Current Trends and the Potential for Automation in International Transportation Management. Current Trends. Automation
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1 Current Trends and the Potential for Automation in International Transportation Management Current Trends and the Potential for Automation in International Transportation Management Sponsored by Presented by M A N A G EM EN T D Y N A M IC S, I NC. 1
2 Introduction/Background Managing international freight shipping operations presents a set of challenges that potentially expose shippers to risky and costly misfortunes. Changeable rates and hidden surcharges, inefficient shipping routes, missed delivery-to-transit commitments, lengthy timelines, capacity constraints, size and weight factors, and safety and security issues are among the problems that test the air and ocean shipping landscape. Decisions shippers make concerning freight partnerships involve careful and thorough evaluations that assuredly must spotlight these issues. Solutions enabling shippers to better understand, negotiate, and adhere to contract provisions can avert many of these financial and operational threats. The findings of a recent market research study conducted by Logistics Management magazine, on behalf of Amber Road, formerly Management Dynamics, reveal that better informed decisionmaking on freight route planning, carrier selection, shipping scheduling and costing, load planning, guidelines compliance and auditing, invoicing, and reporting results in greater logistics operational efficiencies and yields significant cost savings. Curiously, solutions to better understand and manage these tasks have yet to gain widespread traction among the vast majority of shippers. The research further shows that many shippers have yet to automate these critical freight management and transportation procedures. In particular, the research further supports that: Freight costs are considerable; and, this comes as little surprise. Nearly one out of four survey participants claims their company spends more than 15% of their overall revenues on freight transportation shipping efforts. And, the percent paid out on international freight services is also considerable, with expectations that more will be allocated on global shipping activities during Searching for and securing the best shipping rates, along with negotiating new rates with shipping partners, are top priorities among shippers. The methods and solutions by which many shippers are managing and evaluating key transport activities are unrefined. Only one out of four, or even fewer, currently automates missioncritical applications for calculating rates and selecting routes and carriers. Freight auditing, invoicing, logistics execution and contract management functions are also among the processes that many shippers have yet to computerize. In addition, more than one-half say they either do not have plans to automate or are not even using reporting applications for these tasks! While the majority do not use a contract management solution, those who do are lowering their transportation spend through improved carrier selection, fewer errors and risks, and greater compliance with approved shippers. Spending on Air and Ocean Freight Services For many, freight shipping initiatives are a considerable expense. The survey reveals that while one-third (33%) spend less than 5% of their company revenues on shipping, almost one out of four (22%) are spending in excess of 15% of their overall revenues on international and domestic freight services. This corresponds with a significant outlay as shippers spent, on average, almost $30 million for these services during Most notable is that one out of four organizations (26%) spent upwards of $50 million on shipping in the past year. $50 mil.-$99.9 mil. $20 mil.-$49.9 mil. Spending on ALL Freight in 2010 $100 mil. + 16% $5 mil.-$19.9 mil. 14% Average spend: $29.8 million Less than $500,000 17% $500,000-$999,999 $1 mil.-$4.9 mil. The overall shipping spend apportioned specifically for international freight in 2010 represented a substantial percentage of shippers total freight costs. For nearly one-half (46%) of the respondents, 15% of their shipping transportation costs were on international shipping initiatives. These shippers allocated, on average, one-fifth of their total freight spend to international shipments. Percent of All Shipping Expenditures for Global Freight Initiatives in % + 36% Less than 5% 26% 5%- 21% The survey results highlighted in this brief are intended to offer insights into how companies are working to better manage their international shipping initiatives and how they are adapting to issues such as pricing volatility and continually changing conditions in the global freight transportation market. 2 AMBER ROAD 11%-19% 17% Average 18%
3 For 2011, all indications lean toward an increase in spending on international freight activity. More than one-half (53%) of the companies we spoke with plan to spend more this year than they did in 2010, while fewer than one in 10 claim they ll spend less this year vs. 2010: Spending on International Freight More 53% Uncertain at present Same 30% Solutions for selecting and booking routes and carriers, establishing performance metrics, and enabling in-transit shipment visibility are among those most likely to be computerized over the next year. However, plans to computerize information that is critical to operating a highly efficient and cost-effective global transportation management program do not appear imminent for many. The majority of companies surveyed are, in fact, performing tasks such as transportation procurement, contract management, routing and carrier selection, load optimization, and surcharge adjustments, but are neither automating nor planning to computerize these functions within the foreseeable future. Global Freight Shipment Cost Management The aspect of global shipping operations most singled out as the function needing the greatest improvement pertains to obtaining the best possible rates per shipment. Less 7% Global Freight Transportation Applications While shippers acknowledge they are in need of developing enhanced methods for securing better rates and routes, improving load optimization, and upgrading communications with customers and carriers, relatively few companies in our study are now running highly developed solutions to achieve these objectives. Processes most commonly automated for international freight planning and related activities focus on rate data and calculations. In addition, more than one out of five have automated solutions to facilitate routing visibility and applications to better handle freight auditing and payments. Transportation procurement Automated Now manual, will automate Now using, no plans to automate Not using, but would like to use 17% 21% 53% 9% Contract management 14% 16% 55% 15% Routing & carrier selection 19% 25% 47% Rate calculations 26% 22% 42% Routing guides 17% 45% 15% Fuel charge adjustments/ 16% 44% 17% charges to carrier accessorials Rate databases 24% 39% 14% Load optimization 8% 22% 47% 24% Logistics execution 19% 26% 41% 14% (booking/tendering) Shipment visibility 31% 31% 26% 12% Freight audit & pay 24% 24% 38% 13% Self-invoicing 19% 13% 37% 31% Reporting & KPIs 18% 31% 29% 22% Single Aspect of Global Freight Operations Most Interested in Improving Acquiring the best rate per shipment 24% Electronic communication with customers & carriers 12% Route optimization, consolidation, pooling, etc. Track & trace capabilities 9% Freight rate procurement/ contract negotiation 8% Carrier KPls/Scorecards 8% Integration of transportation applications with other systems 7% Mentioned by more than 5% As international freight expenses remain considerable and in all probability will continue to rise, companies are employing multiple and various strategies to better manage and contain these costs. As just stated, shippers recognize the need to improve their efforts in obtaining better rates. In addition to fulfilling this intention, shippers are further working at identifying the most advantageous routes, optimizing loads and consolidating shipments, reducing the number of carriers and forwarders with whom they partner, improving account management practices, as well as gaining a greater understanding of foreign customs and regulations policies. We will be looking to upgrade our reporting tools to gain visibility into costs and service. Logistics & Distribution Manager, Electronics Manufacturer AMBER ROAD 3
4 Ways Shippers are Managing & Containing Costs Working with partners to secure the best rates Keeping close track of invoicing/payments Improving knowledge of customs/ clearance issues/regulations Consolidating shipments Working with fewer partners: carriers and forwarders Identifying most efficient shipping routes Adopting KPIs/Performance metrics for carriers Improving decision-making, better planning, reporting Better container and shipment tracking tools Optimizing internal resources (labor, equipment, etc.) Working with more partners Implementing internet-based TMS applications Improved reporting capabilities (business intelligence, etc.) 26% 24% 22% 36% 34% 31% 59% 59% 56% 53% 50% Increased costs have caused us to consolidate more. Purchasing Management, Food and Beverage Manufacturer However, numerous variables hamper a shipper s ability to proficiently manage its global freight and to forecast shipping costs. A global economy still in recovery and unstable fuel prices are sparking variable shipping rates. Unreliable carriers, other logistics risks, and global uncertainties have further caused businesses to make significant adjustments to their shipping activities. Some of these adjustments are directly linked to the practices of their shipping partners. This study reports that nearly one out of three respondents are critical of those carriers who have made significant changes to 78% their policies during the last few years. Rate volatility as well as additional, and perhaps hidden, surcharges for insurance, security and freight fuel, inconsistent delivery schedules, a lack of intransit shipment visibility, inferior customer service and communication, and revamped Transportation Security Administration (TSA) requirements are among the issues shippers have been forced to deal with. In addition, tasks formerly handled by the carrier are now falling back on the shipper. Through slow steaming and vessel capacity reductions, we have experienced many issues relating to carrier changes. Our consignees are very displeased with the shipping records of many of our steam ship lines. Logistics/Distribution Manager, Fabricated Metals Manufacturer In some instances, changes made by carriers have been beneficial to shippers and led to improvements in transportation efficiencies. Carriers are adopting technologies to improve supply chain and logistics operations resulting in better scheduling, improved efficiencies, cost savings, and greater visibility into processes and expenses. Our provider has invested in more information technology, which has enabled greater visibility into our shipping costs. Vice President, Retail Trade Over the next 12 to 18 months, rate negotiations will be the predominant action companies will take as a means to better control their global freight costs. Shipment consolidation, higher visibility into shipment status, new route evaluations, and re-examining shipping modes are also priorities. Actions Likely to Take as a Means to Better Control International Shipping Costs Businesses Forced to Modify Shipping Practices Due to Carrier-related Changes Negotiate new shipping rates Try to consolidate a higher percent of shipments Keep a closer watch over shipment status 39% 34% 66% Have not had reason to modify shipping practices 71% Have modified shipping practices 29% Evaluate new shipping routes Change shipping methods Adopt KPIs for carriers 32% 31% 27% Improve billing/payment process Implement a global transportation solution 17% Purchase/upgrade a GTM application 9% 4 AMBER ROAD
5 Use of Global Transportation Management (GTM) Solutions Only 15% of those surveyed claim their organization currently utilizes a global transportation management platform. Usage of Global Transportation Management Software Applications Contract Management Solutions Most businesses establish set contracts with their international freight carriers on an annual (52%) or even a less frequent basis (). 60% Frequency for Establishing New International Freight Contracts Use a GTM software app 15% Do not use a GTM software app 85% 50% 40% 30% 20% 0% Quarterly Semi-annually Annually Less than once a year Other (i.e. as needed) However, the majority of companies (69%) are running metrics to help assess freight transportation costs. Running Metrics to Identify Freight Costs No, not running metrics 31% Yes, running metrics to identify freight costs 69% Interestingly, the majority have yet to adopt a contract management application for handling trading partner contracts, as less than one in four () have opted for a contract management application. Businesses Using a Contract Management Solution Have a contract management solution Do not have a contract management solution 77% In particular, cost analysis is performed on carrier and volume, optimal shipping routes and lanes, and on-time delivery performance. Metrics Being Analyzed However, those that are utilizing a contract management solution are garnering the subsequent benefits. Companies are able to better establish their carrier selection process thus reducing transportation spend, attaining compliance with approved shippers, and realizing savings through freight audits and reductions in invoicing errors. Spend by carrier and volume Costs by routes/lanes On-time performance for shipping routes/lanes 61% 76% 73% Benefits in Using Contract Managment Applications Lower transportation spend by optimizing carrier selection 62% Cycle times 29% Improved compliance with approved shippers 62% Sourcing options 24% Reduced risks/quote errors 62% Fulfillment by supplier Lower transportation spend by auditing freight invoices 42% Carrier capacity 22% Improved staff productivity AMBER ROAD 5
6 Methodology This research was conducted by Logistics Management magazine for Amber Road This study was executed in March 2011, and was administered over the Internet among subscribers to Logistics Management. A supplemental list was also provided by Amber Road. Respondents were qualified for working at a company that either currently ships internationally or will have global freight needs within the next six months. Participants were further screened for being involved in decisions regarding the evaluation and usage of international shipping and freight solutions and carriers for either their own company or for clients. The findings are based on information collected from 375 top logistics managers. Respondents are predominantly Logistics, Distribution or Operations Management (31%), Vice President (14%), Traffic and Operations Management (11%), Supply Chain Management (), Corporate Management (), and Purchasing Management (7%). Company sizes are equally represented: one-third of those surveyed (34%) work at enterprises with revenues of $1 billion or more, one-third (30%) at companies in the $100 million to $1 billion range, and one-third (36%) with businesses reporting $100 million or less in revenues. A broad range of industries are also accounted for and include manufacturers of chemicals and pharmaceuticals, computers and electronics, automotive and transportation equipment, etc. Non-manufacturing businesses take into account retailers as well as 3PLs and transportation service providers. Nearly one-half (48%) estimate they ship fewer than 1,000 shipments internationally in the course of the year, more than one in ten (11%) ship more than 50,000 parcels annually. On average, over 20,000 shipments are dispatched internationally by these companies. About Amber Road Amber Road, formerly Management Dynamics, is the leading provider of Global Trade Management (GTM) solutions that combine a collaborative network, proven software, and specialized content to automate world-class import and export operations for over 122 countries. Our solutions enable customers to optimize supply chain execution decisions by synchronizing the flow of information among trading partners, managing trade regulatory compliance, minimizing border delays, streamlining logistics processes and reducing transportation costs throughout the entire supply chain. Amber Road has been developing and delivering software and related content and services for GTM. Our International Transportation Management solutions allow importers, exporters and logistics providers to manage the spiraling costs associated with shipping by sea and airfreight. We help our customers transform their business and gain market share by leveraging our industry and technology expertise. Our solutions are currently deployed to over 14,000 users in 70 countries and our customer base includes some of the world s leading retailers, manufacturers and logistics providers. Contact Information: Amber Road One Meadowlands Plaza East Rutherford, NJ (201) us at: Solutions@amberroad.com Join us on LinkedIn: GTM Best Practices Group Follow us on Twitter: /GTMBestPractice 6 AMBER ROAD
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