Buzz word: What is ‘Sustainability’? (Hint – it means more than you think)

There are so many terms used in transportation and business today. Are these words just ‘buzz’ words or can transportation providers actually back up what the words are promising? For this article we will look at buzz word ‘Sustainability’ as it relates to shipping.

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What is ‘Sustainability’?

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In the broadest sense, sustainability refers to the ability to maintain or support a process continuously over time. Most commonly in business and policy contexts, sustainability seeks to prevent the depletion of natural or physical resources, so that they will remain available for the long term, but it’s important to know this isn’t limited to the natural environment.

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Let’s dive a little deeper on this topic. When a shipper is requesting or discussing sustainability what are the key components? What are they really looking for?

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1.?????Most obviously, they are looking for Environmental sustainability. Asset carriers have trucks that are far more efficient they run cleaner, with better fuel economy, than ever before. Additionally, asset teams plan their routing to reduce the number of route miles (more important in low-rate market) so they do not idle over ‘X’ time. Route optimization is a large focus for Brokers, 3PLs, 4PLs in many cases, and they work with shippers to improve for everyone’s benefit. Good companies are continuing to reduce their carbon foot print for their companies and their shippers through technology, planning, and better equipment.

2.?????Next, shippers are looking for Service Sustainability. To shippers, service sustainability is being able to consistently provide the required services and rates over a length of time. Post Covid, the biggest trend in Supply Chain is to favour the ability to maintain the chain above all else. Shippers require the transport partner to provide sustainability to ensure their supply chain goes un-interrupted.

3.?????The other concern is Economic Sustainability. Especially in 2023, with asset carriers and brokers leaving the market, and reducing head counts, and generally facing challenges. Shippers are rightfully asking if their partners are financially sustainable, especially when doing RFPs. Certain shippers have terms of 90-120 days, if their partner is not financially sustainable these terms will have a more negative affect on supplier sustainability, and the ultimate goal of supply chain un-interruption.

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I’d like to spend a little bit more time on Economic Sustainability, since this is a hot topic in this changed market.

It’s well known in our industry that we have less carriers in March 2023 than we had in March of 2022. Some of this is due to consolidation, however we have also lost several carriers as current rates do not support the cost to operate a trucking company.

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Who are the carriers that are struggling to provide economic sustainably for themselves and shippers/partners?

Carriers that entered the market during the pandemic struggled to find new equipment and paid considerable increases for used equipment. According to the American Transportation Research Institute’s Analysis of Operational Cost of trucking in 2022 – (page 32 ‘truck and trailer costs’) – “the average retail price of used 3-to-5-year-old trucks in 2021 was 40.7 percent higher than in 2020 and 21.4 percent higher than in 2019” (Click here to view the study).

Fast forward to today, and spot market rates have dropped considerably. Many shippers have moved to the spot market to take advantage of lower rates, and these rates are not supporting the high equipment prices these carriers paid. Unfortunately, some are finding themselves unable to maintain sustainable services.

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Is playing the spot market a sustainable strategy?

Shipper beware, a spot rate reliant strategy will not prove sustainable. Most shipping companies are fully aware of this, and they will utilize the spot as a short-term strategy only, but this is worth mentioning. Shippers who are taking advantage of the spot market and not working with their transportation partners will have challenges when the market does change.

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What types of asset services provide the most Sustainability?

Some asset carriers have built dedicated programs around contracted rates with fuel being the only variable. These are sustainable if they are based on a cost-plus scenario, such as the Wellington Dedicated Services program. WGOC introduced these sustainable dedicated solutions in 2018 for several shippers and continue to provide these services in 2023. For the shippers utilizing dedicated with Wellington, the 2021-2022 drastic spot market swings had little impact on their operations. Other non-asset 3PL and 4PLs with technology and relationships with their asset partners are also using versions of dedicated services. These services are generally providing a high degree of economic and service sustainability. They can even provide advance environmental sustainability, since shippers have the most control over the equipment and how it is utilized.

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Final thoughts;

Shippers need to challenge themselves to be more sustainable, diversifying their procurement process, establishing dedicated services, consolidating the number of partners overall, and more to improve their rates and services. It will be key to focus on establishing sustainable relationships with their shipping partners so when the market inevitably changes, these relationships will help ensure supply chain security.

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Shippers who want sustainability, work with your transportation partners taking a long-term approach. It’s time to ask, do you have partners willing to provide sustainable solutions?