We’ve updated our outlook and brought you additional insights! Please read our latest article on 2019 supply chain trends that discusses the increased digitization of the supply chain catalyzed by startups.
Change is synonymous with the start of a new year and, thanks to the way technology is moving, changes in the transportation industry happen quickly. With those changes often come challenges, including the need to adapt your strategy.
What can shippers expect in 2018? How can you address what’s to come in the diesel fuel market and with emerging transportation trends? We asked some of the experts at Breakthrough®Fuel, as well as some of our clients and partners, to give us their insights and outlooks on the road ahead for shippers.
In this article you will hear from:
- Doug Mueller, President at Breakthrough®Fuel
- Brian Stoufer, Sr. Director of Transportation, Conagra Brands
- Mike Roeth, Executive Director at North American Council for Freight Efficiency
- Daniel Cullen, Vice President of Advisory Services at Breakthrough®Fuel
- Jennifer Vander Zanden, Vice President of Fuel Recovery at Breakthrough®Fuel
We asked these individuals a question specific to their areas of expertise, starting with Doug Mueller, who spoke about what he believes could shake things up for shippers in 2018.
Q. What do you believe will be some of the most disruptive transportation trends over the next year?
A. “There are a few disruptive trends that I would call out. The first will earn plenty of news coverage in 2018, and that’s the emergence of automation in transportation, including autonomous trucking.
The news cycle, however, will dramatically lead the reality of the situation. The vast majority of trucks on the road will continue to have drivers and use diesel fuel. Adoption of autonomous vehicles will happen slowly, simply because it’s human nature to be wary of such a disruptive change.We will certainly see pilot programs in 2018, and this is definitely something transportation professionals should be watching, but they must realize it is just the beginning of autonomous vehicles used in shipping.
Second, is a trend that impacts consumer goods and retail in particular. Order cycle times will need to be shortened dramatically as we’ve entered what many call an ‘on-demand economy.’ Because of the market’s pointed shift toward eCommerce, next-day delivery, and services like streamed media, people are now accustomed to the immediate satisfaction of getting what they want in a very short period of time.
Consumers feel this satisfaction should not only come with digital products, but also with physical goods. So, that’s impacting expectations surrounding eCommerce and online shopping. People expect to receive products at their doorsteps in a couple of days or as short as a matter of hours. That will be very disruptive for the transportation industry and the supply chain in total as organizations make strategies to adapt to this demand.
This trend will also result in a very different configuration of transportation. As one of our clients explains it, instead of being loaded with a single product, a pallet will look like a ‘Tetris model’ with multiple products that need to be sorted, often at the retailer’s dock. In some cases, that merchandise won’t even go into the store, but go directly to the client picking it up.
Changing cycle times and evolving consumer expectations will have ripple effects throughout transportation involving lot size, shipping, and the kind of energy being used to move goods to a final destination. Fulfilling orders in a way that is closer to real-time is a significant challenge for shippers.
Another trend in shipping that’s also being driven by consumer preference and expectations is sustainability. A growing number of people want products to be sustainable, green, or locally-sourced. The government is not mandating this, but consumers are choosing brands with a focus on sustainability. That includes not only how products are sourced and manufactured, but how they are transported.
Therefore, focus on alternative energy sources, improvements in efficiency, as well as the ability to track and reduce emissions will continue to grow in importance for shippers. It will be important to have transparency and line of sight to real costs and consumption related to the movement of goods, as well as the emissions and type of energy associated with transportation. Consumers will trust brands that can verify sustainability claims with trustworthy data.”
Positive change often occurs when organizations work together to identify solutions. While the ability to adapt to disruption in the industry can be a competitive advantage, there is something to be gained by networking and collaborating with peers, partners, and even competitors. That’s one reason why Breakthrough®Fuel hosts the annual Mercury Group event.
We asked Conagra Brands’ Brian Stoufer about the benefits of key partnerships, sharing ideas, and encouraging the industry as a whole to challenge the status quo.
Q. Why should shippers find ways to collaborate with partners and industry peers in 2018 if they hope to innovate and solve problems?
A. “It is important that shippers move away from traditional thinking, not just around capacity, but also how to leverage the overall supply chain that services all shippers. As the markets change, shippers can’t continue to use the same tools to support their business needs. A great source of both inspiration and innovation comes from bringing multiple perspectives and experiences to address common problems, such as capacity, safety, and service.
Shippers, carriers, and consignees all have critical roles to play in the broader supply chain, and the more efficient we make the supply chain, the more benefits are shared by all. This also comes with some key assumptions, the largest being that everyone must have positive intent and seek mutual benefit.
Collaboration has already brought benefits for shippers on sourcing capacity, improving facility efficiencies, and developing new technology.”
An excellent example of transportation collaboration at work came during a special event from the North American Council for Freight Efficiency (NACFE). We asked Executive Director Mike Roeth about the different ways the freight industry is moving towards improved fuel efficiency throughout 2018 and beyond.
Q. What are the most promising innovations in fuel/freight efficiency and what were the results of the first-ever Run on Less event?
A. “When it comes to fuel efficiency improvements, there is no one-size-fits-all answer. This was demonstrated during NACFE’s Run on Less event, the first-of-its-kind, cross-country, fuel-economy road show. Seven fleets participated in the Run, and fuel economy over the course of the three-week event averaged 10.1 miles per gallon.
The trucks traveled more than 50,000 miles, delivering real freight over a variety of terrain, and dealt with the impact of two hurricanes. During the Run, three different trucks had daily MPGs of more than 12.5, and the highest daily average was 12.8.
Even with varying duty cycles, the trucks operated by Albert Transport Inc., Hirschbach, Mesilla Valley Transportation, Nussbaum, PepsiCo’s Frito-Lay Division, Ploger Transportation, and US Xpress, Inc., had some similar specs. This included: low rolling resistance tires, extensive technology designed to improve the vehicle’s aerodynamics, automated transmissions, and some sort of idle reduction technology — although not all of them used the same technology for avoiding idling. The specs varied, however, in things like brand of engine, engine ratings, axle configuration, and axle ratios.
Aside from MPG results, the other big takeaway involved the driver. The drivers selected to participate in the Run are committed to driving in a fuel-efficient manner and take pride in getting as many miles as they can out of a gallon of fuel. Drivers know that the way they drive has a direct impact on how fuel efficient the vehicle is.
The trucking industry is also on the cusp of several technologies including two-truck platooning, autonomous trucks, and electric-powered vehicles that will continue to improve the efficiency of the way goods are moved to market. I used to preach the need to stay focused on making diesel trucks more efficient and not get distracted by these new technologies. I recently changed my mind about that. While I think we still need to work on making diesel-powered trucks as efficient as we can, I also think we need to start focusing some of our attention to electric-powered trucks. We’ve moved from the ‘if’ phase to the ‘when’ phase regarding commercial vehicles being powered by batteries.
The key to improving efficiency, whether it is in diesel-powered trucks, electric-powered trucks, or some sort of hybrid power, is the combined effort of truck makers, component suppliers, fleets, and drivers working in concert to find the right technology or combination of technologies that work for their duty cycles and the conditions they operate in.”
Even as fuel efficiency improves, there are factors impacting fuel prices that cannot be controlled, including natural disasters, geopolitical events, and taxes. Since the cost of fuel typically makes up approximately 30 percent of a shipper’s transportation budget, understanding what can influence prices in the diesel fuel market is crucial. Breakthrough®Fuel’s Vice President of Advisory Services Daniel Cullen says ongoing situations from 2017 will play out in coming months. He also says 2017 offered some reminders about the unpredictability of Mother Nature’s effect on the price of fuel.
Q. What do you anticipate will be the biggest factors impacting diesel prices in 2018?
A. “As we look ahead into the fuel market of 2018 and beyond, it is also worth looking back at the market’s development in 2017. As we saw in 2017, the market will likely continue to closely follow changes in the petroleum industry’s supply-demand balance, with a particular focus on the interplay between OPEC-aligned producers, and free-market producers like the U.S. Since the beginning of 2017, and likely through 2018, OPEC will continue to limit its members’ production of oil, with the hope of supporting higher oil prices.
Yet, as output from OPEC is held back, the opportunity arises for North American oil production to fill this gap, which could have a counter-effect to OPEC’s actions.
Considering diesel fuel marketplaces more locally, we can also expect regulatory complexity to continue to grow, and for this complexity to create even greater price diversity across the nation. Looking at state tax rates alone, 2017 brought us an almost-unprecedented number of large-scale diesel tax rate adjustments in the U.S., and there is little reason to believe that this trend of evolving tax environments will change. Furthermore, going beyond standard fuel tax rate adjustments, we can anticipate greater regulatory complexity driving changes in the cost of moving goods to market via weight-mile taxes, carbon pricing programs, and alternative fuel incentives, among other measures.
Finally, the year 2017 reminded us better than any other in recent memory of the power of weather to drive fuel prices in the United States. Hurricane Harvey was one of the most impactful weather events of this century for the U.S. fuel marketplace, and though it held such importance, it was hardly the only weather-related factor driving price in 2017. In addition to hurricane activity, we saw regional prices driven by weather events from fire in the West to bitter cold in the North and Northeast. These events are reminders of the power of weather over fuel prices, and we can certainly expect that such events will play a role in driving regional fuel price volatility into 2018 and beyond.”
Our clients can gain further insights from Cullen and the Applied Knowledge team in the Breakthrough®Advisor, which regularly features comprehensive fuel market outlooks and forecasts. We’ll also be releasing the 2018 North American Transportation Energy Atlas in January.
Jennifer Vander Zanden works closely with Breakthrough®Fuel clients on a daily basis, which means she has a solid understanding of the questions and concerns of shippers. We asked her to explain the most pressing issues shippers face in 2018 and how Breakthrough®Fuel works to alleviate some of the pressure.
Q. What are some common challenges for shippers in 2018 and how can they approach these problems?
A. “Heading into 2018, many corporations continue to focus on reducing costs. Transportation costs are increasing in two key areas: line haul rate pressures and fuel price increases.
Over the course of the past 12 months, the market price of diesel has risen 16 percent:
- 1/1/2017 $2.35 Market Price of Diesel
- 1/1/2018 $2.73 Market Price of Diesel
But, the change in fuel cost has not been the same everywhere. 2017 saw great volatility driven by a number of events, including pipeline outages, hurricane impacts, and tax changes – most notably the latest one in California that occurred on November 1st.
The volatility in the fuel market continues to be a challenge for many shippers and those that are actively managing energy through Fuel Recovery have a market advantage. Breakthrough®Fuel enables shippers to make choices regarding fuel efficiency improvements aligned with their network freight characteristics, so they can effectively assess modal conversions and alternative energy sources.
We help our clients navigate these strategic choices in a way that best fits their strategy. For example, intermodal fuel tends to be 40 percent of the cost of truckload fuel for movements that are eligible – reducing cost and contributing to sustainability.
Line haul rate pressures are also imposing a challenge for shippers. Many shippers are experiencing upward pressure on this component of their supply chain spend, which is driven by the strengthening economy and availability of trucks. With fuel and line haul upward price pressures, it can be challenging to meet corporate goals and initiatives.”
In 2018, Breakthrough®Fuel will continue to help shippers meet challenges by leading the way in bringing transparency and accuracy to transportation. As our company grows and brings on more clients, our base of information on transportation movements is growing as well. This growing pool of data gives us the power to improve the ways we help shippers better understand capacity demand patterns, which allows our clients to better predict their fuel spend and identify opportunities to make their supply chains more efficient.
Learn more about the ways we’re moving beyond traditional fuel surcharges and providing shippers with valuable insights when you visit our Solutions page. Check out our Actuals vs. Averages infographic to see how Breakthrough®Fuel is calculated differently than a typical index-based program.