looking to
local non-profits to step in as the primary aid provider for the rebuilding
stage. Depending on the location, the volunteer’s skill level with logistics
best practices and process control can be overwhelming.
In recent news, some aid items were found spoiled in a trailer in Puerto
Rico, never making it to their intended community from the generous
donors who organized that load of goods. The early and understandable
response from the non-profit world is to focus donations in cash that can be

30
allocated quick and easy without the hurdles that come with physical good
donations, overlooking the obvious root cause that no one was tracking that
load like a logistics professional ensuring a proof of delivery was signed and
the trailer unloaded, so the driver can get his next dispatch.
As we look to the future of social impact collaboration in the logistics
space, there seems a natural market need for technology firms to empower
NGO’s and non-profits with software donation programs and access to
education resources. With affordable logistics software via web and mobile
solutions that already exist for the private sector for existing transportation
supply chain organizations that are looking to support a coordinated data
model that allows NGO’s to plug in with the same or similar tools, locally,
regionally or globally to participate with supply chains already in place.
Any future public/private data model will have to be tested in the live
arena before any kind of mass adoption can be considered. Let’s cast an
eye to those organizations that are blazing the trails in the disaster relief in
today’s real time response zones without any enterprise TMS, FMS or WMS
tools. Let’s envision a future where the ‘Freight.Tech’ leaders can get them
enabled with the tools that connect digitally and compliment their existing
internal technologies toolkit. The public/private model must be simple to
integrate in order to get any kind of adoption rate that can leverage the global
impact of thousands of non-profits shipping cargo like the professionals from
their smartphones.
Ultimately, a few of my friends and colleagues have joined together
with a vision to bring modern technology and industry know-how to the non-
profit sector, we call it: Karma Delivers.
Our goal is to establish a collaborative ‘best practice’ toolkit for working
together with the transportation community to have donation and aid
shipments moved through existing freight networks with the costs covered by
the online donor community for a sustainable business model. Working with
the established carrier and forwarder community ensures the physical goods
will be handled like any other by a logistics professional in any country.
This platform can empower thousands of aid organizations who can then
participate in more impact zone response campaigns and stronger planning
preparation programs thinking ahead of the next natural disaster and not
worrying if their load of aid will ever make it to those that need it most.

Michael Carmody is co-founder of Karma Delivers.

31
Sea Change in Shipping
MIKE ANGELL

32
THE CONTAINER SHIPPING INDUSTRY is on a steadier course this year
following a tumultuous 2016 and 2017. But ocean carriers still face choppy
waters and are looking for ways to right the ship.
The previous two-year period was marked by severe over-capacity
that caused ocean freight rates to sink below break-even levels.
The bankruptcy of South Korea’s Hanjin left many beneficial cargo
owners and freight forwarders with containers stranded at sea.
Surviving carriers were forced to merge in order to stay afloat. Maersk
bought Hamburg Sud for $4.3 billion, Hapag-Lloyd bought United Arab
Shipping Company, and China’s Cosco acquired Overseas Orient Container
Lines.
Along with the merger spree, the major carriers formed vessel-sharing
agreements that coalesced into three major alliances - 2M, The Ocean
Alliance and THE Alliance. These arrangements allowed the carriers to
share vessel space and information as they sought to fight over-capacity
and weak freight rates.
Despite those moves, the proper supply-demand balance continues to
elude the containership industry. Industry researcher AXSMarine says in-
service container shipping capacity is expected to grow 5.8% through the
second half of 2018.
But in the first quarter of 2018, global container demand growth
was 4%, according to Maersk, compared to a 5% growth rate seen over
2017. The world’s largest shipping line said the slowdown “represented a
weakening momentum of the global economic environment, driven by soft
global retail sales.” The slowdown also forced Maersk to lower its earnings
guidance for the year.
Exogenous shocks are also hitting the industry, particularly due to the
strong recovery in fuel prices. CMA-CGM, the fourth largest ocean carrier
by capacity, reported a $77 million loss in the first quarter. While container
volume rose a healthy 15%, a 19% rise in fuel costs pushed the company
into the red.
Rolf Habben Jansen, the chief executive officer of the fifth largest
carriers Hapag-Lloyd, said the first half of 2018 saw “increasing fuel
costs . . . and a slower than expected recovery of freight rates.” This as the
company reported a $101 million loss for the first half.
The alliances continue to make cuts to services, particularly in the
trans-Pacific market, to adjust the ever changing needs brought on by trade
wars and changing trade flows.

33
 But still AXSMarine says the industry may have to idle up to 3% of
capacity, amounting to 750,00 twenty-foot equivalent (teu) in ships, so as
to come closer to a better market balance.
And the threat of oversupply always looms, particularly among state-
sponsored shipping companies in Asia. Overseas Orient Container Lines
(OOCL), which is now owned by China’s Cosco, plans to increase its
capacity from 700,000 teu to over 1 million teu, according to a statement
from chief executive Huang Xiaowen.
Among all container ship companies, total
capacity on order for 2019 delivery amounts to
In addition to another 1 million teu, representing over 4% of
constantly current shipping capacity.
Moreover, the industry’s drive for economies-
managing of-scale is causing more oversupply within
capacity, the different ship segments. The increasing use of
ultra-large container vessels, those above 15,000-
container
teu, is threatening to push ships below that capacity
industry also out of major trade lanes, such as Asia-to-Europe.
But other trade lanes such as Asia-to-US East
faces another
Coast are not yet ready to absorb the ultra-large
major upheaval container vessels.
in 2020. In addition to constantly managing capacity,
the container industry also faces another major
upheaval in 2020. By that year, ocean carriers are
expected to follow a global mandate to reduce the sulphur emissions from
ship fuel from a current level of 3.5% to 0.5%.
The trouble is that many container lines are still working through how
that can be accomplished, whether through the introduction of low-sulphur
marine fuel, the installation of sulphur scrubbing equipment on ships, or
using entirely new fuels such as natural gas.
With plenty of capacity on the water and more expected in the coming
years and an uncertain regulatory environment, the industry’s main
initiatives in the last year have been in furthering their technology efforts.
The moves aim to reduce overhead costs as well as differentiate carriers in
an otherwise commodity service.
“Digitization within transport and logistics means seamless service to
our customers, visibility in the supply chain and driving a more efficient
business,” said Maersk chief executive Soren Skou in a Wall Street Journal
op-ed earlier this year. “Customer trends are changing in a way that calls

34
for new logistic services where you can customize your service instead of
having to fit in to a generic product, decided for you by others.”
After a nearly two-year incubation period, Maersk offered up to
the broader industry its blockchain collaboration with IBM. Dubbed
TradeLens, the set of APIs and protocols will allow shippers, carriers
and logistics companies to build applications to streamline the labor- and
paper-intensive process of booking container freight.
Beyond blockchain, Maersk also teamed up with China e-commerce
giant Alibaba for online freight booking on Maersk container ships.
Maersk’s freight forwarding subsidiary Damco also launched an online
platform for booking cargo space.
Not to be outdone, CMA CGM has also been investing heavily in
technology. Earlier this year, it announced plans to fund an international
start-up incubator, called “Ze Box,” which would provide funding and
support to start-ups in the logistics and transportation sector. CMA CGM is
also seeking to captilize on increasing trade in fresh foods, with containers
designed for better transportation of liquids and seafood. Hapag-Lloyd too
is introducing its own online freight quotation system to ease the process
of booking freight on its container lines.
The efforts comes despite shipping’s reputation as one of most staid
and technology-averse industries in the world. But with profit growth still
iffy, shipping companies may find the best, and cheapest bet, will be on
digital bits, rather than steel.

Mike Angell is a maritime specialist for FreightWaves.

35
Lessons from Underdogs:
How to Level the Playing
Field and Win the
Logistics Game
CHRIS RICCIARDI

36
IN THE 2018 WORLD CUP, CROATIA—a tiny country with a population
of only 4.3 million—made it to the finals despite having all cards stacked
against them. Small countries rarely reach the finals, yet Croatia defied the
odds, won game after game, and made history.
The sports world is full of underdog stories like this—from the 1980
“Miracle on Ice” Olympic hockey game in which Team USA’s scrappy
team of mostly amateur players defeated the battle-tested Soviet Union
squad; to the 2017 Super Bowl where the Philadelphia Eagles won their first
championship ever against the New England Patriots, the NFL’s greatest
dynasty. Sportscasters and fans alike often tout these wins as miraculous,
focusing on all the reasons these teams shouldn’t have succeeded—whether
it’s lack of experience, size, budget, or something else. But often, victory is
not a miracle at all. There is a perfectly logical explanation for why these
teams emerge as winners.
In both the sports world and the business world, success doesn’t
automatically come to those with the deepest pockets or best talent
available. Companies that experience continued, repeatable success know
it doesn’t just happen by chance.

LIMITED RESOURCES FORCE CREATIVE SOLUTIONS

Let’s take a closer look at Croatia’s 2018 World Cup success. One
distinct advantage they had over opponents was their mentality. Croatia
is a country that has been plagued by Civil War, and many of the team’s
players grew up in unstable economic conditions. With deprivation comes
improvisation; those who are used to working with limited resources
quickly learn to do more with less and find their strengths in other forms.
This mentality often breeds creativity, perseverance, and the ability tackle
challenges better than opponents because the stakes are higher.
Small businesses in the logistics space can use limited resources to
their advantage by working smarter, not harder. Companies don’t need to
build the best proprietary technology or hire top industry talent to compete,
but they do have to use what they have wisely. In the 3PL world, the sales
process is time consuming and involves several steps: prospect customers,
analyze their needs, research cost, research sell rate, respond to quote
requests, source the load, etc. Efficiency and revenue per employee are
stagnant and turnover is common. What if brokers could buy and sell more
efficiently and accurately? What if sales reps could talk to more customers
per day, with fewer phone calls, mouse clicks, and keystrokes? Even
shaving off just a couple seconds per rep, per day could have a big impact

37
over time. By focusing on efficiency gains driven by a smart application
of data and technology, companies can outperform their larger competitors
with less effort.

DATA SCIENCE CAN ACT AS A FORCE MULTIPLIER

Out of all the sports underdog stories, one of the most impressive is
the Leicester City win in the English Premier League during the 2015-2016
season. Leicester did not have the most talented or experienced players,
and their track records for possessions, passes, and penalties were some of
the worst in the league. Yet, they defied 5,000-to-
one odds and won the championship. How? They
In both the hired an innovative sports science and medical
team that leveraged data to improve performance
sports world and reduce injuries. For example, they collected
and the data on injuries and were able to identify and bring
overloaded players off the field at just the right
business world,
time. A culture of data-driven decision-making is
success doesn’t still a large part of the team’s strategy today.
Data analysis is similarly having a huge
automatically
impact on logistics operations. Deployed
come to those correctly, technology can be used as a force
with the deepest multiplier to empower a small freight brokerage
to execute and perform like a much larger one.
pockets or best For example, machine learning technology can
talent available. aggregate data, identify patterns, and essentially
“learn” as feedback is continuously added to the
system. Smart pricing platforms can automatically
adjust rates based on mileage bands, upcoming holidays, or market
conditions and help users select the best transportation mode based on the
customer’s needs.

LARGE PLAYERS SHOULD TAKE ON A STARTUP MENTALITY

Though a creative application of resources and innovative technology
can lead small and emerging businesses to victory, that doesn’t mean large
industry players can’t also find creative ways to fight back. For example,
the concept of the “digital broker” has emerged in recent years, with many
technology-focused transportation startups being labeled as “Ubers for
Freight.” These companies have flashy websites and mobile apps that
promise sophisticated carrier matching and automated pricing.

38
 Legacy logistics companies that embrace big data should not be
afraid of these newer startups because they likely have access to the same
information—it’s just that they aren’t connecting the dots as well. With
the right algorithms and integrations, established companies can also offer
sophisticated carrier matching and automated pricing—perhaps better
than digital brokerage startups because they have the added advantages of
industry knowledge and deeply established relationships.
Whether it’s speed-to-market when rolling out a new product or service,
responding to quote requests faster, or shortening the internal learning
curve for employees, companies that think outside the box and leverage
data in new ways will have a competitive edge and emerge victorious.

Chris Ricciardi is chief operating officer of Logistical Labs.

39
as much as
businesses
don’t want
to think
about cyber
security,
they must.
BRIAN STRAIGHT 40
 02
SECTION TWO

BLOCKCHAIN IN
APPLICATION

41
The Hard Part: Moving Past
Buzzwords
BRIAN GLICK

42
BUZZWORDS…AI, BLOCKCHAIN, ANALYTICS, Big Data, and on and
on and on. You can’t go to an industry event or a vendor demo without
being bombarded by them. Much like the market, the dominance of these
buzzwords rises and falls. Some are penny stocks and others will become
blue chips, so transformative to our businesses that we won’t remember
how we survived without them. Can you imagine running a business
without the hottest buzzword of 1876, the telephone?
Most will land somewhere in the middle. They’ll become part of the
fabric of our organizations, finding their niches. They won’t deliver on all
of their promises, but they will likely do more good than harm.
Also like the markets, the prognosticators will tell you that they can
pick the ones that are going to “win” and the ones that will “lose”. The
helpful pundits will share thoughtful analysis weighing pros and cons,
putting you in a position to decide within the context of your business. The
snake oil salespeople will yell at you from the stage, spreading FUD (fear,
uncertainty, and doubt) and FOMO (fear of missing out) until they think
they’ve trapped you into buying whatever they’re really selling.
There’s a topic, however, that you won’t hear a lot about. It’s
complicated and hairy and hard to package into a conference talk. It
doesn’t drive clicks from a LinkedIn post, and it certainly isn’t sexy. That
topic is integration. More specifically, answering questions like “How do I
integrate this new technology into my business?” or “How can I use these
tools to actually improve my business processes (and bottom line)?” or
“How can I make sure that I’m using technology to bring value to my
customers (and not just my vendors)?”
As a technology vendor, advisor, and thought leader, you might think
that my answer to this would enthusiastically be, “Buy more technology!
Here’s a piece of software that will magically make all of these problems
go away!” The reality is much more complex and much more subtle.
Technology (including our wonderful cloud integration platform) definitely
plays a role, but it’s merely a tool.
The real answer (and you’re probably not going to want to hear this)
is to do the same basic blocking and tackling that you do for every other
part of your business. You start by being thoughtful, then add a dash of
pragmatism, and finish with a whole lot of hard work.

STEP ONE: BE THOUGHTFUL

When we work with our clients to help them understand how to use
technology better within their organizations, we start by understanding

43
why we’re sitting around at the table in the first place. The answer is always
to change something. What’s not always clear is the definition of what
we’re trying to change. The change may be a few levels deep.
For example, you would never go to the hardware store and buy a
hammer because you want to bang it against things. You buy a hammer
because you want to put a nail in the wall. You want to put a nail in the
wall because you want to hang a picture. You hang a picture because you
want to remember your vacation. If someone said to you that they had a
great way to show pictures of your vacation on the wall with a pin sized
projector, you might not buy the hammer at all.
I hope you wouldn’t call up a software company and say, “I want to
spend a million dollars and 5,000 hours to implement an AI thing.” That
would be starting with the hammer. Start with a problem: cash flow, fuel
costs, sales velocity, gross margin, whatever is personally relevant to your
business. Once you have the problem stated, then (and only then) move to
the next step. In my opinion, the vast majority of failed IT projects fail at
step one. We see the symptoms of the failure at the end, but that’s just a
building crumbling from a shoddy foundation.

STEP TWO: BE PRAGMATIC

Now that you know your problem, it’s time to go buy that new
buzzword rich fully-managed quantum-ready, 12-cylinder, mega tool,
right? Everybody else has one. You’re going to be left behind. Let’s get
going. Install it yesterday.
Nope.
The next step is to figure out if you already have the tools to solve your
problem. If you don’t, then is there an established, proven tool that can
help? If not, are you willing to take the very significant risk of attacking a
buzzword heavy project?
As much fun as buying the new shiny gadget is, we all have to
remember that change is hard. Moving the people in your business
towards new business processes and continuous improvement is always
an incredibly heavy lift. If you can de-risk the project a bit by using the
tools you’re already familiar with, then do so. If you can’t, then look for
a technology stack that has been successfully implemented elsewhere. Let
someone else make the mistakes (and eat the cost overruns).
If, and only if, you can’t find an existing solution in your toolkit or
someone else’s, then go ahead and see if the new buzzword can help.

44
STEP THREE: DO THE HARD WORK
Implementing new, unproven technology is amazingly hard. Donald
Rumsfeld put it best, “there are also unknown unknowns – the ones we
don’t know we don’t know...that tend to be the difficult ones.” Projects
full of new technology are overflowing with unknown unknowns. Will this
work with our existing business processes? Can it support our volume?
Will it work at all? Will we deliver on time and budget? Actually, I can
answer the last one… you won’t.
So how do you mitigate all of this risk? You double down on de-
risking the rest of the project. Squeeze the scope down to the minimum.
Use your best project manager. Double your committed timeframe (then
double it again). Double the number of status meetings. Pick a business
problem that you really understand. Essentially, control all of the other
factors in the project, so the new tech is the only major risk point. Once
you understand the tech, then you can apply it to more complex and risky
business problems.
UPS recently made a great example of this. UPS operates about
119,000 vehicles worldwide. When they recently announced a pilot with
Thor for their electric trucks, they set the scope at 2. That’s 0.002% of their
fleet size. If you can implement new tech with a 0.002% scope size, then go
for it. You can always grow from there.
At Chain.io, we created a production-caliber
You start blockchain project called Vault that our clients are
using to deliver real world business value. How
by being
did we get to production with live customers while
thoughtful, many companies are still “ideating”? We applied
the steps above.
then add a dash
First, we thought about a real problem. In our
of pragmatism, case, it was a situation that a client had with an
and finish with auditor where they were unable to prove that an
Excel file hadn’t been modified between the time
a whole lot of shipment and time of audit.
of hard work. Next, we got pragmatic. We looked at the
existing document management solutions in the
marketplace and determined that none had the
exact properties of immutability and independent verification that we
needed to solve the problem.
Finally, we de-risked the heck out of the project. We knew that our
major risk was the blockchain implementation. Our initial designs had

45
APIs and reports and fancy screens and all sorts of cool stuff. We cut all
that crap out. One file, one secure FTP server, one pilot customer. We could
(and did) expand the scope later.
So how did we do? The project took us 25 times longer than our
original internal estimate. It was immeasurably harder and (measurably)
more expensive. It also went to production and the business users at our
first client gave us a perfect score on the launch project.
The reason it was so successful? We were thoughtful, pragmatic, and
we put in the work. If you’re ready to move past the buzzwords and attack
new technology, make sure you’re ready to do the same.

Brian Glick is founder and CEO of Chain.io.

46
Eliminating Fraud through
Blockchain Records Based
on Open Standards
JAMIL DEWJI

47
BACK IN THE SUMMER OF 2011, the FBI launched an investigation after
learning that a truckload of beef was stolen from an Amarillo, TX meat
packing plant. The theft occurred when someone, who had stolen the
identity of a legitimate trucking company, picked up the load from the plant
but failed to deliver it to its intended destination in California. When finally
arrested, one of the thieves was discovered to possess a fake commercial
driver’s license that listed the Mexican Consulate in Sacramento as his
address, as well as a real driver’s license registered to a woman.
Stories like this are not uncommon. In fact, they have become
increasingly frequent. 28 similar cargo thefts occurred between April 2011
and February 2013. The cargo value for each theft: $30,000 to $200,000.
Now imagine if all truck drivers carried blockchain-based identification
that shippers and receivers anywhere in the world could easily verify
through the click of a button before releasing or accepting cargo. That
is Learning Machine’s long-term vision for blockchain in transportation:
cryptographically secure identity documents that eliminate identity
fraud, double brokering, and even lost paperwork headaches across the
supply chain.
The world already has an open technology standard to do this —
Blockcerts. Blockcerts is a free open source toolkit for any shipper, carrier,
or industry participant to build their own applications for issuing and
verifying official records. The standard enables documents to be anchored
to a blockchain and independently verified without any dependence on a
particular carrier or government institution — for example, the FMCSA —
to own and continually verify them.
Learning Machine joined the Blockchain in Transportation Alliance
(BiTA) because it is clear that this group shares our vision of an industry
built on open technology standards. This is also why we are so excited to
participate in the BiTA Driver Marketplace Think Tank and Blockchain
Interoperability Technical Committee. These working groups not only
serve as incubators for the future, helping industry stakeholders uncover
common pain points and challenges, but they are also the ideal forum in
which to raise awareness about the capacity of the Blockcerts open standard
to serve as a verification infrastructure for all kinds of transportation
records — bills of lading, insurance documentation, and driver identity.
BiTA’s commitment to open standards and interoperability makes
it unique among technology standards bodies. The problem with similar
standardization efforts is that they are often driven by technology companies
with their own commercial goals in mind. These standards quickly become

48
proprietary, and the same companies that participated in their development
end up having to pay someone else to license them. That’s why Learning
Machine is committed to keeping its enterprise software Blockcerts
compliant. This means there’s no Blockcerts blockchain you have to use;
you’re not stuck with any one vendor’s blockchain solution; and you can
use multiple backup blockchains in case one of them goes away over time.
After all, it’s still early days. No need to pick a winner now — it just makes
sense to use a standard that can work with whichever chains gain adoption.
The road to blockchain-based universal driver identification inevitably
passes through the intersection of government and business. Today, a
driver’s CDL, DAC records, MVRs, drug tests, medical history, and
employment history are maintained by government agencies like the
state motor vehicle department, which issues driver’s licenses, and the
Department of Transportation Federal Motor Carrier Safety Administration
(FMCSA), which manages safety and medical certification. Carriers,
individual drivers, and industry service providers can access these records
from federal or state databases, but often for a fee, and you have to know
some of the driver’s personal information already.
This is where BiTA has the opportunity to leverage its status as an
industry heavyweight to advocate for the individual data ownership,
privacy, and independent verification benefits that open standards provide
for everyone in the records issuing and verification ecosystem. BiTA can
also be instrumental in identifying near-term, mid-term, and long-term
use cases for Blockcerts in transportation that serve as valuable proofs of
concept.
Insurance documentation is the most likely place to start. Blockcerts-
based proof-of-coverage would help insurers, the insured, and enforcement
personnel verify insurance in real time, all but eliminating the need for
paper. For drivers, the real benefit comes from the ability to easily share
insurance information with other drivers after an accident. Manually
exchanging carrier information, phone numbers, and cards is far too
cumbersome and unreliable. Not only does blockchain-based proof-of-
insurance make verifying a driver’s insurance information easier, but the
immutable nature of blockchains makes it nearly impossible for drivers to
tamper with that information, virtually eliminating the ability to commit
insurance fraud.
Employer assessments form a strong mid-term use case. Through
metadata built into digital records, employers can issue drivers new
credentials right now that link to past assessments from previous

49
employers, forming a chain, or “stack,” of employment histories and
achievements. Blockcerts can also be parsed by any system that can read
structured data. This means it’s easy to automate verification and screening
of records without needing to buy special software. An IT system using
a Blockcerts-compliant verification service could effectively screen new
driver applicants and candidates in a matter of seconds. The driving record
could then automatically release rewards for good performance, perhaps
based on “smart contracts,” to better incentivize and motivate drivers.
A compelling long-term use case exists in transportation financing:
receivable factoring and insurance underwriting. Those same driver
credentials and metadata features could help drive down premiums by
extending risk management and credit worthiness to the driver level. This
means lenders can now assess individual drivers rather than having to take
a guess based on an entire fleet. In addition, these factoring and insurance
companies could monetize their time consuming and labor-intensive
assessment efforts by issuing creditworthiness certificates to carriers for
a fee, creating an entirely new revenue stream. For smaller carriers and
owner operators, lower premiums mean greater ease of doing business and
improved access to the short-term financing they need to pay off critical
costs like office rent and driver salaries.
By 2020, most companies and governments will be using the
blockchain in some way for verification of claims. Centralized databases
have some utility, but as they get bigger, both security and monopoly risks
multiply. As the foremost leaders in trucking and technology, we are now at
the exciting historical moment when we get to choose what our future will
look like. The main question we have to answer now is, will we go with a
solution that privileges ownership of data and vendor independence, or will
we choose solutions that give ownership of our data over to yet another
series of vendors? Everyone who chooses an open standard makes the
transportation industry more efficient, safer, and empowering for everyone
else. Blockcerts is a public good that creates a global ecosystem of truly
interoperable, enduring digital records for all.

Jamil Dewji is director of sales operations at Learning Machine.

50
 Security in a
Data-Centric World
BRIAN STRAIGHT

51
NOT SO LONG AGO, BEFORE THE INTERNET – if anyone remembers that
anymore – business was done the old-fashioned way, with a handshake and
a smile, or maybe a phone call or fax. It was about personalization. Maybe
it was more than just a few years ago, but when compared to the speed at
which commerce is transacted in 2018, it might as well have been 1918.
The point is, the world has changed. That’s not something anyone in
business doesn’t already know. Some still prefer to handle transactions
with that personal touch – it may no longer be face-to-face, but you can be
sure each party knows the other’s kids’ names. There is still a place for this
kind of interaction in the world, and dare I say, maybe a need for a little
more of it.
Increasingly, though, our transactions are being handled in bits and
bytes, and we never see the party on the other end, let alone speak to or, in
some cases, even know who it is. All we know is that transaction number
104285 has been successfully completed.
That’s progress. I think.
Whatever you think of the march towards greater use of technology in
business, it’s arrived, and it’s ever-growing. For those in the transportation
industry, consider how much data your business is generating on a daily
basis. According to Domo’s Data Never Sleeps 5.0 report, 90% of the
world’s data has been generated in the past 2 years, and the daily pace is
quickening. Right now, more than 2.5 quintillion bytes of data is created
each day globally, and your business is contributing to that.
How?
Nearly everything you do in your operation is now done on a computer.
Do you own trucks? Chances are, if they are newer models, they are
connected to the cloud and producing thousands of data points every minute
– everything from the health of the engine to GPS coordinates to driver’s
hours of service compliance through an ELD. It’s all being recorded.
That is data for which you, in many cases, are responsible. The truck
manufacturer may have some responsibility, and your software provider
may have some responsibility, but ultimately, if something happens to that
data, your customer is coming after you.
How do businesses feel about their data, and more specifically, their
data security? According to a FICO survey, 68% of business owners feel
they’re prepared to fend off a cyberattack. In general, smaller businesses –
which still make up a majority of the trucking fleet population – are quite
confident they are safe, with 82% believing they are not at risk of a data
breach. That means only 18% think they could be targeted, yet the same

52
survey asked whether they had controls in place to prevent a data breach,
and 23% said they did not.
Every day, businesses around the world are targeted by cyber thieves.
Why? Because there is so much data to be mined, and it has value. Remember
all that data your operation and vehicles are generating? Add to that all the
data you are collecting from customers, including billing information and
even account information. Thieves want that data.
Container line Maersk was hit by a cyberattack
Everyday, in 2017 and it affected operations for weeks. It also
businesses cost the company close to $300 million in losses.
FedEx’s TNT subsidiary was also hit in 2017. The
around the world eventual cost? At least $300 million.
are targeted by Those are large company examples that you
would expect to have had some level of security,
cyber thieves. and yet they still fell victim. If you are a smaller
Why? Because company, are you really safe? A single cyberattack
could be substantial enough to shut down your
there is so much business – for good.
data to be mined, As much as businesses might not want to think
about cyber security, they must. And it doesn’t
andit has value.
matter what size business you are. You can’t
protect your data with Joe the Security Guard,
even if he is 6-foot-8 and 300 pounds. Fortunately, there a number of trends
in security that are working in favor of the smaller enterprise.
As more people have become concerned about data security, new
measures and regulations have been popping up. You used to be able to just
log into websites, but some now require 2-factor identification that includes
texting a code to a pre-set number. Enabling added layers of security is a
simple way to help protect your business. In Europe, regulators created
the General Data Protection Regulation (GDPR). This complex legal hoop
has promised to tighten security, although it also has created plenty of
headaches for companies.
There are other options being developed that can help many businesses,
especially the smaller trucking companies and shippers. These include
cloud-delivered security. Products that take advantage of the cloud are able
to adapt quicker to new security threats – no more IT worker going from
computer to computer in your office to install patches for the latest virus
only to do it again the following week.

53
 Two other trends that are growing and will become increasingly
popular in the next few years are machine learning security and blockchain-
based security.
Machine learning offers the chance to identify anomalies, which is
exactly what cyberattacks are. The reason they are successful is that we
– meaning humans and computers – have been unable to identify those
anomalies quick enough to stop the threat before it infects a computer.
Machine learning is expected to be able to identify these quicker by
“learning” what normal behavior is for your computer. Once it has
a blueprint, anything out of the norm could be flagged until human
intervention confirms it is safe to proceed.
There are plenty of issues that need to be worked out before machine
learning can become a main defense of cyberattacks, but many experts
believe that cyber defense products will be regularly based on machine
learning by 2025.
Blockchain may provide the best opportunity to fight back against
cyber thieves, and in some cases, the basic principles of blockchain’s
decentralized approach are already starting to take hold in technology
solutions. Blockchain uses a distributed ledger to verify transactions across
multiple computers. If the majority agree that the transaction is a valid
transaction, it is allowed to continue. If not, it stops it right then.
Switzerland-based technology company Acronis is already using
blockchain to create a prototype cyber security solution. Acronis provides
backup, disk management and disaster recovery services. The company
says that blockchain prevents accidental and malicious tampering or
alteration of data from going unnoticed and creates an audit trail for all
stored data. The solution includes continuous monitoring for file integrity
and generates alerts if there is a discrepancy.
Data security remains a concern for businesses of all shapes and
sizes yet remains an afterthought at so many. As more and more data is
generated, the chances grow that your business will be affected. The good
news is that the solutions available to protect your business are expanding
at a rapid pace, offering hope for the immediate future. Hope that goes
beyond Joe the Security Guard.

Brian Straight is managing editor of FreightWaves.

54
DISRUPTION
IN THE
FREIGHT
INDUSTRY IS
HAPPENING.
BRUCE MCGONIGAL

55
 03
SECTION THREE

AUTOMATION &
THE SUPPLY CHAIN

56
Lights-Off Logistics: Using AI
and Advanced Analytics
to Automate Supply
Chain Decisions
GREG PRICE

57
THREE KEY CONCEPTS:
• Consumer expectations, aging technology, lack of transparency,
and vendor compliance are stressing supply chain performance and
increasing costs.
• Only those companies that can measure and analyze supply chain
data while managing and predicting performance will have an
operational and competitive advantage.
• Using advanced techniques such as machine learning and statistical
processing can be applied to drastically improve shipment execution
and balance service level, vendor risk, and cost.

The rise of E-commerce and the increasied level of service expectations

have transformed the landscape and operational practices of many companies
in the grocery, retail, consumer packaged goods, and home goods spaces.
This has led to added stress on the capabilities of existing transportation
providers and 3PLs and has spotlighted the weaknesses in this system
that were at one time hidden by demand and outdated systems. Those
companies that have invested significantly in talent, operations, advanced
analytics and technology are enjoying outsized
gains in performance and competitive advantage
We are at the while everyone else is getting left behind.
most profound As a consultant at McKinsey & Company,
I helped many Fortune 500 companies identify
change in the opportunities to improve performance, efficiencies,
shipping and and velocity and ultimately change the DNA of
their supply chains. Surprisingly, less than 10% of
freight industry the companies I consulted for leveraged any type of
since the advent advanced analytics or automated decision making
to run a competitive and high performing supply
of EDI or the chain. On top of that, a large majority are utilizing
shipping disconnected and aging software platforms that
fail to change at the speed necessary to maintain
container.
the ever-increasing demands of customers looking
for a transparent and a delightful experience. This
disconnect has led these organizations to have difficulties in measuring and
analyzing the basics, namely, spend, performance, operational capabilities,
and customer needs. This taught us that trying to automate supply chain
decisions with machine learning algorithms wasn’t going to work for these
companies and we needed to start with the basics. We learned, that in order

58
to fix this problem, we needed to drastically improve the data infrastructure,
enrich existing supply chain data, and create the data pipelines necessary to
apply automation and advanced analytics.
At Shipwell, we believe that every company can have a world-class
supply chain. Complete with visibility, automation, and the capability to
deliver a delightful and transparent experience to customers. To support
this goal, we are working towards a world where a company can do this in
an extremely automated way, in what we call “Light’s off Logistics.” This
means that a company’s supply chain is closely coupled with its order entry,
warehouse, ERP, and transportation systems where software intelligently
builds, routes, and manages shipments and automatically solves low
level exceptions using advanced analytics, reinforcement learning, and
temporal-spatial workflows. For example, our current technology can
measure service level, risk, cost, and vendor capabilities to automatically
route and improve efficiency and performance. Coupled with temporal-
spatial events, we can start to further improve the level of automation to
drastically decrease the amount of intervention and touch time. This leads
to improved customer response times and service levels. For instance, a
lost or damaged shipment can quickly get identified, and the system can
send a replacement, or dispatch a last-mile carrier to handle the complete
return for the customer on the fly. We can help a manufacturing or pick
line automatically build, schedule, and load a palletized shipment while
notifying the consignee of estimated arrival time. This will be the future of
freight and shipping.
We’ve invested a tremendous amount of time and effort researching
and delivering automation solutions to the over-the-road trucking segment
and believe that these solutions will become widespread in the next 5 years.
Additionally we believe that with the decreasing costs of cloud computing,
mobile and IoT sensors, and distributed GPU systems, these capabilities
will be affordable and ubiquitous to companies that have small or large
footprints. Also, the computing power required to solve complex machine
learning and reinforcement problems and execute those algorithms in
production is increasing at an exponential scale. GPUs, which have typically
been used to train deep learning models and networks—what many people
consider AI—have increased in speed by 500x in the last 5 years and 10x
in the last 6 months. This means that computing power necessary to solve
these difficult automation, classification, and optimization problems will
be more computationally feasible and move from operations research
problems to feasible and productionized where supply chain decisions

59
can be made “Lights Off.” However, these automated solutions will still
require intervention by people as the physical movement of goods results
in various exceptions and the vast majority of supply chain systems are
disconnect and aging.
We are at the most profound change in the shipping and freight
industry since the advent of EDI or the shipping container. Supply chains
will go from disconnected, fragmented, and archaic to highly automated
and connected. Not because suppliers wish to completely change their
“IT” infrastructure, but because their business will not be able to complete
with those that invest heavily in talent, technology, and advanced analytics.
It will be the only way to compete in an environment where consumer
preference forces excellence.

Greg Price is founder and CEO of Shipwell.

60
An Industry Analysis: How
Clearly Are We Seeing
Toward the Future Right in
Front of Us?
SAHEJ SINGH

61
THE GENERAL OUTLOOK OF THE LOGISTICS and freight industries is met
with mixed emotions. Some are excited about the many benefits technologies
like electronic logging devices (ELDs) can have; trucking firms could,
for example, gather real-time alerts on vehicles through the utilization
of geofencing and, in turn, use that data for a higher level of business
intelligence and strategic planning. Such technology could, amongst other
things, be used to identify risky driving behaviors early in the hiring cycle
which would serve to lower insurance premiums quite significantly for
logistics firms. “If used right, these types of existing technologies could
lead to hundreds of thousands of dollars saved over the lifetimes of some
of our clients,” affirmed Chad Eichelberger, president and COO at Reliance
Partners.
In contrast, others meet the pending technological disruption in
the industry with a foreboding sense of anxious anticipation. With Tesla
successfully engineering a semi-autonomous electric Class 8 truck, to Uber
Freight enabling firms to broker freight deals via mobile application and
Amazon aiming to become one of the most dominant logistics firms in the
world—it’s understandable that some would be nervous in their outlook
of being able to adapt to an industry landscape as poised for disruption as
logistics. While there is much hype around the future of the industry, one
must pose the question: “How clearly are we seeing toward the future right
in front of us?”
Through an analysis of the 3 examples above—Uber, Tesla and
Amazon—I stand to argue that the timeline of actualization and the intensity
of the impact of such disruptions in the trucking industry, specifically, are
not as fast-approaching as would seem on the surface. Deeper looks into
these leading firms reveal a much more subdued anticipation of such major
foreseeable disruptions in the industry. Furthermore, key trend indicators,
such as the industry’s constrained carrier capacity coupled with the
exponentially growing purchases of Class 8 trucks, suggest that small and
medium sized owner-operators should be looking towards the next decade
as one of growth and should be positioning themselves as such.
In August 2016, Uber Technologies Inc. sent the trucking industry into
frenzy when it entered the self-driving commercial vehicle market through
an acquisition of Otto, a developing startup at the time. Perhaps to convey
its threat of disruption to the industry, Uber used an Otto truck to self-drive
132 miles to complete “the first commercial beer delivery using autonomous
driving technology” for Budweiser in October 2016. This demonstration
shook the industry at an early stage and heavily foreshadowed an aggressive

62
timeline for Uber’s automated freight carriers to be introduced on a
mass scale.
However, as years have passed, Uber Freight seems to have taken an
unanticipated turn. From being positioned as a dominant competitive force set
to enter the freight market via automated trucks, Uber has recently “decided
to stop development on [their] self-driving truck program and move forward
exclusively with cars,” Eric Meyhofer, Head of Uber Advanced Technologies
Group, said in an email statement to Engadget. Presumably, this decision
was influenced by the company’s recent streamlining of a variety of its
subdivisions (such as the discontinuation of UberRush) to simplify its focus
and help the firm reach profitability sooner; “Uber continues to spill red ink.
The company lost $4.5 billion in 2017, up from $2.8 billion the year before.”
Uber Freight has since pivoted into a mobile application for owner-
operators that “helps [owner-operators and small fleets] book loads with one
tap on their smartphones and offers up-front pricing and quick payment.”
Such technology would serve to better aid growth in the current human-
dependent market rather than disrupt it—at least in the short to medium term.
That’s not to say automated trucks will not arise in the longer term. In
fact, Google’s Waymo, Starsky Robotics and TuSimple are just some of the
many firms working towards the same technology. Tesla, having debuted its
automated, battery-powered semi-truck in November 2017, is perhaps one of
the most likely front runners to develop electric Class 8 trucks with auto-pilot
capabilities. Yet, as with Uber, even Tesla seems to be undergoing difficulties
in ‘disrupting as advertised’.
Aside from the public controversy stemming from tweets of privatization,
Tesla faces scrutiny on core business functions. The company has been having
problems with meeting production quotas: “producing just 2,000 Model 3s a
week, as opposed to the 5,000 a week [that was] promised at launch.” More
so, it “announced a voluntary recall of 123,000 Model S vehicles… [and then]
on Tuesday April 17… [Tesla was forced to] temporarily halt production of its
mid-priced, mass produced Model 3 to ‘address bottlenecks’ in its production
line.” These hardships, recalls and ongoing production issues with the Model
S and Model 3 serve to challenge the viability of Tesla’s ability to produce
autonomous and electric commercial vehicles on a mass scale.
There is no doubt that firms like Tesla are on the cusp of being able to
innovate logistics, but to be able to disrupt logistics will require these firms
to be able gain mass adoption and then to be able to supply through mass
production. When these bottleneck production issues finally are resolved,
there is still the obstacle of garnering approval and regulation through

63
legislation for mass usage of disruptive on-the-road technologies such as that
of Tesla or Waymo.
With the recent crashes of self-driving Uber and Tesla vehicles (operating
in auto-pilot), it is foreseeable that there will be regulatory and legislative
hurdles that will impede or preclude the progression towards mass adoption of
driverless trucks and other vehicles. Thus, current day owner-operators should
feel no angst towards having to adapt to capital-intensive disruptions such as
driverless trucks in the short or medium term. However, they should be aware
that such a disruption is pending in the coming decades and some reserves
should be kept ready for when that time arises.
Amazon is, perhaps, the most imminent force of disruption in logistics.
With a dominion over the e-commerce space, the company has set its sights on
delivery and logistics technologies for a while now: from developing delivery
drones, to introducing grocery on-demand services and even to the extent of
enlisting its own airplanes to begin to compete with the likes of FedEx and
UPS. “Brick by brick, Amazon has been building itself into a package delivery
company to satisfy not only the voracious demands of Amazon shoppers
but also anyone else who wanted to move merchandise from one place to
another.” According to Bloomberg, in 2017, Amazon spent a staggering
“$13.2 billion on warehouses and other logistics buildup for its operations in
North America… For comparison, FedEx and United Parcel Service Inc. each
had more than $5 billion in capital spending over the last year.”
Although Amazon is looking to compete heavily with industry leaders, its
disruption of the logistics and, therein, the trucking industries could turn out to
be a stimulus of growth that helps independent owner-operators expand their
operations. Amazon has already begun utilizing sharing-economy principles
to contract smaller owner-operators for Amazon loads by means of their
“Amazon Flex” (geared towards individuals with cars for last mile deliveries)
and “Middle Mile Providers” (geared towards trucking owner-operators)
programs.
Amazon markets their “Middle Mile Providers” program specifically
towards “fleet owners with a DOT# and MC# who want to provide power
only to haul loads for Amazon.” Hence, the company seems to already be
leveraging existing owner-operators to deliver Amazon packages. As Amazon
develops its foothold into trucking, the company would actually be better
served to help smaller trucking firms grow and then contract jobs with them,
rather than compete with the market as a whole. In the long run, it would
unsurprising to see Amazon acquire a few large fleet firms as a part of their

64
own logistics branch. Thus, even Amazon’s disruptions in trucking so far
have positive impacts on the industry for owner-operators.
This said, young logistics firms should look to grow in the coming years,
while adapting to the smaller disruptions as they come. The industry seems
to already be showing signs of similar trends. There are already backlogs
that have occurred in Class 8 orders due to “the manifestation of all the
underlying demand—the economy and the strength in freight, [as well as]
the capacity crunch,” ACT VP Steve Tam told Transport Topics. With the
number of loads per available truck rising year-on-year, the demand for
freight carriers is increasing also. Ergo, the threat of immediate disruption
is low, the demand for freight is rising and owner-operators should look to
leverage their resources to grow their ventures at a controlled and steady
rate over the next few years to benefit from these demand-heavy industry
trends. Some firms may even be able to leverage disruptive tax codes, such
as Section 179, to purchase new trucks at a fully depreciated first year rate
and, in turn, significantly reduce their tax expenses during periods of asset-
heavy growth.
Owner-operators should be mindful, however, not to grow an at
unreasonable pace. It is highly recommended to grow only when sufficient
cash flow and profitability allow firms to do so. Moreover, with many financial
analysts predicting an impending economic correction in the coming decade,
firms should also be cautious by maintaining a healthy cash cushion during
their growth—in case of economic turmoil or unforeseen disruptive forces.
As a whole, disruptions from various entrants into the industry will occur,
but they will be introduced into the market at a slower rate than popular media
may portray. In the short and medium run, disruptions in trucking will arise
from a series of small technological adoptions of tools such as ELDs, Uber
Freight’s Mobile App and such. The major disruptions of the media—being
auto-pilot electric trucks, for example – will be subject to a much longer cycle
of adoption. As such, an analysis of the industry’s immediate future reveals
that firms should currently be focused on strategizing for growth in the short
and medium term, while preparing to adapt to larger scale disruptions in the
long run.

Sahej Singh is strategy analyst at Reliance Partners.

65
The Cost of Convenience
MARIA BAKER

66
WE’VE ENTERED INTO AN AGE WHERE CONSUMERS are opting to spend
less time in the kitchen and restaurants, instead choosing convenience over
a multitude of other factors. An analyst from UBS recently shared their
prediction for the future of food: “There could be a scenario where by
2030 most meals currently cooked at home are instead ordered online and
delivered from either restaurants or central kitchens. The ramifications for
the food retail, food producer and restaurant industries could be material,
as well as the impact on property markets, home appliances and robotics,”
as quoted by Reuters.
While the restaurant and grocery industries scramble to adjust to
today’s trends, companies like Uber Eats, Waitr, and Door Dash can thrive
in an era of customer convenience. Amazon’s acquisition of Whole Foods
in 2017 has even made the internet superstore a player in the grocery
game—crucial in an age where consumers are opting to spend less time
than ever in the kitchen. Neil Stern, a food and agriculture contributor for
Forbes wrote about Amazon’s previous experience with Amazon Fresh,
noting that, “Whole Foods is the most credible player in fresh foods in the
industry.”
“Branding an online fresh service with Whole Foods brand and
perishables know-how could be a game changer,” Stern concluded.
And, with each new year comes a renewed desire to make lifestyle
changes—at least for the roughly 40% of Americans who report that they
made a New Year’s resolution. Naysaying studies show that a whopping
80% of New Year’s resolutions fail by within the first six weeks, but it still
no surprise that diet and exercise are among the most common resolutions
made. Topping the charts in 2018, 45% of survey respondents resolved
to lose weight, while 55% of those surveyed expressed a desire to save
money. But what if you could accomplish both resolutions at the same
time? That’s where meal-kit delivery services come in.
They cut out the meal prepping, the grocery shopping, and, in many
cases, the food waste associated with cooking at home. In 2016 alone, 27%
of internet users purchased a meal-kit online. Blue Apron and Hello Fresh
are among the most recognizable names in the industry, and the two sites
were among the top five most visited subscription box sites in the US in
April 2018, according to Forbes. A study conducted by Hitwise found that
Hello Fresh and Blue Apron received more than 3 million visits each in the
same month.
Companies like Hello Fresh, Blue Apron, and Plated have a strong
hold on the niche market, but there’s room for the little guys, too. Local

67
meal-kit delivery businesses are popping up across the country, prioritizing
seasonal produce that comes from places close to home. Despite the wide
range of options when it comes to meal-kit delivery services, they all have
similar aims: to make it easier for consumers to cook and eat at home.
Simple, right? Not always. A single Blue Apron box could cost up to $60,
and according to The Washington Post, 20-30% of
which comes from the price of shipping alone. For
In 2016 alone, Blue Apron in particular, a shortage of distribution
centers certainly factors into the cost of shipping.
27% of
As of 2017, there were only three Blue Apron
internet users facilities: one in New Jersey, another in California,
purchased with a final center opened in Texas to bring down
skyrocketing shipping costs to customers in the
a meal-kit Midwest.
online. The Economist notes that costs don’t stop at
shipping, either. Blue Apron spends approximately
$85 for each new client that signs up. Grocery
stores, on the other hand, “already have the footfall to minimise such costs.
And because of their existing supply chains, they do not incur the same
cost for ingredients as the subscription-based services.”
In January 2018, Forbes published a piece on the way meal-kit
delivery services are impacting the greater supply chain. According to their
reporting, Plated has turned to advance machine-learning techniques to
navigate supply chain and forecasting challenges, since these services tend
to complicate both. It makes sense, considering that ingredients sourced
from around the globe have to make it into a single box and kept at just the
right temperature before it can get to your front door—and all of that can
cost a pretty penny.
So what’s in the future of food? At the very least, expect a continued
emphasis on customer convenience, an uptick in delivery options, and hey,
maybe even shorter lines at the grocery store.

Maria Baker is a SONAR copywriter for FreightWaves.

68
Are You Ready for a $5 Head
of Lettuce?
SUSAN FALL

69
A PERFECT STORM IS BREWING and it’s headed for an island of happy go
lucky, money-spending and absolutely unsuspecting consumers. And the
result is going to be $5 for a head of lettuce. Are you ready for it because
it’s coming? Here’s why.
The driver shortage—yes, some people say there really is no shortage
and it’s just a “shift” but there’s a shortage. Period. And with unemployment
hovering around 1% and hard-working boomers retiring, that shortage is
going to get even worse.
The lack of drivers isn’t a surprise to anyone in the trucking industry
(driving a truck is a hard, thankless, underpaid job) but the consumer who’s
been spoiled by the world’s most effective freight transportation system
is going to be shocked when shelves aren’t stocked and the price of that
head of lettuce begins to rise. Oh, and the whole “I want it now, I want it
delivered to my doorstep and I don’t want to pay any extra for that service”
mentality is going to have to change. Either be willing to pay the extra
money to have it delivered to you or go pick it up yourself.
The point is that someone’s got to pay for that delivery and the
trucking industry isn’t going to absorb that cost, too! When manufacturers
turned trucks into rolling warehouses and called it Just In Time delivery,
thanks to GPS and onboard computers it was doable, but when grocery
stores wanted the same treatment it got a bit tougher and definitely more
expensive (most trucking companies now have 3 trailers to every tractor
and the ratio among food haulers is even higher). Now the consumer wants
to have that level of service and not pay for it? Good luck!
The economy—it’s good right now. People are spending, houses are
being built and commercial properties are transforming. Life is good.
But as we all know, what goes up must eventually come down. This
time, though, when it comes down we are going to have a whole bunch
of college-educated labor, an entire generation of people with $200,000
in student loans who no longer know how to check the air in their tires
or bake a pie because we’ve removed just about every skilled trade from
our education system. No more auto or wood shop, home economics, etc.
Those classes were staples that taught real world skills. Today, they’ve
been mostly replaced by classes in technology skills.
So what we have is a society, aged about 40 years and younger, that
happily clicks and pays for “labor” to be done for them. Deliver a meal in a
box to my house? Beautiful. Look on my phone to find the nearest plumber
that will be at my house in 30 minutes? Excellent. Pick me up, drop me off,
and why bother drive when someone else can do it for me? Oh and will you

70
walk my dog for me, too? The reason why unemployment is at an all time
low is because enough people are making enough money to be lazy. But
what will happen when that head of lettuce is $5? I think people might start
walking their own dogs again, that’s what!
Technology—I believe the last figure I saw was $80 billion tied up in
transportation and logistics technology products. $80 Billion! It’s not like
the logistics and transportation industries just suddenly appeared. They’ve
been keeping our country moving since wagon trains first crossed the
continent. What’s happened is it’s an industry that was suddenly noticed by
investors, engineers and young entrepreneurs. It’s been 20 years since the
mobile revolution. We’ve got new blood that wants to figure out the next
big thing and the industry of choice is transportation. “What can we do to
fix this whole logistics system and make millions while we’re at it” (or
should I say “billions” considering 80 of them are already invested in it!)?
I’ll be the first to admit that our logistics and supply chain industries
could absolutely use some help from technology (it’s a bit like the trucking
industry before the introduction of onboard computers) but I’m not so sure
it’s $80 billion dollars broken. There are a lot of “cool” technologies out
there that will add visibility and transparency and make sure the grapes in
that $200 bottle of wine really came from where the bottle states. But will
those technologies keep us from paying $5 for a head of lettuce because we
no longer have people willing to drive trucks? I think not.
Well actually, now that driverless vehicles (especially trucks) aren’t
going to be a reality by 2020 as the over-hyped media was reporting, a lot
of attention has shifted from transportation to logistics. The irony in all of
this is that driverless trucks probably could be the one thing that could keep
us from paying $5 for a head of lettuce (but that’s just not going to happen
in time).
So here we are with a perfect storm heading our way and what are we
going to do about it? Investors are going to want their money back (and to
make some) but someone has to pay for the technology that is going to fix
the “broken” supply chain. That someone will eventually be the consumer
and when lettuce becomes $5 a head that whole fast moving overloaded
supply chain is going to come to a screeching halt.

Susan Fall is president of LaunchIt Public Relations.

71
Technology and the Future
of Freight Brokerage
FELIPE CAPELLA

72
THINGS ARE CHANGING A LOT in the freight brokerage industry.
Technology startups have flocked to tackle big and small problems in the
supply chain. Venture capital funds are backing different solutions excited
about the size of the market.
And yet, despite the fanfare, there are complaints that technology so
far hasn’t been able to truly address the current truck capacity problem,
which has tightened to historical levels due to regulation, shortage of
drivers and historical inefficiencies.
This is in large part because the industry’s complexity and historical
aversion to change have lengthened the adoption cycle of new technologies
among traditional shippers.
Nonetheless, the latest digital products are already playing a
fundamental role in shaping the future of the trucking and freight brokerage
industry. And what’s coming next is really exciting.
Soon, brokers won’t need thousands of employees to power their
operations; instead, new technologies like machine learning and artificial
intelligence, ubiquitous data sharing, more secure and available chain of
ownership (e.g. via blockchain technology) and real-time, over-the-air
telematics will serve as potent force multipliers. All of this will dramatically
reduce the actual cost of brokering freight and increase consolidation of
small-and-medium-sized brokers.
In the long run, things will change more dramatically. Several states
will clear autonomous trucks for specific lanes (hub-to-hub). Carrier
operational costs will drop significantly, and drivers may move from
carrier-based to warehouse-based. Huge consolidation on the carrier side
will follow. Small companies will likely struggle to compete in this new
environment, displaced, swallowed up, or put out of business by large
enterprises with massive fleets of semi-autonomous or fully-autonomous
vehicles, where few carriers will be moving a very large portion of the total
FTL shipments. The exact role original equipment manufacturers (OEMs)
will play in creating this new trucking reality is, for the moment, less clear,
but it will likely be important as they too want to become software and
service providers. Some big enterprises shippers will end up running their
own autonomous truck fleets, but most companies will rely on third-party
autonomous truck providers.

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BUT WHAT TECHNOLOGY CAN HAVE AN IMPACT RIGHT NOW?
The number one bottleneck of shippers is locking up reliable capacity.
Therefore, any new product that does that without adding complexity adds
a lot of value.
Loadsmart was the first to launch truckload instant pricing/booking in
the US (2015); first to launch One-Click load acceptance app for carriers
(2015); first to launch instant pricing API for TMS integrations (2016) and
experienced the  first fully automated quote-book-source flow in the
truckload spot market (2016).
We have now integrated with several Fortune500 shippers to
provide a pre-spot solution by fully automating quoting and booking of
truckload shipments. By doing this, we make it possible for companies
to automatically book a truck before the shipment turns into a spot load,
accepting 100% of those tenders and guaranteeing capacity. This helps
shippers avoid the same-day/next-day markets,  which are known for steep
prices and service failures. Here is how it works.

(a) Semi-Automated Dynamic Routing Guide

We integrate with the Shipper’s transportation management system

(TMS) via API to access data about all shipments that need to be moved.
Loadsmart runs each shipment  through our machine learning pricing
algorithm and returns a live, bookable rate directly to the Shipper’s TMS.
This allows the shipper to compare the prices from other carriers
and brokers, which are logged in their static rate tree, with Loadsmart’s
instantly bookable rate. Because it is given real-time, the rate is always live
and can be booked with one click. No emails; no phone calls.
That means that when the primary carrier fails, the load planner can
execute the shipment right away. Not only does this provide price protection
at above-standard service levels, it also creates internal efficiencies for the
shipper by saving time for the planners. It goes without saying that this
also allows Loadsmart to operate much more efficiently, generating further
savings that can be passed along to the customer.

(b) Fully Automated Dynamic Routing Guide

In a fully-automated flow,  instead of the shipper’s load planner

manually comparing our pre-spot dynamic prices with static rates from
their routing guide, this is done automatically on a server.

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 There are two steps to the automated process of price discovery and
comparison. First, an algorithm evaluates the acceptance rates of carriers
and brokers whose static rates are in the route guide. If they have rarely or
never agreed to move the load at their routing guide (or annual bid) rate,
then the algorithm skips them to save time.
Second, the algorithm requests a real-time rate
All of this will from the Loadsmart pricing API. It then moves
dramatically down the routing guide from least expensive to
most expensive rate, contacting only carriers who
reduce the the shipper has reason to believe will respond.
actual cost of It keeps doing this until the next lowest rate is
Loadsmart’s instantly bookable rate. At that point,
brokering the algorithm automatically tenders the load to
freight and Loadsmart via API.
This allows for a full automation experience
increase that in practice reduces the time to identify and
consolidation secure truckload capacity by as much as several
days, increasing on-time delivery and decreasing
of small- and
cost of hire. Further efficiencies accrue to the
medium-sized shipper as either very limited or indeed no manual
work is necessary, decreasing errors and human
brokers.
capital costs while optimizing decisions.

WHAT ARE THE UPCOMING TECH TRENDS?

Earlier this year, we predicted that these four technology trends will
have a big impact in the freight brokerage industry in the short term: Data
Sharing and Open Access
Logistics industry players have traditionally been very protective
of their data. Freight brokers are the epitome of this trend, siloing all
information and creating close environments for software use. In 2018
we will see more openness, with many companies in different businesses
sharing data for mutual benefit. While initially this initiative will be to
better understand market dynamics, it will provide a more efficient service
to end clients in the long run. Software will also become more open to
utilization across different platforms and fear of IP replication will give
space to the distribution benefits of openness.

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APIS REPLACE EDIS
EDIs have to die. Information is exchanged between computers
asynchronously—think fax machine: as a specific event, not on an ongoing
basis. This delay causes multiple operational challenges, increasing the
chance of missed status changes and precluding the automation of manual-
intense processes such as calls and emails. Companies that want to embrace
automation and integration with tech partners have to build proper APIs
that are easy to use and easy to maintain.

INSTANT PRICING/BOOKING
Instant and on-demand features will start claiming a bigger portion
of the industry. Traditional shippers are starting to move towards a more
connected and immediate electronic and digitized response to their spot
and contracted business needs. Speed, reliability and just-in-time are needs
that modern shippers have, which will make instant truck booking an
essential technology.

DEEP NEURAL NETWORKS: BEYOND PRICING AND SOURCING

Loadsmart relies on machine learning processes and complex
algorithms to allow instantly booking of a truck and to identify the best truck
positioned to move each load after the booking the shipment. As more data
becomes available and volume increases, deep neural networks will claim a
bigger part of the success on the right pricing and sourcing computational-
processes. But more importantly, these neuron-mimicking flows will also
change repetitive human responsibilities to computer generated tasks
(without the need for task-specific programming). Identifying potential
issues before they actually happen – or are known – will be of great value
in the logistics industry.

Felipe Capella is co-founder and chief product officer at Loadsmart.

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Digital 3PLs Paving The Way
ALEX RYU

77
THE US 3PL INDUSTRY IS GROWING very quickly. It has a market size of
$160 billion and has shown a promising 7.5% YoY growth. A whopping
96% of Fortune 100 companies are using 3PL services. When the US
economy growth has been between 2-4%, where has this huge growth on
the logistics services side come from? My observation is that customer-
facing industries have increasingly outsourced their logistics service needs
to 3PLs in order to survive global competition where higher productivity
and speed is required to remain competitive. The e‑commerce boom is a
growing part of the world economy which makes outsourcing is inevitable
for current 3PLs. To remain competitive, 3PLs will need to focus on
functions that add value and increase supply-chain productivity. Beyond
that, intermediaries need to exceed expectations, and expand their offerings
into areas such as forecasting, supply chain design, purchase and cost
management to truly compete.
As the pressures of customer support increases, seemingly the 3PL
industry is experiencing growing pain. Customers of today demand
higher levels of transparency, real time visibility, omnichannel fulfillment,
information integration, accelerated delivery cycles and last mile
technologies. The traditional 3PL industry, unfortunately, is unable to
cope with the changes due to their old fashioned and inefficient processes,
thereby causing significant industry frictions that we are seeing today.
Traditionally, the industry revolved around providing shippers with a
reliable service, and you could argue that the way
of doing business, was somewhat stable. Today,
Customers of manual processing, fragmented IT infrastructure
and a lack of integration capabilities create discord.
today demand
Many 3PLs seem to have not surpassed this level.
higher levels of On the contrary, market leaders are
investing multi-millions of dollars in employing
transparency,
technological advances that digitize and transform
real-time the logistical experiences to survive the changes.
visibility,... They are able to achieve productivity goals and
reduce labor costs. Some are able to form M&As
and take advantage of synergies and are able to
scale. This, however, is a dream for many 3PLs who currently operate
with low margins and high competition - essentially blocking them from
achieving economies of scale in their businesses. The goal of service
customer industries mandates a focus on generating core business value,
and efficient operations. The inability to keep up with the growth in

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demand, pressures for change, high competition, and fragmentation are all
driving industry polarization.
How do we outsmart this change? How can we help customer industry
better? Opus9 exists for this very reason. The industry has suffered from
a lack of transparency in the market. Specifically, customers don’t get fair
quotes or accessible pricing to determine what is correct. Disputes and
delays are riddled in this industry and old-school practices limits efficiency
in this billion-dollar industry.
Opus9 is trying to ease the life of customers and carriers nationwide,
and are trying to bring transparency to the market through technology.
Transparency in pricing, cost, visibility and payments are our priorities. By
leveraging current generation of technologies, we reduce operating costs by
50% and are able to share the savings with customer and carriers. Rooted
in traditional third-party logistics, we developed a digital marketplace—a
digital brokerage platform focused on optimizing domestic shipping. The
platform focuses on truckload (dry van, refrigerated and flatbed trucking)
and less-than-truckload shipping. It connects customers and carriers more
efficiently. Via our platform, customers can get a competitive quote in
seconds for truckload and less-than-truckload shipping, book easily, and
track their shipments in real-time. Using our platform, shipping effort is
significantly reduced. These efficiencies enable customers to meet the
growing expectations of their customers. We also offer a carrier-centric
approach to shipping, where a closely-knit network of trusted carriers are
given the tools to create better working conditions.
The ultimate goal is to streamline the shipping experience by providing
an intuitive platform, which is easy and straightforward to use, and has a
user-friendly design.
Global consumers are calling for enormous changes to the customer
industries. Be it retail, manufacturing, electronic or the food industry—
they are also aggressively seeking, chasing and embracing the changes
brought to them by new era of technologies. The only way to stay ahead of
them and to serve them is by being digital.

Alex Ryu is founder and CEO of Opus9.

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 Data-Driven Control of
Distributed Reconfigurable
Supply Chains
CHIP WHITE

80
VARIABLE AND CHANGING GEOGRAPHICAL customer demand has
usually been met by transshipment, expanding or contracting production
capacity at existing facilities, and either eliminating old or adding new
facilities. The increasing interest in additive manufacturing and other forms
of (potentially) mobile production capacity offers an additional dimension
for improving the performance of next generation supply chain design
and operations, especially by reducing fulfillment time with build-to-
order product design and highly distributed manufacturing capacity close
to geographically dispersed areas of demand, according to S.S. Malladi’s
dissertation research.
An interesting challenge for industry is to determine excellent
transshipment, mobile production capacity relocation, and/or replenishment
decision strategies. To do so requires the ability (and investment) to analyze
demand data and other data correlated with demand (e.g., seasonal effects,
macro-economic conditions, weather, time of the day, day of the week)
in order to more accurately identify customer demand trends on which to
base good decision-making. An alternative approach is to invest in product
design to shorten lead times so that the product can be differentiated late in
the production cycle close to the customer, thereby reducing the need for
accurate demand forecasts and enhancing time to fulfillment.
Major players in the pharmaceutical industry are developing
manufacturing innovations, such as transportable production facilities for
synthesis of pharmaceutical outputs. Bayer demonstrated the production
of fertilizer intermediates in a twenty-foot-equivalent-sized container.
Pfizer is in collaboration with GlaxoSmithKline to commercialize portable,
miniature, and modular manufacturing technology for drug production.
Novartis has developed a refrigerator-sized, on-demand pharmacy unit
for fast tablet production. E-commerce giant Amazon won a patent for
the logistics of mobile, additive manufacturing based fabrication and
fulfillment. These developments signal a future where transportability of
production facilities is an added dimension for supply chain design and
operations.

Chelsea “Chip” White III is a professor at the Stewart School of

Industrial and Systems Engineering at Georgia Tech​.

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 Technology Alone Will Not
Save the Independent Broker
BRUCE MCGONIGAL

82
COURAGEOUS INDEPENDENTS SHARING EXPERIENCE, ideas and data on
an open decentralized platform could allow independents to thrive. Yes,
technology including machine learning, A.I., smart contracts, distributive
ledgers, automation, etc are critical. But these are simply tools.
model. If we do not change our model we will cede our future to the
new mega-broker. Think Google in search and Facebook in social media.
That is our future if we do not act. We operate in silos of talent, ideas and
data. We must be willing to break down our silos to share our knowledge,
information and experience. This will allow us to compete and thrive in the
new digital era.
If you own a small to medium size freight brokerage, your livelihood
is under attack. The “Ubers of transportation (including Uber)” are coming
after your businesses. Money, tech and talent are invading our industry.
Their goal is to dis-intermediate and “digitize” what we have been doing
with phone calls, emails and good old fashion relationship building.
I have heard the counter-argument, “Freight is different. Some freight
may be lost but my freight requires special knowledge that apps can’t
provide. Hell, I am having the best year I have had in years!” This is
dangerous thinking.
Disruption in the freight industry is happening. We can be forgiven for
our skepticism. Disruption is deceptive. It all starts with hype. Remember
all of the headlines about the “Uber’s of Transportation” disrupting the
market? But then, reality sets in. Disruption is not easy. Many first movers
featured in those headlines no longer exist. At this point, the “I told you
this would never work with freight” mantra gets louder. This is dangerous
thinking because real change is happening, below the radar.
This change is true disruption. It seems to come out of nowhere
because many stopped paying attention. After all, business is good. But,
disruption is happening and the impact of the technology and data control
will be devastating. We are iwell into this deceptive phase of disruption.
We must wake up if we want to participate. Freight is NOT different.
If we do not act, we will die a “death of a1000 cuts.” Smart money,
smart technology and smart people are laser focused on dis-intermediating
our businesses. They see in us an old fragmented industry poised to
be disrupted. They draw parallels to other industries, like financials
services, which were once dominated by fragmented intermediaries. The
disruptors see the roadmap and have a plan. But the future of business is
not predetermined. We have a say in this outcome. But we must adapt not

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only our technologies but radically change our business model if we are
to thrive.

HOW DO WE THRIVE IN THIS NEW WORLD?

Dare I say thrive? Yes, Independent brokers with an innovative model
that breaks down individual silos and unites us on an open broker platform
will give us the scale to compete. We maintain what makes us valuable- our
independence, creativity and our entrepreneurial spirit. Skin-in-the-game
is our edge. But, we must be willing to share everything we now consider
proprietary. Our data, our shippers, our carriers, our knowledge. All of it.
And for this willingness to share, we must be compensated for the value we
bring to the platform. We must replace fear of competition with the power
of collaboration.
A network of independent brokerages connected through a decentralized
open broker platform will empower us to service our shippers and carriers
at the highest levels. Connecting through a platform allows us to use our
collective data, skills and knowledge to power us into this new business
environment where everyone and everything is connected. Alone, we do
not have the data, money or technology to compete. Together, connected
through an the open broker platform we can do great things. And, maybe
even out-compete the mega-brokers in their mega “silos”.
Why decentralization? We avoid the pitfalls of group think. An open
platform allows us to create and design services that meet the specific needs
of our partners. We will design as many relevant solutions and applications
that we can dream up and implement. Centralizing partner relationships
limits creativity and service. Centralized solutions provided by mega-
brokers will primarily benefit the mega-broker. Mega-brokers controlling
all data, will put all parties in the supply chain at their mercy. This should
be a frightening scenario to shippers or carriers..
Why shared data? One of the biggest challenges to succeeding as
an independent broker is limited data points. We operate in silos. Our
information is limited. independents touch too few points in the supply
chain. This is the mega-brokers’ competitive advantage. Independent
brokers must share data to close this information gap. But, we will only
close this gap if independents are compensated for opening up their silos.
What will an independent provide that is unique and valuable? A few
examples of value add opportunities are when your data match a carrier and
shipment and visa-versa; it is valuable when your data provide the accepted
rate in a RFP; it is valuable when your knowledge provides the solution to

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a partner’s problem. Sharing data (lanes, rates, opportunities, history, etc)
via an open broker platform empowers all parties on the platform. We must
share and we share because we will be compensated.
How do we get compensated? Trust through smart contracts and the
blockchain. Immutable, verifiable information and pre-established rules
allow independent parties to transact without the need for a centralized
entity. Before this breakthrough technology trust was only possible with a
centralized party clearing and processing transactions. Think of big banks
and credit card companies. A transportation example is the corporate office
of an agent based freight brokerage. The agent
model only works because the corporate office
Disruption in is a trusted centralized clearing house to process
the freight transactions.
The blockchain removes the need for a
industry is centralized party thus freeing up independent
happening. companies to work together without one party
holding all of the control. Smart contacts are
agreements between parties that are stored and
executed on the blockchain. These contracts are verifiable, immutable
and permanent. Smart contracts cover all types of agreements including
payments between parties. These contracts are automatically executed
when per-determined parameters are met. We no longer need a centralized
clearinghouse. The blockchain along with smart contracts allows trust to
be establish between independent parties. It allows independent brokers to
reimagine and transform their businesses.

PLAY ALONG WITH THIS SIMPLISTIC SCENARIO…

• A load is moved though the open broker platform. These are the
predetermined rules.
• When load is delivered and a verifiable POD is received then:
• Broker A’s Shipper / Freight / Data = 55% of gross profit.
• Broker B’s Carrier/ Dispatcher / Data =35% of gross profit.
• Administration = 10% of gross profit.

HERE’S A SCENARIO:
• Load pays $1000. Carrier pay $800. Gross profit is $200.
• When the load is delivered, the bills are clean and a POD is received
the smart contract triggers the following payments automatically.
• Shipper is invoiced/ pays $1000

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 • Broker A gets $110
• Broker B get $70
• Administration gets $20
• Carrier gets $800
• Eventually, carrier pay could be broken out and the driver could get
immediate settlement-based on his contract with the carrier.

No entity has to follow up, verify payment or track down another party
for compensation. Trust through the blockchain allows independent parties
to work together, share information and be promptly and fairly compensated
for their contribution to the process. This disruptive technology does not
have to be the death of the independent broker. It can be its savior. But the
independent broker must rethink its business model. We must be willing to
tear down our silos and work together.
Our future is not predetermined. We have a clear choice. We can
chose a centralized group-think future dominated by mega-brokers. Or
entrepreneurs with skin in the game creating unique solutions for their
shippers and carriers powered by a shared vision, shared talent and shared
data.
Operating in a silo is the fastest path to failure. Overcoming traditional
barriers to collaboration utilizing this breakthrough technology presents
independent brokers the opportunity to thrive.
The choice is clear and the choice is ours. The only question is do we
have the courage to act.
Together we stand, divided we fall.

Bruce McGonigal is CEO of Eagle Transportation Logistics.

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brokers and the
market can and
will become
more efficient
because
that is what
technology
does.
GREG CALLIGARI

87
 04
SECTION FOUR

CAPACITY
ECONOMICS

88
 How Does it All End?
Resolving the Capacity
Crunch
IBRAHIIM BAYAAN

89
PERHAPS THE CENTRAL THEME IN TRUCKING and freight markets over the
past year has been the persistent capacity crunch in the industry and the effect
that it is having on freight rates and overall performance. The discussion has
pushed past industry circles and has made its way into mainstream press,
with analysts across the spectrum trying to identify what caused this trucking
shortage and, more importantly, when will it all end.
Often, people send to be searching for some magic bullet or shock to
the industry that will resolve the current capacity issues. But basic economic
principles say that a shortage is simply a situation where the amount supplied
is less than amount demanded of any particular thing. Shortages typically
don’t last forever, as prices, supply, and demand adjust to bring everything
back into balance. To better understand how the capacity crunch finally ends,
it is worth taking a look at the various factors that are likely to change to
bring the market to a new equilibrium.

THE BUSINESS CYCLE

Perhaps the most commonly cited “solution” to the current capacity
crunch is a change in the overall macroeconomy. The US economy has been
on a tear in general since the 2nd quarter of 2017, with GDP growth averaging
nearly 3% during that time span. The Tax Cut and Jobs Act, which went into
effect at the start of 2018, has helped boost growth even further in 2018 by
giving additional incentives for US households and businesses to spend.
The goods side of the economy has been even stronger, with healthy
growth coming in retail spending, mining and drilling activity, business
investment, and goods trade. With the exception of some lingering softness
in housing and construction, the goods economy is hitting on all cylinders.
The robust expansion of goods production has been one of the driving forces
behind the current capacity constraints, exposing the shortage of trucks and
drivers that are available to move all of the freight that a rapidly-growing
economy demands.
It seems natural to assume, then, that a turn in the business cycle will
remove the capacity crunch. If the demand growth in the economy is not
there, the industry may soon find itself with more drivers and capacity than
it knows what to do with. Indeed, the last time the trucking industry was
faced with tight capacity and comments over a shortage of drivers was in
2014 when industrial production grew at one of the fastest paces in the post-
recession era. Industrial output declined in 2015 and 2016 as low oil prices
and a relatively high value of the US Dollar sapped much of the demand

90
for domestic production. As the economy turned sour, most of the talk of
capacity issues in trucking went with it.
The current economic expansion is now getting long in the tooth. The
economy has been growing steadily for over nine years now, making it the
second-longest expansion on record. The economy overall seems ripe for
some kind of turn in the business cycle, and a recession would lead to excess
capacity in trucking.
However, a turn in the business cycle is just a temporary fix. The
economy will always experience ups and downs in the different sectors of
activity, but that does not provide a long-term solution to capacity issues. The
reality is that the trucking industry faces significant challenges regarding an
aging core of drivers and difficulty recruiting and retaining drivers. These
challenges go beyond the fluctuations in the macroeconomy and suggest that
there need to be some fundamental changes to either the amount of freight
that shippers demand or the way that carriers expand capacity in the market.
Otherwise, capacity constraints will come and go as the economy shifts from
healthy to unhealthy.

IMPROVEMENTS IN HIRING AND RETAINING WORKERS

On the capacity side, it seems clear that the industry needs to take steps
to better attract and retain workers to trucking. More drivers equal more
capacity and if carriers can bring drivers in and keep them, trucking can
better keep up with the growth of freight demand in a healthy economy.
The real question is what kind of things can be done to better bring
drivers into the industry and away from other kinds of work. Wages are part
of the answer, as higher pay will make truck driving more attractive relative
to some other industries such as construction which require similar levels of
education and training.
However, carriers have been fairly reluctant to raise wages for drivers.
Part of the reason for this is fear over a downturn in the industry. The goods
side of the economy is more volatile than the service side, and what is a strong
freight demand environment today can turn quickly into a freight recession.
Many carriers learned during the Great Recession and the down years of
2015 and 2016 that it is hard to reduce wages once they have been increased,
and have been reluctant to provide a permanent increase in worker pay.
Instead, carriers have opted for temporary incentives such as signing
bonuses to lure workers into the industry.
In addition, it’s not entirely clear that offering higher pay will lead to
more work from drivers. Over-the-road trucking is a difficult career from

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a lifestyle perspective, often requiring extended periods of time away from
home. Even among driving professions, other types of drivers such as local
truckers or parcel deliverers enjoy considerably more time at home than their
over-the-road cousins Many drivers might take the higher pay and instead opt
to work fewer hours on the road, negating some of the impact on capacity in
the market.
As a result, recruitment and retention efforts would do well to address
some of the work-life balance issues facing the industry. Also, screening
efforts to better target the kind of people that would fit the lifestyle of an over-
the-road trucker would likely be fruitful, streamlining the recruitment process
and helping with long-term retention in the industry. A combination of pay
and types of efforts will better add capacity to the market instead of simply
raising wages until drivers sign up.

LEVERAGING DATA TO MAKE DRIVERS MORE EFFICIENT

At the end of last year, the government began the process of requiring
electronic logging devices (ELD) on trucks to better enforce hours-of-service
regulations, culminating with the April 1st hard mandate. Many point to the
ELD mandate as one of the causes of the current capacity crunch, reducing
the amount of hours that drivers spend on the road as they can no longer take
liberties with paper logs.
However, electronic devices also provide the opportunity to collect data
on shipper and driver behavior, and can help identify ways for drivers to use
their time more efficiently. Hours of service regulation place limits on the
amount of time that a driver can spend driving and on duty. However, drivers
on average spend far less than the time allotted actually driving, wasting
precious time on things like waiting for shippers to load and unload cargo
from the dock to the truck.
ELDs provide a hidden opportunity in this regard, as carriers will have
to opportunity to leverage the data that is collected to identify bottleneck
in freight movements. The data that gets collected can be used to facilitate
discussions between shippers and carriers to maximize the amount of time
that a driver has at his/her disposal.
Beyond ELDs, there are other ways that companies can leverage analytics
and data to make fleets and drivers more efficient overall. Improved analytics
have already yielded new techniques to match empty truck to available loads,
and additional gains in understanding granular regional freight demand will
help to make sure that the limited capacity that is available is in the right place
to meet available freight.

92
 All of these gains help to expand capacity in the market overall. If the
number of drivers is going to continue to grow slowly, then the industry will
have to maximize the workforce in order to fulfill all of the demand in the
economy.

AUTOMATION AND CAPACITY

Connected to this, continued developments in autonomous technology
should gradually help ease capacity constraints. Companies such as Waymo
and Starsky have already taken some significant strides in automation earlier
this year, and the current capacity constraints have led to increased attention
on developing these types of innovation. The development of autonomous
vehicle would not eliminate the need for drivers, as carriers will still need
people to oversee things like loading and unloading. Still, if machines are
doing the driving it stands to reason that hours-of-service regulations can be
relaxed. This would extend the amount of time that drivers can spend on the
road, effectively bringing capacity back into the market.
However, the development of fully autonomous freight movements is still
likely a ways away. Navigating through technological and regulatory barriers
can be challenging, and the world where autonomous or semi-autonomous
vehicles relieve a significant amount of pressure from freight market capacity
is likely still years away.

REEVALUATING TRUCKING FREIGHT DEMAND

Up until now, much of the discussion here has focused on ways that the
industry can find ways to increase the amount of trucking capacity in the market
to meet the available demand in an economy that is growing at a respectable
pace. But the trucking shortage will also affect the amount of trucking freight
that shippers demand going forward. Along with the challenges of finding
available carriers and tightness in trucking capacity come higher rates that
shippers have to pay for trucking freight and increased shipping delays.
Moreover, businesses in the economy still find themselves in a situation
where they cannot pass on these increased freight costs to the end consumer.
This reality hit many shippers hard during the early part of the year, as earnings
calls from the 1st quarter were fraught with companies having to eat their
increased transportation spend and suffering hits to profit margins.
As a result, many shippers have begun to reevaluate their transportation
needs. This involves everything from rethinking the amount of inventory (and
inventory turnover) businesses need to hold, to determining the appropriate
mode of freight to use for the goods that need to be transported. As trucking

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has gotten more expensive, and shipping delays have increased, trucking
freight has become less attractive relative to traditionally slower and cheaper
modes such as rail or intermodal.
Much of this is already underway, as both rail and intermodal carriers
have experienced rapid growth in volume throughout 2018. The effects of the
trucking shortage have spilled over into these other modes, and forced carriers
in these arenas to expand their own capacity to address the influx. Clearly, not
everything can be moved via rail or intermodal in the economy and trucking
is still going to be the dominant force within lard-based freight movements.
Still, as trucking capacity remains tight, expect more of these kinds of mode
shifts as shippers rethink their freight needs and high trucking prices squeeze
margins.

PUSHING TO A NEW EQUILIBRIUM WITHIN TRUCKING

Over time, a combination of all of the above efforts will help the market
find a new equilibrium. Carriers in the industry will continue to increase pay
and find ways to make a driver’s lifestyle more bearable. At the same time,
advances in technology and data analytics will increasingly be used to find
more effective ways to maximize the available capacity in the industry to
better meet demand. On the demand side, as trucking gets more expensive,
shippers will find ways to mitigate transportation costs, either by reducing the
amount of freight movements they actually need, or considering other modes
for some of the transportation that has to occur. And in the end, trucking
will find itself in a new equilibrium where drivers enjoy better pay, freight is
more expensive to move, technology is more prevalent, and other modes of
transportation play a greater role.
Of course, all of this can change quickly if the economy turns south. One
of the side benefits of having an economy that is running as hot as it is, has
been that it has exposed many of the long standing challenges within trucking.
Trucking and the availability of freight has become one of the potential
bottlenecks in the economy, and has received some long overdue attention as a
result. If the economy enter into a period of recession or a dramatic slowdown,
many of these long-term structural challenges facing the industry are likely to
be swept back under the rug instead of solved. Out of sight and out of mind
until the next period of strong growth brings it back into the light.

Ibrahiim Bayaan is chief economics officer of FreightWaves.

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Hours of Service:
What’s Next?
DEAN CROKE

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TO UNDERSTAND THE CURRENT SITUATION, we need to look back in time
so see how we got here.

HISTORICAL PERSPECTIVE
The hours-of-service (HoS) were first promulgated in 1936 by the
Interstate Commerce Commission and remained unchanged for 68 years
until 2004 when the first major rule change was introduced. Up until 2004
truckers could legally drive for ten hours each day, but only needed to
take eight hours off with a 15 hour daily clock limit. For many drivers
this meant a new workday started every 18 hours and in the sleep science
and fatigue management world, this is the most dangerous. It’s known as
a backward rotating 6-hour schedule, which means sleep starts 6 hours
earlier every 24 hours. It’s the equivalent of flying to Paris from Boston
and trying to fall asleep immediately upon arrival – it’s impossible and
creates a never-ending feeling of jetlag. For truckers it was a disaster, as
they would never sleep at the same time each day.
The rapid flip-flopping of a driver’s weekly work schedule meant if a
they started work at 6am on a Monday, the next 10-hour shift would start
at midnight, the next at 6pm, the next day at midday the following day and
so on. Imagine trying to go to bed six hours earlier every day of the week –
it’s impossible and why these schedules create what’s known as “Industrial
Jetlag.”
From a physiology perspective, most humans are designed to go to bed
later (which explains why we all stay up a little later on weekends) which
makes a forward rotating schedule more bio-compatible i.e. work starts
later each day, and that’s why the FMCSA began adopting many of the best
practices developed around the world, including Australia’s groundbreaking
Fatigue Management Program – the world’s first performance-based hours
of service program. What we still lack to this day, is quantitate data that
compares fatigue related accident frequency and severity over time. This
lack of data is compounded by accidents being recorded in databases by
the description of what happened (run off road, hit guardrail, rollover,
sideswipe, rear-end) rather than cause (microsleep).

THE 2004 HOS RULE CHANGE

As you read this remember that the main purpose of the Hours of
Service (HoS) regulation is to keep tired drivers off the road and prevent
accidents caused by fatigue. The reality is that a driver can be 100%
compliant with HoS regulations and be sound asleep at the wheel at the

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same time. This is why the current fixation on reduced HoS violations due
to Electronic Logging Device (ELD) implementation is so misleading, as
there is no observable correlation between compliance to unsafe regulations
and reduced levels of accident severity.
The logic behind the 2004 rule change is centered on how humans have
evolved to sleep. We all have an inbuilt drive for anchor sleep i.e. sleep at
the same time and in the same place every day, so creating a daily schedule
that is more aligned to the human sleep-wake cycle was paramount. This
sleep-wake cycle is on a 24 hour oscillation, which is why we are designed
to wake with the sun and go to bed when the sun goes down. If you follow
the math behind the HoS rule change you’ll quickly see why the rules
changed; 11 hours on-duty, plus three hours on-duty/non-driving, followed
by 10 hours off duty adds to 24 hours, which aligns with our hard-wired
sleep-wake circadian rhythm (and the rotation of Earth around the sun).
The theory was that since the sun rises every 24 hours and the invisible
light spectrums’ blue light wavelength at 450nm (this is why you have a
Night Shift feature on your iPhone to shut off blue light) that triggers the
body clock to start the daily wake-sleep cycle (plus 100’s of other circadian
rhythms), a 24-hour workday would solve all of our problems or at least get
us headed down the right road.
The problem was and still is, sunlight, and
Managing and unless you can control the precise timing of blue
regulating sleep light to the optic nerve, which is the sleep/wake
cycle’s primary cue, you can never really switch
would a far from being a night sleeper to a day sleeper. If every
more effective 10-hour break started before sunrise, drivers would
be much better off, but since most drivers have
strategy if varying start times with 10-hour breaks or off-
improved road duty periods often occurring during the day and
after sunrise, sleep quality and quantity is often
safety was diminished. Research shows night shift workers
truly the goal. globally get 2.5 hours less sleep compared to
dayshift workers when sleep occurs after sunrise,
but also suffer from poorer sleep quality and
health. For truckers, FMCSA research shows truckers on 10-hour breaks
that occur after sunrise get on average 4.5 hours of sleep per 10-hour block.
Add in burdensome and prescriptive rules such as the 14 hour rule
(where driving can no longer occur after 14 hours has elapsed from the
time you went on-duty), and we end up with compliant, but unsafe driving

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scenarios. Since a nap or rest-break does not stop the 14 hour clock, drivers
have to decide whether they want to run miles and make money, or stop for
a nap and burn up hours for zero financial gain.

WHAT’S NEXT?
It’s not all doom and gloom despite the inherent flaws in the current
HoS regulation. There is a positive side to this situation since the data that
now comes from ELD devices provides a level of previously unattainable
insight.
In addition to regulatory exemptions to parts of the HoS regulation (such
as allowing naps to stop the 14 hour clock), there are at least five areas
motor carriers can immediately begin working on to mitigate accident risk:

1. Sleep Education
2. Bio-compatible Scheduling
3. Data Analytics
4. Shipper of Choice Programs
5. Truck Ergonomics

SLEEP EDUCATION
Sleep isn’t something we’re taught in school, yet it is vital to our
survival and since everyone is born with a different and unique biological
clock, there’s never a one-size-fits-all regulatory solution, no matter what
the industry. This isn’t about Fatigue Management as that’s what you get
when sleep is truncated, disrupted and shortened. Drivers know what
fatigue feels like, and yet still struggle to get good quality sleep. Teaching
drivers, their spouses and teenagers along with middle management is vital
to engineering in physiology-based safety into transport operations. The
Federal Motor
Carrier Safety Administration (FMCSA) and most industry
participants for that matter, have this misguided notion that if we manage
hours of work through regulation, we can magically ensure drivers have
sufficient time to be well-rested and fit-for-duty for the subsequent shift.
The problem with that logic is unless you teach drivers how to rest and / or
sleep and most importantly manage the factors contributing to sleep (like
temperature, time of day, light, self-medications and sleep disorders), there
is little chance the driver will get the required quality of sleep. Managing
and regulating sleep would a far more effective strategy if improved road
safety was truly the goal.

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BIOCOMPATIBLE SCHEDULES
Once middle management and drivers are taught the science of sleep,
including an understanding of their own hard-wired sleep personality
(morning lark, night owl etc.), load planners and driver managers can begin
to design trips and load appointment times around the drivers’ preferred
work and rest patterns. It’s called bio-compatible scheduling which doesn’t
mean doing less work or miles, rather they are done in such a way as to
ensure the highest levels of productivity and safety. Studies show well-
rested drivers typically run 10% more miles per tractor week and have 60%
fewer severe accidents.

DATA ANALYTICS SOLUTIONS

Electronic Logging Device (ELD) data is a rich source of accurate
and consistent data which can help identify drivers at risk of accidents,
especially severe accidents. Using machine learning technology data
scientists can identify the patterns of work and rest from a drivers ELD that
point to high-risk work schedules. This group of drivers typically represents
around 10-12% of any driving population and once identified, targeted risk
management interventions can be applied to mitigate risk. Sleep education
is the first step followed by bio-compatible scheduling of future loads and
appointments times, and if required, working with shippers to help them
qualify as a Shipper of Choice.

SHIPPER OF CHOICE
There are a number of things shippers can do to improve the working
relationship with their motor carriers. This includes paying for freight
in a timelier manner, unloading and loading trailers as quick and safely
as possible reducing dock detention time, treating drivers with respect,
providing adequate rest areas and parking for drivers, being more flexible
with appointment times and communicating more frequently with drivers.
With ELD’s now in place every minute spent on a dock takes away from
the driver’s weekly allotment of hours to drive—if shippers aren’t paying
detention time then time is money.

TRUCK ERGONOMICS
One of the key ingredients to good quality and quantity sleep is a
cool and dark sleep environment. Fleet Managers should always ask truck
manufacturers to eliminate windows in sleepers and/or provide curtains,

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so light can be completely blocked out. The optimal temperature for
sleep is between 64 to 66 degrees Fahrenheit for most people making the
installation of auxiliary power units (APU’s) to run air condition systems
and evaporative coolers a must-have safety and productivity technology.
This is an important subject since studies show that when we compare
fleets using paper log fleets exclusively to fleets running electronic logs,
we found over a 6 year period fleets who ran paper logs had a 30% lower
DoT Recordable accident (fatality, injury or vehicle towed) rate compared
to fleets on electronic logs.
Being compliant to unsafe regulations won’t make your fleet safer, so
make sure you separate safety and compliance into two separate business
functions and apply your resources accordingly.

Dean Croke is chief analytics officer at FreightWaves.

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Time, Money, and the Human
Approach: How to Attract
and Keep Qualified Drivers
ASHLEY COKER

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DRIVER TURNOVER IS ONE OF THE BIGGEST (and most buzzworthy)
problems facing carriers today. Its difficult to maintain business as usual
with a high annual turnover rate, especially with rates reaching into the
90s for the largest carriers. The constant hiring cycle has wary companies
wondering how to keep drivers from walking away, and research suggests
that, while money is a big piece of the puzzle, it may not be the only piece
that matters.
Driver iQ, a company that provides background screenings and driver
monitoring services, conducts driver recruitment and retention surveys. The
company’s aim is to better understand recruiting and retention experiences
and expectations, according to the survey report.
Survey respondents were recruitment managers who operate over
75,000 trucks. The majority of the answers came from large carriers with
over $100 million in gross operating revenues, but recruiters for mid-size
carriers grossing $30-$100 million and small carriers grossing under $30
million were also included.
The company asked why drivers were leaving fleets during its first
quarter 2018 survey and the results came back
crystal clear. Of the 18 options Driver iQ presented,
As one of the total compensation, time away from home and
predictability of paycheck were the most chosen
most-cited by far.
reasons for However, the company’s second quarter 2018
recruitment and retention survey found that, on
driver turnover,
average, carriers expect driver turnover to continue
it’s no surprise to climb even as driver pay increases and sign-on
bonuses become the norm.
the promise of
Driver iQ Co-President Lana Batts attributed
more home time this, in part, to a disconnect between how high
attracts drivers recruiters think salaries need to be and how high
salaries would actually have to be in order for
to smaller drivers to maintain the quality of life available to
carriers. them almost 40 years ago. When asked what the
total compensation package would have to look
like to slow down the turnover trend, she said the
majority of recruiters choose $75,000.
“Now, that’s interesting because if you  took what a driver was getting
in 1980 and did an inflationary number on that, the number would be
$110,000,” she said. “I just don’t think there’s a real expectation of what

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it’s going to take. Would $75,000 put a dent in it? Oh yes. Would it solve
it? No.”
Digging deeper into the research, however, suggests that something
beyond just better pay may be at play. When results were broken down by
carrier size, it became clear that there is a difference between how large
and small carriers think about turnover. Large carriers reported expecting
turnover to increase in the coming months, while small carriers expect to
see a decrease. Their expectations seem to be in line with what has been
happening across the industry, according to Batts.
“If you notice, last quarter, there was a 30 percent difference between
the turnover rates of the large and small carriers, and if you plot it out, there
has been a downward trend for the smaller and a slightly upward trend for
the larger,” Batts told FreightWaves in July 2018. “We haven’t seen that
kind of a split since 2015.”
These numbers seem to fly in the face of the common belief that driver
turnover is the same for all companies, but things have not always been
so varied. Over time, the American Trucking Association’s statistics show
times when large and small companies rest at very similar turnover rates.
The last four quarters do seem to favor the small carriers, though. While it
is not yet clear if this turnover gap is representative of a larger trend, Batts
believes drivers are staying with smaller companies more often for two key
reasons: home time and the community feel.
As one of the most-cited reasons for driver turnover, it’s no surprise
the promise of more home time attracts drivers to smaller carriers. What
is more unexpected and harder to quantify, however, is the idea that the
familial feel in smaller companies helps them hold onto workers longer
than larger companies, which often lack the human approach. Over one-
third of fleets surveyed reported 6 to 10 percent of their seats as unfilled,
but smaller carriers fared better in this respect as well.
“‘Cheers’ was right. Where everybody knows your name is whole
lot better than where you’re just a number. That’s cliche, but I think it’s
actually true,” Batts said. “Combine that with more home time, since
smaller carriers tend to have smaller geographic regions. I think the pay
raises are having more impact on the smaller carriers because the guys and
gals are getting home more often.”
The majority of small carriers also found that drivers are not retiring as
expected, while 65 percent of large carriers found that drivers were retiring
as expected. Batts thinks this may be due to the same reasons smaller
carriers are experiencing less turnover.

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 “For retirees in general, the Bureau of Labor Statistics has found that
people stay because they love their jobs,” Batts said. “You can then take
that to the small carrier and say, ‘You know, I’m getting home when I want
get home. I just got a nice increase. They know my name. Maybe I’ll stay.’
I don’t know how you prove that, but my sense is that it’s because they like
working for smaller companies.”
For companies experiencing high turnover rates, the solution is
undoubtedly multifaceted. Drivers have made it clear that issues like
compensation and home time will have to be addressed if a carrier is
looking to win their loyalty. But in the midst of balancing budgets and
planning routes, it may be worthwhile for larger companies to learn their
employees’ names.

 Ashley Coker is a staff writer at FreightWaves.

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Upgrading Driver Recruiting
LAURA ZIELINSKI

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TO SAY THE TRUCKING INDUSTRY is in a bad place is putting it lightly.
Demand is up, but drivers are definitely down. Even still, the situation
is nowhere near hopeless. Small shifts in carrier recruiting and retaining
practices can mean the difference between parked cabs or full loads on
the road.
Driver recruitment vendor CDL Marketing has spent the last decade
filling carriers’ empty trucks via a variety of technology solutions. Ben
Onnie, COO, has participated in the industry from several angles including
recruitment, and has recommendations for carriers to battle the shortage.
“Over the past few years, CDL Marketing has experienced tremendous
growth,” says Onnie. “We have an interesting perspective on the industry,
as we work with most major trucking schools and carriers who offer
training. Additionally, we recruit experienced company drivers and owner
operators for hundreds of carriers.”

RECRUITING
From trucking school acquisitions by large carriers, to logistics
companies creating job options for all driver types and experience levels,
to attempted regulation adjustments on driver age, no one could say carriers
have been blind to and unmoved by the capacity crunch. However, only
those actually changing up their game to meet demand are seeing success.
“Many of our customers are getting more focused on the actual
recruiting process and understanding why they would lose a candidate in
the funnel,” says Onnie. “Carriers are leveraging technology to become
more efficient. They are getting the most out of their recruitment marketing,
with no stone left unturned.”
Automation and new technology can cut out some of the laborious
work recruiters have historically done, and process improvements to
keep interested applicants moving forward. “Optimized user flows, better
candidate experiences, and shorter, more mobile friendly applications are
working strongly in the carriers’ favor,” says Onnie.
Besides back-end upgrades, carriers need to cross-channel market to
win interest. Appealing ad material and multiple touchpoints separate one
carrier from another in the eyes of a driver. “Carriers must be innovative
and leverage strong design, video, and social media to attract drivers,” says
Onnie. “It often takes multiple interactions to get a submission.”
If carriers want to attract new, younger drivers, then offer the type of
tech they have grown up with and have become dependent on. Staying
connected is a priority for many drivers, both new and seasoned.

106
 “Give them WiFi, a flat screen, Netflix, and ways to connect with
people, such as a webcam, in their downtime,” says Onnie. Shiny new
trucks stocked with technology and creature comforts carry a big incentive
for prospective drivers to sign on.
The incentives carriers can roll out are endless. Offerings such as
company-paid training programs—including more private fleets entering
the training space—strengthen applicant intent, and Onnie believes even
more carrier-owned schools and enticing training programs will pop up in
the near future.

Automation and RETAINING

new technology Moving past recruitment and into

employment, turnover remains high for many
can cut out carriers, a reflection of the driver demand. A truck
some of the driver is the most common job in 40 out of 50
states, and interestingly, there are over 10 million
laborious work CDL holders throughout the U.S., but many are not
recruiters have active. Making the job more appealing to drivers
will only help fight the shortage.
historically Carriers who have been adjusting their
done, and business models to offer more home time (with the
tradeoff of touch freight) seem to be winning on
process
that front.
improvements to “We are recruiting for more local, dedicated,
and regional runs than ever before,” says Onnie.
keep interested
“Carriers who don’t adjust their model will pay a
applicants premium for drivers.”
moving forward. Additionally, fairly strong pay increases
and retention programs—including payouts
and benefits—can help secure driver longevity.
Carriers should highlight where drivers can reach financially, and show
them that trucking isn’t a dead-end career.
“Increasingly more options are being made available that offer a career
path,” says Onnie. “These start with training to become a company driver,
to leasing a truck, to becoming an owner operator, and then to building a
fleet of his or her own.”
Carriers who have already increased pay, offered better and shorter
routes, upped their equipment, and added growth paths but are still

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struggling to keep drivers from hopping to the next company should go to
the source themselves.
“Survey your drivers; let them speak, and then deliver,” says Onnie.
They may provide the additional insight needed.

CONCLUSION
The trucking industry has problems that run deep, and repairing it
won’t happen overnight. However, using technology in recruitment and
innovation in retention will make a difference.
“No one knows for certain what the future holds, but I’m always going
to figure it out by the time it comes,” says Onnie. “We plan and adjust to
be ready for it.”

Laura Zielinski is a recruiting strategist for CDL Marketing.

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 Is the Logistics
Market Efficient?
GREG CALLEGARI

109
LATELY WE HAVE HAD A NUMBER of startup companies coming to see us
with aspirations to disrupt this industry. In short they believe that because
gross margins are 15-18% or greater the market must be inefficient. After
all, they argue, look at the stock market, the spread between bid and ask on
stocks is a fraction of a percent; surely the logistics market can be closer to
that. Most of them are very bright technologists but few have meaningful
experience in the industry.
The argument continues that if we could just match every trucker with
every shipper than we can reduce the margins to a fraction of a percent and
shippers would save the difference, right? This, they argue in theory, can
by solved by technology just like a “stock exchange,” an all-encompassing
one-step solution.
Unfortunately, although we all believe in technology and know it
transforms every industry it touches the solution is much more complicated.
What many new startups are focusing on is the gross margins as a measure
of efficiency, however a closer look at net margin yields an entirely different
picture. The big truth in our industry is that there are services included in
gross margins that really make the market quite efficient for shippers and
reduce brokers net margins to mere basis points.
Let’s take a look at three public logistics
Brokers and the companies from data gathered from Morningstar,
XPO, Echo and Radiant. The gross margins for
market can and
fiscal year-end 2017 (a good year for logistics)
will become more were 14.82% and 17.45% and 25% respectively,
efficient because yet the net margins were remarked lower. XPO’s
was 2.03%; Echo’s was just .65%; and Radiant
that is what was only .36%. However these are three highly
technology does. regarded, well-managed top firms. Why are net
margins so much lower than gross?
The reason is because brokers are providing
a number of services to shippers that cost the brokers most of that gross
margin. At most brokerages what eats up their margins is technology,
insurance, price discovery and execution, claims and the high touch
experience that is required to get a customer what he wants when he wants
it. These are supply chain costs that need to be borne by someone in the
process.
Realistically, while 100 shares of IBM stock are 100 shares of IBM
stock everywhere on the planet, a full truckload delivery from Boise to
Chicago varies by dozens of factors that affect the price. There could

110
be 50 of what we call “touch points” or factors that influence costs and
maybe unique to that particular shipment or shipper. Consequences such
as time of delivery, time of pickup, condition of the trailer, fragility of the
cargo, temperature of the cargo, loading/unloading requirements, risk of
loss, value of the cargo, tracking requirements, insurance requirements,
technology interaction with the shipper, weather, availability of assets, and
many more factors effect margins. Just the fact that carriers get paid in
1 day and shippers pay in 30-90 days or longer affects the time value of
money and influences costs and margins meaningfully.
Shippers can, if they elect, transfer all these touch points in-house
but the reason why most have not is because they realize that the industry
veterans and experts in this business who have dedicated years and billions
to the time and technology to make this market efficient can barely squeeze
1% net margins, and that’s when they get it right. In years or quarters where
there are sudden changes in demand, weather or capacity, brokers often
bear the losses.
So we believe, from a shipper’s perspective, the logistics market is
efficient and it would be difficult to enact one solution or “stock exchange”
for shippers and carriers that will reduce gross margins substantially. This
is because of all the risks and costs of the supply chain that have to be paid
by someone.
Brokers and the market can and will become more efficient because
that is what technology does. Firms like us are already working on modeling
these touch points to make the market more transparent and increase the
productivity of our employees. Our carrier group has had a 2.2x increase in
productivity over the last 4 years (by using internal metrics such as loads
per employee, revenue per employee and others) by implementing new
technology that allows them to access carriers that better fit our clients
needs. This trend is continuing but further gains will be harder to achieve
without continuing substantial outlays in technology and utilizing very
smart creative people.
Today a customer called us about an hour before the pickup, and we
moved a load of 40,000 lbs. 300 miles, and the goods were delivered on
time, as promised with no incidents or surprises. The net profit was about
$10. I would say that was pretty damn efficient.

Greg Callegari is chairman and co-founder of Edge Logistics.

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A Look at What Trucking CEOs
Said to Guess What’s Coming
in the Future
JOHN KINGSTON

112
BY THE TIME YOU ARE READING THIS, the second quarter of 2018 will
be a distant memory. The third quarter of 2018 will be in the books too,
and you probably are coming off a few weeks of hearing how trucking
companies and related companies did during that three-month period. But
we’re writing this before those results were rolled out to the world.
So why are we looking back? We listened to plenty of earnings calls
in the second quarter, though we do that every quarter; it wasn’t unique.
Still, like a soothsayer predicting the future after it happened, there can be
some hints on what may have happened in quarter three of this year—and
by extension, quarter four and into 2019—on the basis of what was being
said back in late July and early August. Barring some major occurrence
between early August and late September, there were trends in the transport
market that came up repeatedly in the comments of corporate executives,
who suggested that they weren’t going away anytime soon. Let’s review
some of them.
The third quarter of 2018, if the predictions were correct, was not going
to look as great in comparison to the Q3 2017, but largely for one reason: the
third quarter of 2017 is when the great freight bull market began. Whether
it was a combination of the secular tightening that continues today, or the
boost that was given from hurricane relief efforts from Hurricane Harvey
and other storms, executives—and analysts—warned that these terrific-
looking comparisons—”comps” in analyst lingo—were not going to be as
strong as they were in the prior four quarters. The fourth quarter would be
the same. But that doesn’t mean the market is slowing. Far from it....
...which leads to the next theme heard repeatedly on the calls: there are
simply no signs of a slowdown. David Jackson, the CEO of Knight-Swift,
talked about the market in terms that could have been employed by any
one of a number of CEOs: “So far every season since the fourth quarter,
since early in the fourth quarter, has been much stronger than the normal
seasonality,” Jackson said, according to a transcript of his company’s
conference call with analysts provided by SeekingAlpha. “So on the
demand side, it hasn’t looked this good in a long, long time over a decade.
You’d have to go back to the last time that we saw economic expansion
which was over 10 years ago.”
Even in a strong market, as the earnings results rolled out, it was
clear that investors were ready to punish companies that didn’t meet
expectations. For example, speaking of Knight-Swift, its truckload division
had a tremendous second quarter, with an operating ratio of 77.7%, blowing
away its truckload competitors. That marked an increase of almost 700

113
basis points. But investors had been sour on the stock all year, and its report
of some problems in its refrigerated division, as well as a weak projection
of how it was going to do in the third quarter, sent its price tumbling.
Part of that weakness could be back to the idea held by some investors
that the peak in trucking already had arrived. In the middle of earnings
season, on July 24, trucking stocks across the board flattened, and some
analysts said many investors were thinking that the surge in demand, the
tight capacity, in short, all the factors that had created such strong second
quarter earnings couldn’t possibly continue. So we’ll go back to another
executive’s view of the future, this time from Old Dominion executive
chairman David Congdon: “When you look across nearly every economic
indicator, from the inventory sales ratios, GDP, industrial production, ISM,
construction spending, retail sales, you name it, the macro economy is
strong and certainly, we do—everyone’s—there’s a
notion out there in the most recent days that we’ve
Even in a strong reached some kind of a peak and everything’s
going to go to hell or something. I don’t know but
market, as the I don’t believe it.”
earnings results Even in such a strong market, operating ratios
were all over the board. Besides the previously-
rolled out, it
mentioned Knight-Swift sub-80% OR for its
was clear that truckload division, LTL carrier Old Dominion
also posted a sub-80 OR, the first time in its
investors were
history it had done so. But focus on just OR can be
ready to punish insufficient. For example, J.B. Hunt’s outstanding
companies that quarter was highlighted by factors other than OR,
which division-by-division ranged between 88.5%
didn’t meet and 95.7% (according to estimates from Merrill
expectations. Lynch). What was more important in its eyes
were the statistics for such categories as revenue
per truck per week, which all came in strong. The
pattern tended to be that those companies with strong ORs boast about them,
and those with weaker ORs cite other statistics as being more meaningful.
One area where OR was definitely not downplayed was in the railroad
sector. CSX and Canadian National both posted ORs less than 60%, with
all of the other class 1 railroads on either side of 65%. The link between
CSX and Canadian National? Both have implemented or are implementing
precision railroading, the radical operating philosophy created by the late
Hunter Harrison, first at smaller railroads, then CN and later at CSX, where

114
he headed the company for just eight months before unexpectedly passing
away last December. The gap between the two companies that had adopted
precision railroading—with its tight staffing, reduction in hump yards and
a move away from hub-and-spoke systems—was most stark in those ORs.
One analyst actually had the temerity to ask an executive from another
railroad: don’t you think you need to do some precision railroading?
Norfolk Southern’s CEO James Squires summed up the general sentiment
heard from those executives with their 60+ ORs by saying: “We are always
open to best practices driving for shareholder value, and I am very confident
we are on the right track.” The irony for CSX becoming the darling of
analysts is that in the first part of the year, its service was a mess, leading
to an enhanced overview by the Surface Transportation Board and a self-
described “apology tour” by CSX management. By late spring, CSX could
declare that improvements in the system meant the apology tour was over.
To help support the idea that OR is not everything, in mid-August Deutsche
Bank upgraded its recommendation on Norfolk Southern to buy from hold.
And while the bank said NS’ possible inability to lower its OR was a “risk
to the downside,” that didn’t stop it from raising its price target.
Some companies are willing to talk about pricing; others are not. But
based on the numbers that were heard during the conference calls, you can
assume that right now, a lot of shippers are paying either side of 10% more
than they were last year for the right to move their freight. And if it’s in a
lane that isn’t particularly competitive, getting up to 15% might easily be
the number.
All executives said that driver retention was a problem. But many of
them boasted about their own efforts to attract and retain drivers. Several
of them cited the prior six months as the best in five years—or whatever
length—for their companies’ retention programs. The LTL carriers were
obviously in a stronger position to make that claim, since their drivers get
home most nights. But if all you knew about driver retention was from
the conference calls of the leading publicly-traded carriers, you’d know
that there was a crisis in attracting talent but the company on the line had
successfully managed to overcome it.
All the numbers pointing to healthy order books at the OEMs were
cited by some executives as another sign of a strong market. But there was
clear reluctance by anybody to say: see, this is new capacity. Rather, there
were references to enhanced safety features in the new vehicles and the
impact of a shiny new truck on driver workforce issues. Curt Stoelting,
the CEO of Roadrunner Transportation, which has lined up new financing

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sources as it attempts to come back from a series of accounting irregularities
and a federal investigation of them, pointed to the ability to buy new trucks
as a big plus. “When it comes to recruitment, don’t discount the new
equipment...and the upgraded equipment that we will be putting into the
network both for company drivers and independent contractors,” he said.
“That’s also a key recruiting and retention tool.” It’s almost impossible to
find anybody who said, the industry is ordering a lot of trucks, so we’ll
have a lot more drivers.
A few months later...how are these forecasts and observations
holding up?

John Kingston is executive editor at FreightWaves.

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