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The Cost of Using the Wrong Mode When Capacity is Tight

Consumer buying behavior has tightened capacity in all modes of transportation. Going into peak shipping season, choosing the right mode for every shipment becomes paramount.

What This Blog Is About:

  • Shipper’s top concerns for their supply chain.

  • The opportunity cost of choosing the wrong mode of transportation.

  • How multi-modal logistics providers can set your customers up for scale.

Consumer behavior has historically set the beat for logistics management. Lately, its fast tempo, powered by consumers’ need for instant delivery for their increasing demand for goods, has pushed supply chains to their limits.

Businesses continue to deal with inventory logjams, overwhelmed transportation networks and soaring freight rates supported with mistrusted service expectations. The resurgence of the COVID concerns has created greater customer sentiment fluctuation, causing business leaders to constantly question the level of demand for their products.

In these undetermined times, businesses look to third party logistics providers to determine the sustainability of their supply chains, ultimately making the best decision based on supply and demand in the transportation market. In a 2021 study by Inbound Logistics, logistics technology providers said that 58% of their shippers were concerned with capacity constraints, triggering 68% of shippers worried about how they were currently optimizing their transportation resources. All things considered, 78% of shippers were concerned with reducing shipping costs in general.

Using proprietary technology and analytics, businesses can understand the opportunity cost of every transportation decision placed in front of them.

These providers focus on leveraging their networks to create a reliable, supply chain strategy using various transportation modes including full truckload, less-than-truckload (LTL), rail, air, and ocean services. Using proprietary technology and analytics, businesses can understand the opportunity cost of every transportation decision placed in front of them.

Analyzing Transportation Mode Opportunity Cost

Knowing the opportunity costs of using various modes of transportation is particularly important as peak shipping demand levels come around the corner, propped up by holiday and seasonal orders. Leveraging different modes of transportation can support specific delivery expectations during times of tight capacity.

For example, businesses that provide decorations and supplies for holiday events often find order volume is compact and can be shipped on a few pallets with its LTL partners. As the holiday approaches, the opportunity cost of using LTL partners versus dedicated delivery services can be high, as LTL providers often have little control over routing and on-time performance during peak seasons.

Consumer’s delivery expectations become the utmost concern and using a more expensive, dedicated transportation service becomes valuable.

If a shipment of holiday decorations is not delivered by a certain date, the product’s value can be eradicated. Consumer’s delivery expectations become the utmost concern and using a more expensive, dedicated transportation service becomes valuable. Conversely in peak seasons, paying unreasonable shipping costs for shipments of inessential goods should be avoided. Logistics providers will lean on more cost-efficient partners, oftentimes rail, to route those shipments.

Has Your Logistics Provider Set You Up To Scale?

Most vital, a multi-modal approach to supply chain management can enable businesses to scale and enter new verticals, knowing it has the technology to support different customer needs. Imagine the company shipping decorations is looking to venture into events outside of holidays and finds itself moving supplies, like tables and chairs, throughout the year.

Working with a multi-modal logistics provider enables that customer to properly plan and budget the movement of those products throughout the country, leveraging the varying opportunity costs that arise with each shipment. Recently growing in popularity, multi-modal providers can better service environmental sustainability requests as government entities put pressure on companies to mitigate their direct and in-direct carbon footprints.

As businesses set specific climate goals, they will naturally lean on their transportation providers to minimize waste. Being able to identify which shipments are best suited for low carbon rail versus high carbon truckload will become table stakes. Understanding the opportunity costs of your shipments and the needs of your customers is extremely important and it takes a technological, multi-modal approach to make sure customers’ unique needs are met.

Transportation Mode Decisions Need More Than Just Humans

These complex challenges cannot be solved by one human being and often take decades of carrier networking and negotiation to become flexible and on-demand. Working with logistics providers who have invested into machine learning algorithms, coupled with decades of transportation experience, can help create powerful, predictive analytical tools to make mode selection straightforward for business leaders.

In the CSCMP’s Annual State of Logistics Report, Kearney found that shippers working with logistics partners who are leveraging control towers, technology solutions giving visibility and insight into mode capacity, could help lower supply chain costs by 20%. This technology can prepare supply chains to make decisions based on an unforeseen increase in demand or slow its operations to avoid waste as orders decline.

Mode selection will become vital for every industry as demand across all transportation segments fluctuates.

In either scenario, mode selection will become vital for every industry as demand across all transportation segments fluctuates. Working with multimodal providers will enable your business to sustain and scale regardless of the beat set by consumers.