Transportation Expert Call Series: The Realistic Impact of Technology and Trucking

Transcription

1 TUESDAY APRIL 19, 2016 Transportation Expert Call Series: The Realistic Impact of Technology and Trucking Tommy Barnes President, project44 Todd Fowler Transportation Analyst, KeyBanc Capital Markets Inc.

2 A Fragmented $740B+ Freight Market 3PLs (Brokerages) Over $740 Billion Domestic Freight Industry Spend Premium Logistics Final Mile LTL Local Transport Full Truckload A CLOSER LOOK: MARKET FRAGMENTATION 60% of Third Party Logistics (3PLs) Have Less Than 1% Market Share 90% of OTR CARRIERS Have 5 or Less Power Units 56% Represented by 1 Unit Only Private Fleets 2 Source: KeyBanc Capital Markets Inc., ArcBest Corporation, XPO Logistics, Inc., American Trucking Associations, Frost & Sullivan Source: KeyBanc Capital Markets Inc., U.S. Department of Transportation, Company filings, FactSet

3 Industry Challenges Less Than Adequate ROIC Hurts Asset- Based Trucking The significant degree of fragmentation in the freight market requires technology solutions that better balance supply and demand to increase the ROIC of asset-based carriers. Transportation Not Viewed as Revenue Enhancement Tool Supply chains rely on connected suppliers, manufacturers, distributors, retailers and consumers, yet the transportation networks that tie these groups together are not seen as an opportunity for revenue growth. Rigid Communications and Data Exchange Systems Still in Place Shippers and 3PLs functioning with legacy communication pipelines are unable to remain competitive, reduce costs, limit claims, increase operational effectiveness and improve customer service. 3

4 The Need for Technology Shippers Tech startups can most effectively address issues that the $740B+ industry is interested in resolving Third Party Logistics Firms (3PLs) Cutting Transportation Costs 63% Capacity 67% Business Process Improvement 32% Technology Investment 56% Improving Customer Service 31% Rising Operational Costs 55% Supply Chain Visibility 22% Regulation 55% Managing Inventory 20% Finding, Training, Retaining Qualified Labor 51% Finding, Training, Retaining Qualified Labor 20% Finding/Retaining Customers 36% Reducing Labor Costs 18% Meeting Customer Service Requirements 35% Expanding/Selling to New Markets 17% Making a Profit 28% Regulations, Security, Other Compliance Issues 17% Contingency Planning/Risk Management 25% Expanding/Sourcing to New Markets 13% Global Coverage 14% Vendor Management 12% Corporate Social Responsibility and Sustainability 12% Technology Strategy and Implementation 12% 4 Inbound logistics, 2015 Trucking Marketing Research Report Trucking Perspectives

5 Emerging Technology Adoption An imbalance in supply and demand is forcing groups to work smarter. The industry is turning to companies that are leveraging technology to achieve less expensive, more data-driven, fasterto-deploy solutions. 5

6 The Opportunity Technologies that enhance supply chain processes, rather than those that radically revolutionize will have the largest impact on the most pressing challenges facing the freight industry. Opportunity 1: Better Manage Supply and Demand to Increase ROIC Opportunity 2: Leverage Data into Predictive Insights to Enhance Revenue Opportunity 3: Replace Legacy Systems with APIs to Streamline Communications 6

7 Opportunity 1 -- Better Manage Supply and Demand Carrier and Shipment Visibility Dynamic Pricing for LTL Carriers While Uber for Trucking and final-mile delivery services have received a lot of funding, it s not easy to make money by investing in Uber-type last mile companies. The 10-4 Freight Portal offers shippers valuable information and important data analytics through greater visibility and increased transparency of their shipment behavior. LTL Carriers can adjust pricing in realtime based on: Carrier capacity Industry demands Environmental conditions Improve ROIC by modifying prices to optimize capacity and utilization. 7 Uber for Trucking Failures Uber for Trucking fails to adequately address the complexities of the market. The model overly commoditizes the value-base of transportation.

8 Opportunity 2 -- Leverage Data into Predictive Insights The e-commerce and on-demand economy propelled by services like Amazon Prime requires data-driven logistics. Planned Big Data Investment 50% of the freight industry surveyed said they had big plans for data investment over the next 1-2 years. 55% All groups need to capture data and leverage it into predictive insights to optimize transportation networks and meet consumers real-time delivery expectations. 50% 45% 40% 35% 30% 25% 20% 15% 10% Retail Insurance Health Care Freight Transporta=on 8 Tech Mahindra, Surviving the Data Explosion (January 2016)

9 Opportunity 3 Streamline Communications with API Connectivity As the strategic importance of supply chain efficiency grows and the costs associated with poor execution are magnified, the data surrounding a shipment has become more important than the shipment itself. Impact on Carriers Impact on 3PLs Web Service APIs Are Better for Carriers, Shippers and 3PLs Rating Bureau (manual entry, third party software) Complex tariffs delay loading new pricing/transit times Increased likelihood of errors High costs incurred with manually managing pricing/transit times Inflated costs from the management of complex pricing agreements Latency and lack of real-time visibility decrease customer satisfaction Real-time pricing is accessed directly from the server Carriers manage rates/transit times without extra database manipulation Reduced cost due to limited administrative needs EDI Connectivity EDI rarely contains data needed to effectively manage supply and demand EDI runs in batches, delaying data transfer by a minimum of minutes requiring additional admin support Increased call volume to ensure pickup/delivery and check on status updates Error code delays increase customer churn Direct, two-way server-to-server connectivity sends, returns and verifies shipment data immediately Real-time connectivity limits administrative requirements allowing employees to be repurposed to revenue generating activities 9

10 Opportunity 3 Streamline Communications with API Connectivity Given the market fragmentation, many 3PLs (brokerages) will likely fail to have the necessary economies of scale to sustain. Those who struggle will be the ones without robust technology combined with a niche-based model. Large brokers have gained share both organically, and inorganically over the last five years. Investment in technology (more specifically, API connectivity) will drive further share gains for 3PLs going-forward Market Share Small brokers, 72% Large brokers, 28% 2015 Market Share Small brokers, 60% Large brokers, 40% Small brokers, 55% 2020 Market Share (Estimated) Large brokers, 45% 2010 Estimated Market: $46B 2015 Estimated Market: $60B 2020 Estimated Market: $75B 10 Note: Large brokers have >1% market share, small brokers <1% market share. Source: Armstrong & Associates, Inc., Company filings, KeyBanc Capital Markets Inc.

11 Opportunity 3 Streamline Communications with API Connectivity 3PLs that are implementing innovative tech solutions are seeing their operations and market share grow in scale. These industry visionaries are also driving faster technology adoption across the entire freight market. 11

12 TUESDAY APRIL 19, 2016 Thank You Tommy Barnes President, project44 Todd Fowler Transportation Analyst, KeyBanc Capital Markets Inc.