Episode 56:
Why retailers can't ignore road freight strategy

Ahmed El-Alfy:
Hello and welcome to another episode of Freight to the Point. My name is Alfy and I will be your podcast host for today. So we’ve talked a lot about the ocean market in our podcast from rates, inventory, disruptions, and you name it. Lots of things happening in the ocean wild, but I think it’s about time to shine a spotlight on road freight for a change, don’t we think. So there’s no one better to join me to discuss this topic other than Mr. Michael Starr with a double R. I wish you are our rising star. He’s the Zencargo’s Overland Commercial Director. Michael, thank you for being here. Would you like to give us an intro about yourself?

Michael Starr:
Sure. Very quick intro. Michael Starr. I’ve been in the freight and logistics arena, as I like to say, for about over 15 years now in the US, APAC, and now European region. I’ve been with Zencargo for almost four years, maybe a little bit over four years now. It’s tough to keep track of time nowadays, but yeah, happy to get stuck into road freights.

Ahmed El-Alfy:
That’s great. I can’t wait. So let’s buckle up and start the journey. All right, Michael? Great. So there are lots of key trends in the market and obviously the road market in specific in today’s episode, and I think there are lots of things that happen around the world and where we are and how it’s changed over time. So my first question to you really is to kind of understand how the road freight evolved since before the pandemic, we’ll take that as a milestone as everyone can relate to, and what kind of a road strategy looked like in the old days before the pandemic, if that makes sense?

Michael Starr:
Yeah, I would say certainly a lot has changed from, for the last, let’s say four years. We’ve had a couple key inflection points with the pandemic and then, of course, the Ukraine, Russian War afterwards. I would say when we look at the pandemic versus post-pandemic versus pre. And road freight was really structured, it was really very set, very structured asset-based. And you’re starting to see, especially with the pandemic time, how quick everything had to move to service your customers to achieve the speed to market that you wanted to achieve. You really had to just accelerate all aspects of your supply chain and road, of course, being the first and last link, at the very least, the first and last link of your supply chain. So when you talk about delighting your customers in the last mile, whether it’s B2B, B2C, the pandemic was all about speed, getting stock to your customers, getting there in the timeframe that they expected. And costs just naturally kind of became second nature to that, to the speed aspect.

So what we saw, especially in the last four or five years is, of course, digitalization and technology have really helped change the old ways of doing things. The old real structure, this is the way it’s been done for 30 years, it’s kind of started to change a little bit. The pandemic broke a lot of that down with needing to be quick to market. It broke a lot of those barriers down naturally as well. The problem then is with when you look at 2022, February, March with the War in Ukraine, that then took all the really fast quick decision-making that had to happen then made it very expensive. Now obviously that’s changed a little bit with the downturn in the marketplace, and road is certainly feeling that, but not nearly to the degree that you’re seeing that in the ocean freight market for instance. So I would say that’s a really big transition area period the last five years is having to go fast, fast, fast, and now fast, fast, fast has become expensive, expensive, expensive.

Ahmed El-Alfy:
Yeah, it is interesting you’re saying that because definitely we are seeing a demand falling down from how it was in the past. So as you said, everything was fast, fast, fast. And I love your analogy speed and fast, that’s when it comes to road, but how did the carriers respond to that slowness of demand?

Michael Starr:
I think you saw a lot of them kind of really jump in with both feet and change a lot of their processes and ways of working to achieve what their customers were demanding of them. And of course, you saw a lot of investment in assets, in new trucks, Euro 6s, clean technology, more drivers. Everyone knows that basically everywhere you look around the world, there’s a tremendous driver shortage gap that exists and is growing, and so everyone’s investing in that to make sure that they can meet their customer’s needs. So that’s really the big changes there is the carriers, I would say. When you see the money writing on the wall, carriers will generally try and follow that. And so yeah, you’ve seen the uptick in technology with the telematics and working with companies like FourKites and project44, a lot of carriers are starting to integrate with them from their telematics perspective because they know that’s what the market is starting to demand. So yeah, they’re kind of being pulled by the customer’s needs and wants to change a lot of their old processes.

Ahmed El-Alfy:
So how do we see the difference between road in specific and other modes of transport in terms of disruption, in terms of how they all changed in response to that disruption, and the changes of carrier relationship? Obviously, everyone is really aware of the ocean relationship carriers where there’s a lot of capacity, not all the things ocean now, but how does it differ from the road side of things?

Michael Starr:
Between ocean, air, there’s such a fundamental difference with road because of how fragmented the road marketplace is. In the US there’s 50,000 different carriers. In Europe, it’s not too dissimilar. When you look at the ocean marketplace, you’re talking about eight, nine bigger ones and a few niche carriers. And even air, you’re talking about quite good cargo lines and also passenger that move cargo, alongside some niche carriers as well. But there’s also alliances there, there’s Inter-Alliances there for moving cargo through each other’s flights. So you’re really talking about 30, 40, 50 options on air freight. So that’s broken down so dramatically when you look about road because if you are a first mover in road freight, it doesn’t necessarily translate to the rest of the market. And that also applies, of course, to rates and capacity. Let’s say I have too few shipments for the amount of trucks that I have because, let’s say, I bought 50 trucks or a hundred trucks during the pandemic.

And now, obviously, there’s a bit of a downturn at the moment and I could drop my pricing to try and fill those trucks, but it doesn’t necessarily even mean that I’m going to see those shipments, it doesn’t actually mean I’m going to keep my drivers busy, it’s just not how the market correlates. So that’s why when you see, and even though there’s obviously of course fixed asset costs, it’s just not to the degree of laying up a cargo ship and getting the rates to come back up because if you lay up all your trucks and just move the bare bones that keep your customers relatively happy, someone else is going to be trying to fill theirs. There’s 30,000 competitors in Europe for full truckload. So it just doesn’t translate to the same market. So when you look at solutions, so I think what the interesting thing is that solutions tend to move quicker in road freight than they do in other modes of transportation, but rates and capacity tend to not change that much, it kind of antithesis to the other modes.

Ahmed El-Alfy:
Yes, it is interesting you’re saying that because you are kind of providing an insight of how the carriers are thinking, and that’s really interesting because not many shippers understand the logic of how carriers are thinking and I think the key here is really understanding how to be a good customer for the carrier, as well, in tough times, or lower or up times. But how would the shippers think in terms of road freight when it comes to strategy and in the restocking cycles? And obviously, there are lots of risks and at the same time what kind of opportunities that they should grab when it comes to that?

Michael Starr:
I think because road freight is so intrinsic to your customer, your end customer’s experience, again, whether it’s B2B or B2C, it ends up on a truck and being delivered somewhere. It’s so core that I think strategy really plays a strong element to build that strategic partnership with one or a variety of carriers or non-asset based companies that fill the strategic needs that you have across your supply chain. That, to me, is you start, number one, with I want to build a strategic partnership with A, B, C or 1, 2, 3. And when you go to market, you start to see what everyone wants and needs and they’re definitely not the same.

No haulier, no non-asset based provider is the same and they all have different wants and needs. And if you can work to a mutually beneficial situation, you tend to find long-term relationships that support each other through great growth, when everything’s going well and you just need a lot of support, a lot of capacity, a lot of help solving problems versus, and then the bad times when you need to move things at the most cost-effective way possible and it’s bare bones. And that’s how I think you, that’s a mind, sorry, the framework that you start from, is building a strategic relationship.

Ahmed El-Alfy:
Yeah, I think definitely it is a key thing to have with your carriers, it’s build strategic relationships. Let me take you into the world of problems. Everything in any mode of transport, unfortunately things can be challenging at times, right? Apart from Brexit, which was a very big challenge for every single customer and shipper in road transport, what kind of issues or challenges they may face that really goes and affects the market in the road freight world?

Michael Starr:
Well, a couple of the big ones would be, of course, driver shortages and capacity shortages or a glut of capacity. Fuel, depending on what trade lane you’re operating, it’s 25 upwards of maybe 35% of your operating costs on a daily basis as a transport provider. It’s investing in new technologies. There’s always, it’s not so binary as with ocean and air where you make a really big purchase and you can see that investment play out for many years. Trucking, it’s not necessarily as much as a, you see a shorter term benefit, and then there’s new technologies that come into place, and the CapEx required to buy a truck is not obviously the same as buying a Boeing or a new 20,000 TEU vessel. So it’s a bit of a quicker turnover there. So they’re assets themselves.

And then I would say certainly reliability is a big one. Again, when road freight touches your customer so importantly that reliability piece just starts to, we all have those escalations of missing a delivery slot or 30 minutes late and someone’s been waiting to offload for 30 minutes or maybe they hired some laborers for the day to offload, and it’s just every time those reliability issues come into play, they have these knock-on effects to the carriers, to the customers, to you, yourself, as the shipper. So they’re also very intrinsically linked together.

Ahmed El-Alfy:
Yeah, no, a hundred percent. I mean, these kind of challenges are slightly different from other mode of transfer, but at the same time I think it’s been consistent. It doesn’t come up, like you see driver shortages and it’s always been either comes this time of period, there are driver shortages and it’s resolved and then a few years later there will be driver shortages. It literally becomes a natural recurrence.

Michael Starr:
Very cyclical, yes. I mean, with also road freight, once a ship leaves its last port in the far east, okay, it’s slow steaming, but you generally have a pretty finite window when it’s actually going to arrive to, let’s say, the European Port of Call and maybe it’s plus or minus 24 hours or whatever. But when you look at journey, it’s such a small percentage of that 40-day, 45-day journey. Road freight with how delays work and working hours for the drivers’ work in US, obviously, as well as Europe and the UK, these little bits of time lost or efficiency lost actually has a really large knock-on effect. And so this is where planning comes really key between shippers and hauliers.

For instance, we had the bank holiday yesterday or maybe, well, sorry, you can say whatever, on May 29th, the bank holiday. And so Germany and a few other countries have a driving ban. So you had a driving ban Saturday, Sunday, Monday. You have plenty of customers who would expect that you could have delivered something that collected on Friday for Tuesday morning, but you actually couldn’t have driven most of that time. So you need to, on a really week by week, almost day by day basis, be kind of consulting and working with your hauliers to know the best way to service your customers, whether they’re your own internal stock transfers between warehouses or they’re your final customers, et cetera.

Ahmed El-Alfy:
So I think we’ve kind of spent a fair amount on challenges. Now I’ll take a U-turn and start talking a little bit about how shippers really navigate the market in terms of keeping the cost down and avoidance of cost and unnecessary cost, because obviously with ocean we know, again, what kind of costs that we can avoid, and with road, not many would be aware of it. So what kind of things the ships could do to minimize that?

Michael Starr:
So I’d say there’s finite or easy short-term stuff that you can do and then there’s long strategic opportunities. The one thing I’ll say is that this is an amazing time to actually take stock of your supply chain, especially when it comes to road freight, and analyse every bit and bob of it and you can say, because there’s a bit of a downturn right now, and it’s a really good opportunity to say, what bad habits did our organization pick up over the last three, four years? How can we exorcise those demons out a little bit and get this back to a really streamlined place that operates really efficiently to be ready for the next upturn in consumer demand? So I think when I talk about exorcising demons, it’s a lot about that communication and planning.

So it’s a really good opportunity to sit down at least with the top trade lanes that you’re working with, the top customers that you have, and let’s say they have certain requirements, well, how can you start from what they need and work backwards to and eliminate all of the opportunities for extra charges to come into play, demerge, detention, customs issues, et cetera? So you can start to, when it’s kind of a calmer period, you can start to take those costs out of the process and, again, be ready for when you’re moving 20 trucks a day instead of when you’re moving five trucks a day because that’s exponential value fixing those issues now. And then from a more strategic perspective, again, it’s a great opportunity to look at consolidation. Are there more interesting ways of moving cargo that we’re moving today? I don’t want to say, I don’t want to turn my road customers to short sea customers, but that’s a great opportunity, right? Is to-

Ahmed El-Alfy:
No one wants to.

Michael Starr:
I mean, so opportunity to just say, well, okay, we’ve always done it this way, but why have we always done it this way? And maybe we actually, when we look at our supply chain, it’s hard to tell when you have, let’s say, 40, 50 buyers who are all kind of operating independently, you bring it all together and you say, actually, we can all have cargo ready around the same time in Italy, Germany, France, whatever it may be. And this is actually an opportunity to, instead of organizing 10 different shipments from 10 different locations that all have 10 different deliveries into your warehouse, so there’s a lot of operational costs built into that. Having 10 different people show up on four different days, how can we turn that into two or three deliveries and collections and make that more cost-effective and operationally efficient? So those are the types of things that you can look at now as well is multi-stop truckloads or consult milk run origin consolidation opportunities.

Ahmed El-Alfy:
The same, one of my favourites is Mel crosses at origin and destinations, it’s literally a mini bus going and picking up and then going back. It’s such a great thing. Yeah.

Michael Starr:
Yeah, it’s amazing, especially if you have any sort of critical mass yourself as a shipper to start to bring those types of things together. And you work with a company, an asset-based or a non-asset based company that compliments your geography and your supply chain and then you get a lot of value out of that exercise. And like you said, you can do it at origin and at destination, you can really do it wherever you have some sort of critical mass of suppliers or customers. So we’re seeing that a lot right now.

Ahmed El-Alfy:
Yeah, and it’s quite quicker as well compared to ocean, I mean because you consolidate and just go, right? It’s different just going to the port and waiting and it takes a bit of time to depart, but now it’s just with road, it’s just consolidate, drive in most of the cases, depends on the transit, it will be very quickly to arrive and it’ll be a very economical option.

Michael Starr:
Yeah, I mean, that’s a great point you make. Some of these options, a lot of options when it comes to road freight that are more strategic and long term and can take cost out, very oftentimes they can actually add value in terms of reducing transit time, quicker to market, quicker to supply chain, lead time from your suppliers into your warehouses. It’s usually not this or that, it can be both in road freight. I would say actually more often than not, it can be both because that critical mass makes it obviously more economically efficient for everyone who’s in your supply chain haulier, so on and so forth, suppliers.

Ahmed El-Alfy:
Yeah. And I really love you mentioning a lot of value, right? Again, yes, costs can be reduced and everything, but for me it’s the epiphany as an account manager, I’ll have to be biased, it’s really the value drivers you bring, not just with costs. So everyone can do the cost, but it’s the value that adds to that cost that you’re paying. So how can shippers get that value with the relationship with their carriers? What kind of things that they can do?

Michael Starr:
I mean, it all starts with creating a win-win scenario is where you’re aligned for a mutually beneficial outcome. Whether if you are a shipper and it’s cost out or if it’s transit time reduction, maybe both, in a perfect world you get everything, then I think you find the right strategic opportunities and you have that mindset, you’re going to get value delivered to you. One of the things that I love about Zen and my work at Zen is I get to partner with customers and fill those gaps in their supply chain with the same operational efficiency of working with Zen comparatively to working with, let’s say, four or five or eight different hauliers that you have to work with. There is no single asset-based organization in the world that can do everything well and deliver perfectly.

Ahmed El-Alfy:
It’s very hard to find, yes, absolutely.

Michael Starr:
It’s not impossible, but if you find it, you’re paying out the wazoo for it as well. So that’s one of the beautiful aspects of working with a non-asset based carrier is you’re able to have the same operational efficiency but work with across your whole supply chain, filling all those different gaps with better solutions for the marketplace. So I think having, to tie it into the last point, I definitely think having a mutually agreed, I guess I would say, statement of works or scope of works in that you both shipper and carrier outline, before the engagement, what value you’re looking to achieve and derive and what you are going to be able to do for the other party.

And that sets, again, the framework for the whole engagement and delivering upon that value. So I think it’s also very important to have all that kind of to have your wants and your needs planned out in advance and then go find the right strategic partners to make that happen for you, who align to that vision that you’re asking for. Because a lot of times you go so far up the river with trying to, you think this is going to be the right solution, but it turns out it was actually never going to be the right solution because you’re just too misaligned on service delivery standards or technology, et cetera. It is much better to outline that all out in front and then basically agree on it moving forward as the next step.

Ahmed El-Alfy:
Yeah. And it’s interesting as well, it’s not we’re not just looking at moving the freight from point A to B, is the value as well that brings to other things on the side, be it your customs process, whether you have the same broker as your freight provider, it’s your systems that you use and all that. So it definitely gets more granular as you start getting the value that you’re doing, just not really only moving A to B.

Michael Starr:
I mean, a value can be so granular as our warehouse likes to load on Fridays, but our broker, let’s say you’re moving from the UK to the EU or EU to the UK, but our broker isn’t open on Saturdays and Sundays, and it creates either creates demerge or it creates a challenge that we actually have to load on Thursday mornings now instead to meet the transit time requirements and the customs clearance. It can be so simple as aligning the right solution that gives your warehouse the best of that world, makes the customs worker be able to work for an hour on a Sunday to get the clearances done for everything that loaded on Friday. And your customer is there at 8:30 in the morning on Monday and he’s getting his deliveries and he’s really happy too, instead of having a truck be stuck, he is at 11:00 AM on Monday and he is like, where’s the trucks that I’m expecting? Are they stuck in the Netherlands waiting for clearance or something like that? So value can be as granular as just exorcising a little bit of those challenges.

Ahmed El-Alfy:
That’s great, Michael. I completely agree. I think we could talk about that all day long. The road freight world is a big one. So I think it’ll be interesting to have another episode on solutions part of road freight because everyone really understands the kind of ocean side and the air side, but not with a road. I think there’s great food for thought that listeners could have there. Thank you so much Michael, and thank you for joining us on this podcast. I’ve really enjoyed our conversation. And thank you everyone for listening in and listening to an episode of Freight to the Point. I’d like to ask you to not forget to like or subscribe to our series on Spotify, Apple Podcast, or Google Podcast if you enjoyed this episode. And of course, if you have any questions or feedback, please feel free to reach out to us on LinkedIn or any of your social media preference. We’d love to hear from you. Thank you so much.