This commentary was written by Ittay Hayut, CEO and co-founder of Hoopo, a provider of power-efficient asset tracking solutions. The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates.
By Ittay Hayut
Since the advent of the COVID-19 crisis, supply chains have been in a state of turmoil, with several factors impacting the health of logistics businesses at large. A black swan event with a persisting effect on daily operations for nearly two years, the pandemic has spun off disruptions similar to falling dominoes, creating issues that strain freight movement globally.
Industry stakeholders struggle under the weight of a massive increase in freight prices due to rising consumer demand, even as logistics service providers (LSPs) fight to find container capacity to move cargo. Port congestion and intermodal hub holdups have become commonplace as freight capacity crunch, pandemic-induced regulations and spiking demand continue to put pressure on movement.
These supply chain issues are universal, reflecting in the intermodal trucking market as well, as fleet owners contend with uncertainties in the environment beyond anything they have operated in before. The issue is compounded by the rise in the price of new tractors and trailers, brought about by halting production at OEMs.
This, again, is a consequence of the pandemic. Shortages in auto parts like semiconductor chips and commodities like copper and steel, followed by COVID-19 breakouts in manufacturing facilities, meant OEMs had to shut doors for weeks at a stretch, impacting production.
The trailer market is no different. An ACT report on trailers showed that the ratio of trailer orders to tractor orders has been abysmally low, recorded at roughly 0.65 in June. In any typical year, the ratio would be close to 1.5 — over twofold higher than the current state. This is an important indicator as it shows the pressure the trailer market is under due to the order pause that is prevalent in trailer production. With this being an ongoing situation, trailer availability in the market will be in heavy duress all the way to 2022.
This working environment creates a problem for fleet operators and intermodal trucking firms. The market is hot in terms of freight rates, making it an opportune time for carriers to increase their gross revenue by capitalizing on spiking demand. However, running into issues with increasing the size of their fleet — by buying or leasing assets — is increasingly becoming a problem.
To circumvent this paradoxical situation, companies must look to increase the visibility they have within trucking operations. Track-and-trace capabilities will help fleet management gain visibility over assets, allowing them to calculate asset uptime and efficiency. In a standard setup, the truck-to-trailer ratio within an intermodal fleet would be roughly 1:3. However, meticulous optimization can help reduce this ratio even when hauling identical freight volumes.
Consider a fleet with an asset strength of 15,000 chassis, registering 2% asset growth annually. This would mean the fleet would be adding roughly 300 new chassis every year and close to 1,500 in five years. A new chassis costs anywhere from $12,000 to $15,000, translating to $20 million in capital investment over a five-year period. Add maintenance and refurbishing costs for the existing assets, and the company stands to spend a few million dollars more to maximize uptime.
While asset management sounds like a capital sink, it could get a lot worse with the current conditions, in which trailer orders run the risk of being turned down and deliveries held up for several months. In this scenario, it makes sense for companies to look at optimizing capacity in their existing assets. Asset track-and-trace allows management to do more than gain visibility over freight movement. By understanding real-time asset status and keeping tabs onc freight that needs hauling, fleet operators easily can match capacity with volumes, even automating the process to a great extent.
Asset tracking can also reduce idling like in drayage operations — a common occurrence today thanks to port congestion and delays in loading and unloading at the dock. By having visibility into possible delays, companies can look at shortening hauling cycles by reducing dwell times, eventually improving asset productivity.
Preventative maintenance is another benefit, with asset tracking helping companies avoid equipment breakdown and the resulting logistics chaos. Operations managers who track assets will receive notifications on annual maintenance actions per asset, helping easily manage maintenance workflows. When the tracking system monitors an asset for a period of time, it can theoretically provide predictive insights into required maintenance actions — irrespective of scheduled maintenance.
Due maintenance will ensure assets have longer life cycles, further reducing the need for asset-related capital expenditure. This is true of the industry at large as trailer life cycles have improved dramatically, with expected life spans now hovering at around 12-15 years, up from eight to 10 years a decade ago.
Having visibility over assets has an overarching impact on company bottom lines and future-proofs businesses from being ruined by market uncertainties. Asset track-and-trace will continue to be relevant even in a fair-weather market, as increasing uptime directly correlates to running sustainable operations — a reality dawning on every stakeholder looking to put resiliency at the center of his or her organization.
About the author
Ittay Hayut co-founded Hoopo to make it possible for complex logistics operations to track and monitor assets and improve efficiency and quality of service. He is experienced with every phase of the tech startup life cycle. Prior to Hoopo, he was innovation tech leader at the IDF intelligence corps. He co-founded 9900 Alumni Association,which has over 2,500 tech members. Hayut was a student of The Interdisciplinary Program for Outstanding Students at Tel Aviv University, with a primary focus of cognitive psychology and business management.