E-Commerce Disrupts Freight Seasons, Boosts Spot Market Volume

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The rapid growth of e-commerce has led major online retailers to re-design their supply chain models, according to Mark Montague, DAT senior pricing analyst. At the second annual DAT User Conference, Montague presented a summary of his research on “Retail and E-tail, and You” to more than 165 of the company’s customers.

“The disruption has been profound,” Montague declared, as the screen behind him displayed an image of the word “Boom!” superimposed over a photo of a supernova. “We’ve gone from the traditional supply chain design, with planned volume moving on a handful of predictable routes, to a more diverse set of destinations, with smaller, less regular volumes,” he continued.

Online sales have grown by an average of 15% per year since 2014, said Montague, citing statistics published by eMarketer.com. If that rate continues, total online sales will double, from just under $300 billion in 2014 to over $600 billion by 2019. To handle the growth, and accommodate consumer demand for next-day and same-day delivery, retailers are establishing a larger number of tiered, specialized distribution centers, providing greater redundancy and efficiency within a day’s drive of the nation’s largest metro areas. The retailers save time and money by consolidating packages or mixed cargo, and moving full truckloads of merchandise from one distribution center to another, to pre-position goods in advance of the demand. Leading brick-and-mortar stores are following suit, in order to remain competitive.

Major e-commerce and “big box” retailers have established multi-tiered supply chain networks. The map above depicts the recent proliferation of specialized distribution centers close to large metro areas.

One result has been a transformation of seasonal freight trends, and transportation spending, especially in the fourth quarter of each year. Before 2013, October was the busiest month for freight transportation, as merchandise had to be on store shelves in advance of the Thanksgiving weekend. In recent years, however, as e-commerce volume has doubled, holiday freight continues to move throughout the fourth quarter. The additional demand has caused spot market rates to peak in December for semi-trucks outfitted with 53-foot van trailers.

Seasonal trends are also affected by large, online sales events that rev up freight volumes in the off-season. Montague cited the “Christmas in July” sales promoted this year by a leading e-commerce site and mimicked by other online retailers. The additional sales gave the spot market an atypical boost in July.

“We’re accustomed to a June peak in spot market freight, where volume and rates drop abruptly after the Fourth of July,” Montague said. “This year, by comparison, the heightened demand continued through mid-July, and we saw only a slight dip in volume and rates for the entire month, compared to June.”

“As we move toward this new paradigm of freight transportation on demand, we see a bigger, more vital role for freight brokers and other third-party logistics (3PL) providers to manage the shippers’ transportation and provide just-in-time capacity resources,” Montague concluded.

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