WEBINAR TRANSCRIPT

On Tuesday October 20th 2020, SemiCab hosted a Webinar, How to Monetize Empty Miles in Private and Dedicated Fleets. We were joined by industry experts Rajiv Saxena (Kenco), ElMarie Hugo (Supply Chain Expert), and Jagan Reddy (SemiCab Founder) to discuss the problems with empty backhaul miles, how private and dedicated fleets function within the freight industry as a whole, and a solution to ending empty backhaul miles through the use of Collaborative Transportation Networks.

Below is an edited transcript of the Webinar. If you would like to watch the webinar, you may do so by clicking here.
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Noelle:
All right. We'll go ahead and kick this webinar off. I want to thank everyone today for attending How To Monetize Empty Backhaul Miles In Your Private Or Dedicated Fleet. My name is Noelle Abarelli and I'm today's moderator. I'll start with a quick review of the agenda.

We'll start off with some introductions today. Then we'll take a look at the freight market volatility, how to secure reliable freight capacity, and take a look at the growth of dedicated and private fleets and the untapped opportunity they present. We'll also talk about the critical factors to realize this opportunity, and a little bit about predictive capacity optimization. I'll start today off by introducing our speakers.
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Our first speaker is ElMarie Hugo. ElMarie is an accomplished industry and supply chain leader with extensive experience in supply chain orchestration, contract logistics 3PL and 4PL. Elmarie, I'll pass it over to you so you can tell our audience a little bit more about yourself and your experience.

ElMarie:
Thank you, Noelle. I have about 20 years of experience in the retail space, very much focused on the execution side of planning and execution. I've worked for some really great companies and I've had some wonderful experiences with UTI (now DSV). And in that space I had a lot of exposure in both the transportation and warehouse management side of the business. I've been privileged to work with Ajesh and Jagan this past year to help promote the solution of monetizing empty backhaul miles, and fleet capacity optimization. We’re facing a really compelling situation in the market in terms of capacity constraints and there are some interesting solutions that are currently being adopted by industry players.

Noelle:
Thanks ElMarie. Next up, we have Rajiv Saxena, the senior vice president of supply chain solutions at Kenco Logistics. He's responsible for Kenco's engineering, solution design, continuous improvement, advanced data analytics, and digital transformation in innovation. Rajiv I'll pass it over to you so you can share a little bit about Kenco and your experience with our audience.

Rajiv Saxena:
‍I have been with Kenco for a little over two years and in the third-party-logistics industry for over 25 years. Before that, I worked in management consulting as well as in manufacturing. At Kenco I oversee supply chain solutions, which includes supply chain engineering, constant process improvement, supply chain innovation, liaising, business intelligence, advanced analytics, and labor management. My team and I are primarily involved in developing solutions for different types of logistics and supply chain problems, and implementing those solutions. Our goal is to help our customers have more efficient supply chain solutions to give them a competitive advantage in the marketplace.Kenco is a U.S.-based, mid-sized, third party logistics provider. We are the largest woman-owned 3PL company in the U.S.. We provide our customers with distribution, e-commerce, transportation management, and market handling solutions and services. We also  provide our customers end-to-end integrated logistics solutions and services in the form of different types of 3PL and 4PL offerings. Kenco is widely recognized for its excellence, and has consistently been rated a top 10 3PL in the world by Inbound Logistics magazine. This year we were ranked third!

Noelle:
‍Thanks Rajiv. And finally, we have Jagan Reddy, who is the co-founder of SemiCab. Jagan, do you want to tell the audience a little bit about yourself?

Jagan:
‍Thank you Noelle. Good afternoon, everyone. Thank you for joining the webinar. My name is Jagan Reddy. I'm part of the founding team here at SemiCab. I’ve been in the freight technology space for 25 years, building, selling, and deploying solutions in and around logistics, with a focus on large enterprises, whether they're larger brands, retailers, or 3PLs. I’ve worked for successful TMS companies, like BlueYonder and before that RedPrairie. Now, I’m switching to SemiCab. In short, SemiCab is an enterprise-centric digital freight ecosystem with a focus on truckload transportation. We’re currently based in the U.S., with plans to expand to other regions in the future. We work with shippers, brands from retailers, 3PLs, carriers, and brokers who are providing services to brands and retailers.

The SemiCab platform benefits participants in the ecosystem in two ways. For shippers, 3PLs and brokers who have one way loads, we enable access to reliable and dependable capacity. We eliminate empty miles, hence we generate net new value, which lowers costs for everyone. And on the carrier side, because we're eliminating what has been waste to date in terms of empty backhaul miles, carriers are able to make more through our model. On the other side, if you are a shipper who has a dedicated fleet or you are a 3PL operating a dedicated fleet or a shipper with a private fleet, we help monetize empty backhaul miles in those fleets to offset and reduce the cost of those fleets.

Our unique approach of deploying predictive and continuous optimization across multiple shippers’ loads creates fully loaded trips and eliminates empty miles. Essentially, we’re adding net new capacity into the overall network without adding trucks ordrivers on the road. On one hand, it drives sustainability, and on the other hand, shippers brokers, and 3PLS—everyone—comes together in an objective ecosystem to create value for all. This model has been recognized by industry thought leaders like Gartner, as well as large, well-recognized solution providers like Oracle and BlueYonder.

Noelle:
Great, thanks Jagan. We're going to start out our conversation by talking a little bit about market volatility. Over the last few years, freight markets have experienced significant volatility in capacity, availability, and rates. In your opinion, what are the key contributors to this volatility? And do you foresee the trend continuing into the near future?

Rajiv Saxena:
‍Yeah, definitely, let me answer this one. Because of COVID, we have seen major disruptions in the economy, and this has resulted in significant freight volatility. And we still do not know how it is going to play out over time. In addition, there are many other types of factors that can result in freight volatility. For example, in 2017 and 2018, we had ELD regulations that led to constraints on carriers and drivers, as well as driver demographic changes and a driver shortage. In 2019, we had a strong economy, but we also experienced difficult trade dynamics involving the trade war between the U.S. and China. And then there were a bunch of tariffs and incentives, which were put in place for driving offshoring, onshoring, or reshoring decisions.

This year, COVID-19 hit us in a big way. Not only do we see the impact of the pandemic, but we also see different stimulus packages that are being offered by different governments around the world. These are all playing into creating a variety of opportunities for volatility to thrive.

Additionally, there have been major changes happening in terms of things like the growth of e-commerce, which has only speeded up in recent times. And then there are political and trade dynamics, which are still playing out. It's anybody's guess as to how much and in what ways these are all going to affect the industry, especially with regard to volatility.

Noelle:
‍Super. Jagan do you want to address either of these graphs (SEE IMAGE) in terms of what they mean to the market?

Jagan:
Certainly. The one on the right-hand side was published by DAT to show how volatile the market is, and that's just one representation of rates for dry vans. And what we see from that is the pendulum swing seems to have become much more frequent, driven by a lot of the factors that Rajiv was talking about. Whether it was affected by the 2016-2017 ELD and regulatory factors, how the economy is doing, or trade negotiations across the world. There are a lot of  macro factors that drive volatility and that, as Rajiv said, is here to stay. We see that not just from a freight market perspective, but from a generalbusiness landscape. We're in for a ride as far as how businesses continue to remain competitive, relevant, and how they compete when everything is contributing to that volatility.

And then on the left-hand side, that's what we have been tracking within the SemiCab platform over the course of nine or 10 months since the onset of COVID-19. We have been watching how volumes drop off, followed by a gradual uptick through the summer. And we're going to see that tightening, in fact, that's happening now in terms of capacity rates going up within the COVID-19 period—we're seeing more volatility. Industry data points, and those from our own tracking lead us to believe that volatility is here to stay.

Noelle:
Given that volatility, what avenues are available for shippers to secure capacity? And what are the pros and cons of the way they're securing capacity today?

Jagan:
‍It certainly depends on the industry, the segment that you operate in as a shipper. But all shippers have three things that they focus on. The access to consistent dependable capacity is by far the most important, right? That's what a shipper needs to move goods for their businesses. Then, there’s the issue with how reliable the capacity is in terms of quality and service levels. And then the third is, cost. Shippers approach their need for capacity in five large ways (SEE IMAGE) depending on their volumes, the consistency of volumes, the size of their capacity needs, and the level of commitment and upfront investment they're able to make.

Jagan:
Pre the image, you may see retailers and large brands committing to private fleets and dedicated fleets, and as you go to the right through one-way carriers, all the way to digital brokers, shippers are making decisions in terms of what's important in each of these avenues. Capacity is the most important factor, and then beyond that service levels and cost. Relationships are also important to consider. If you're working with a carrier or 3PL, certainly your relationships play a role, but service levels, cost, and utilization are also very critical.

So as we look at the two important factors, reliability and predictability, you'll see the spectrum where private fleets will get you access to capacity that is highly reliable and predictable, from a service, quality, and cost perspective.

That comes with a flip side. As you commit to these fleets, you're accepting that you're going to be in it for a period of time. You're locked into a private or dedicated fleet model for a set amount of time. So what becomes important, in addition to service levels and cost, is how well utilized the fleet is, and that's where we see retailers and brands with those fleets thinking more and more, "My fleets are running at 50% utilization or 60% of utilization" which means, 50%-40% of driven miles are empty. And that’s when the question of monetizing empty backhaul miles really becomes paramount to improving the freight industry as a whole.

ElMarie:
‍Yes, what we're seeing in the market is that there's a steady decline in the one-way traffic of trucks, right? And where there's almost double the number in the decline, there is an increase on the dedicated. So the market is definitely evolving, and carriers via private or dedicated fleets are looking for opportunities to better use their assets, but they need to get a better return. In addition to that, they need to address the shortage of drivers as a whole. There is enough capacity in terms of assets in the market, but there aren't enough drivers to drive the trucks, which of course also opens an opportunity for automated vehicles.

But at this point that's still a back-burner objective. So the opportunity to do more with the capacity that is currently available is critical in terms of alleviating the pressure that we see in the market. And there's been a steady increase in the cost on the for-hire side of it. So the total cost of managing freight and logistics is continuously increasing. So being able to manage and contain that cost is key.

Noelle:
‍Thank you. So there seem to be several trends besides just the reliability and predictability that are forcing a growing trend in dedicated and private fleets. What are some of the things that are helping contribute to this growth?

ElMarie:
‍What we're seeing is that e-commerce, and the shipper community, is driving that growth as retailers are trying to get closer to their consumption points. There's been a proliferation of DCs across the geography, so the need for long-haul traffic is being reduced and replaced with shorter hauls. And then there's the immediacy of fulfillment that's driven by Amazon and customer expectation. The long haul is down-scaling in favor of the shorter haul. And the big thing here to consider are working hours. ELD is the electronic logging device that has played a major role in reducing the number of available hours that drivers can actually earn revenue on. Those are two points that stand out to me.

ElMarie:
Customer expectations of course also play a huge role. Everybody wants their delivery within two hours or within two days—we’re behaving like petulant two-year-olds. So, we want the immediate gratification and if we can't get it, we switch suppliers. Unfortunately, the cost of switching from a consumer's point of view is very low, but it's very critical for the shipper or the producer/manufacturer to maintain ownership of that market in order to stabilize their revenue streams.

And we've seen this growth in dedicated versus private fleets. There's a play there, in terms of what you are seeing, with respect to insurance, liability, and accountability for anything that may go wrong. That's pretty much the distinguishing factor between having in-house freight and controlling it, versus outsourcing to a 3PL, for example. You can still manage and control the KPIs, and you can have the commitment in terms of guaranteed capacity and performance.

But not everybody wants to have an in-house logistics department, which behaves like a 3PL, but isn’t their core competency, so they can get the same benefits by outsourcing it. They get the same visibility on performance metrics without having to deal with factors such as safety, fuel management, people management, etc.. The question is, do they want to do that and should they? On the flip side, if you have enough capacity or volume to move into a market, it may justify the decision to have a dedicated fleet. But you still need a whole organization to support the logistics of it all, and I don't think that's everybody's cup of tea.

Noelle:
Good point.

Jagan:
Yeah. And I think that these trends are here to stay. And that's driving retailers to say, "I need to have more presence with inventory in locations that are population centers." As well as driving manufacturers of brands who are supplying theseretailers to follow it.

So we're seeing this expanding network of locations, distribution centers, e-commerce fulfillment centers, close-to-consumer fulfillment centers, and that's driving the short to mid-haul. We see freight where manufacturers are making commitments to invest in a private fleet or a dedicated fleet, because they're focused on ensuring their product is getting to their consumer’s hands, or to a retailer's shelf.

They're focused on ensuring product availability and that is here to stay, whether you’re an e-commerce retailer, a brick and mortar store with an e-commerce presence, or a brand supplying them. This trend of proliferating net worth with more short to mid haul routes is here to stay.

Rajiv Saxena:
‍One other thing I would add here is that the speed, the reliability, and the quality of delivery is seen as part of building the brand. And that is going to drive even further this need to have better control and availability of capacity, while also being able to provide better service.

Noelle:
‍Well, there definitely appears to be a lot of upside to using dedicated and private fleets in terms of reliability. But the question really is then how well utilized are these fleets in terms of empty backhaul miles and what is the opportunity out there to monetize those empty miles?

Rajiv Saxena:
‍We talked at length about the need for dedicated and private fleets, which is driving this growth, essentially, the need for reliability and dependability in terms of having capacity available to you. And also about being able to provide better quality service and faster delivery, but it comes with a cost. That cost is that most of these fleets are not fully valued lines: utilization levels are low, in the 50% to 70% range. That means there are a good number of empty backhaul miles that are driving the cost up, which means we have a huge opportunity to improve fleet utilization. And there's major value to be created by doing that. If we can monetize some of these empty backhaul miles, that will help us with revenue generation that could offset a good part of the cost.

Jagan:
Yeah. Very good points Rajiv. As we look back, having been around these conversations for a long time, we've all seen an attempt to promote collaboration with other shippers. But most of those approaches to date have not been underpinned by a comprehensive platform, which is absolutely critical to make those attempts sustainable and scalable. So the opportunity is not new, recognition that the opportunity exists is not new.

Attempts have been made, but what has been missing is a platform that brings everything together, while keeping in mind all of the service level expectations, the scheduling pieces, and types of equipment. All of that has to be taken into account when you look at an ecosystem across multiple shippers’ needs. That's what's been missing to date, and that's where we see a big opportunity to put our model in place.

This is where Rajiv can shine some light on what the opportunity is and what should be done. What are some of the things that are critically important to consider to make this happen? Why do you think some of the past attempts have not been as successful?

Rajiv Saxena:
‍Based on my experience, there not being a proper platform with the right type of optimization technology is a big reason. And because of that, much of what was done was more limited in its scope. Number one, because it was more like two companies coming together and looking at a very limited pilot and tying it out without thinking through a network-type of approach with actual optimization and analytical techniques employed.

More often than not it was a reactive model, where you basically looked at what you have available based on what you see at that very moment. That’s very limiting. Earlier in my career, my 3PL company tried to put together a collaborative set up where multiple shippers could be involved, and it failed. Essentially, because it wasn’t well-executed and didn’t have the technology to support it. Plus, there was a level of hesitation on the part of key participants worrying if they were going to be getting fair treatment in terms of getting the right level of prioritization to their shipments.

We needed a collaborative platform where we could look at real-time load and capacity, powered by advanced AI and machine learning techniques, that would make predictions and would allow us to position our capacity better. The technology just wasn’t there yet.

Jagan:
‍Great. Thank you Rajiv. ElMarie do you have any thoughts on the opportunity and the attempts that have been made from your experience, whether at your previous employers or just based on your experience?

ElMarie:
‍I think what I've seen is tremendous curiosity around it. An interest from the players, but what I don't understand is why the adoption hasn't been faster than what it is, because the business case is so compelling. I think that those in transportation management and procurement of transportation are perceiving that there's an intermediary inserting itself into their conversation where they may lose relevance. And I think that couldn't be farther from the truth. The platform which you mentioned earlier, SemiCab, can aid everybody who participates, and that is critical. By establishing a solution that is platform-hosted and has tentacles into the sum of all the players in the market, you basically have created visibility into an ecosystem of capacity that extends beyond the immediate and the short-term.

With this platform, users can access the best of the best in terms of opportunities that fit their needs, allowing them to  gather loads for a return leg, which is key to eliminating empty backhaul miles. There is equitable visibility between all participants, which means any single organization can benefit from this model, because together they can work to achieve maximal asset utilization. By doing this and leveraging what you can offer on that platform, it's a no-brainer for players in the market.

Noelle:
‍Well, I think that makes a great segue into our next topic, how is SemiCab approaching the opportunity to monetize empty backhaul miles? It seems like there have been many attempts to monetize these miles or to reduce empty miles. And like we said, the adoption of solutions hasn't happened in the past. So tell us a little bit more about how the SemiCab ecosystem tackles this problem.

Jagan:
‍When we came together and started looking at this, we recognized that whatever we put together in terms of a platform, ithad to be easy to adopt. We know that a level of transparency was missing from the conversation. The level of value that we're able to create, and share with the community in the platform is important, right? To do so, we transitioned to a benefit-focused mentality. We started out with that idea, “Let's create an ecosystem that brings shippers (retailers, brokers, manufacturers) and their service providers (3PL or a broker), and carriers together, and build a solution we can all benefit from.”

So our solution enables access to reliable, high-quality capacity, with lower empty miles, at a stable and competitive price, right below market prices.

How do we do this? First, we deploy predictive and continuous optimization across all shippers’, brokers’, and 3PLs’ one way loads, as well as the dedicated and private fleets operating within our platform. We bring all of that data together and we take care of the optimization and prediction throughout. We do that by connecting to an existing enterprise TMS, wherever loads are being generated.

We consider ourselves to be complementary to TMS solutions that are already out in the market. What those TMS’ do is create loads for the next day to 48 hours, or they have fixed routes. We apply machine learning to that TMS’ load generation, and as those loads come into our platform, we can predict future loads by lane and by domiciles. So that becomes our aggregate demand on one side.

This means machine learning and prediction is vital. Being able to tap into the asset or equipment ELD signal is critical, so thatwe always know where the asset is or will be. And that becomes supply. We're able to perform predictive and continuous optimization of that supply and demand to generate fully loaded trips, so that all trips are driven with fewer empty miles, with loads belonging to multiple shippers.

What that results in is on one side, we're able to monetize empty backhaul miles, and dedicated and private fleets are able to secure loads from other shippers within the ecosystem. On the other side, we're able to provide capacity to shippers, brokers, and 3Pls looking for one-way capacity at below market pricing. More importantly, SemiCab is sustainable.  We're able to create new capacity without introducing new trucks, increasing our carbon footprint, or adding more drivers on the road.

We usually get asked, “What type of value, what type of benefits should I expect as I join the platform?” On the provider side, if you have a dedicated or private fleet that is underutilized, we see the potential to increase utilization from 50% to 70-80%. That's removing a substantial number of empty backhaul miles, and generating net new revenue for those fleet owners to offset the fleet cost. On the consumer side, if you're coming into the ecosystem with one-way loads, we're able to find backhauls or empty legs of a dedicated or private fleet, so that you get access to capacity at anywhere between six to 10%, lower pricing than what you see in the spot market.

Noelle:
‍Great. I think that brings us to a good stopping point, and we're getting some questions in from the audience. Ajesh is going to help us address some of those questions. Go ahead, Ajesh.

Ajesh Kapoor:
‍Happy to do it. Thank you, Noelle. The first question is, “We want to know more about the math and science behind how the software, the engine, makes the most optimal decisions while factoring in all the variables in the equation.” Jagan?

Jagan:
‍I think there are three critical things to consider, one is schedule, especially when it comes to dedicated and private fleets. They tend to be short to mid-haul, with very tight timelines. So when you have multiple shippers, trying to figure out whoseload and whose dedicated fleet is important. Aligning schedules is the most important factor that we address with our technology. The second is being considerate and sensitive to the carrier who is part of the equation, including the driver. It is important to make sure the pickup and drop-off Instructions are provided in a timely manner, that everybody knows where the truck is, and knows where the truck needs to be for either a drop-off or for the next pickup. The whole carrier/driver fleet experience is crucial, and our platform facilitates that.

And the third is route miles. After I drop-off of my headhaul that day, how far off will I be to pick up my next load? And that becomes a critical constraint for us, as we're doing the optimization to say, “Given the schedule for your asset, as part of the fleet you can only go this far out of route,” and that's something that we’re working on with the dedicated and private fleet owners, as well as us being able to say, “hey, we can’t take you this far out yet, so we need to bring you back.”

So we go through that collaborative process and we establish that as a constraint, “you can only go this far out from your route.” Those are the three factors that are critical to getting it right. And our technology was designed to address those issues.

Rajiv Saxena:
‍I think Jagan is correct about the types of variables you take into account and additionally, there are other types of constraints, like DRT regulatory constraints or there could be product materiality concerns, and these problems, even in a deterministic setting, are pretty complex. And when we are naming the analytic and predictive piece to it, they become even more complicated. And that is another reason why people have not been able to pursue this in the past.

SemiCab is taking all of these variables and factors into account. And that's one of the keys to making this collaborative network model successful and sustainable.

Ajesh Kapoor:
‍Thank you, Rajiv. I think the predictive piece is very important, especially from an optimization perspective. Dedicated and private fleets with primary shippers need to be set up with reliable capacity and predictable schedules. So you need an optimization engine that can not only predict, but work within those constraints, as they come up.

The next question here is from Jeff, he wants to know if we are using a partner tool for machine learning like AWS SageMaker, or is it our internal technology?

Jagan:
‍That's a good question. We made a conscious decision as we came into this, that we needed to have our own IP, our own approach. So that we're able to introduce the variables, the constraints, everything in this space. We are hosted on the cloud, but as far as the IP from a prediction and optimization perspective, it's the team at SemiCab that brings the expertise neededto create this solution.

Ajesh Kapoor:
‍So the next question is, “How is the SemiCab solution different from other digital freight brokers, digital freight marketplaces, like Uber Freight, Convoy, all of them?”

Rajiv Saxena:
I would love to take a stab at that.
That's my favorite question. So a couple of very simple things. I think there are differences in how we approach this market when we look at a load-centric solution, which pretty much all transportation and freight brokers have been until now. There's load-matching where there is demand for a load, and there is capacity that is not constrained by any factors other than where the truck may be, or if a truck is available or not in a particular area. I think that's the approach most digital brokers have taken in the past. SemiCab is different. We take the approach that a truck is always moving, with knowledge of our service and schedule constraints, informing them of what they need to adhere to to keep the system optimal and functioning. And that's where the complexity comes in. And that's where a lot of demand shipping goes in.

The second part that is philosophically different is when we talk about an enterprise-centric approach to freight, the big piece where it differs relates to dynamic pricing, and dynamic pricing provides very little protection against price volatility.

With SemiCanb, the approach is not just to provide reliable capacity, but to provide protection and stability, creating additional capacity in the market, without adding the cost associated with more trucks, more drivers, and more miles.

Ajesh Kapoor:
‍So the next question I have here is, “How long does it take to start seeing the benefits of joining the platform?”

Jagan:
First we start with an assessment, to determine overall value over the course of three or four weeks. We take a look at your past history, loads, routes, and what you've done in the past, so that we can understand your needs better. From there, we identify domiciles and lanes where we can eliminate empty miles in your fleet or provide capacity. After that, we go through an initial engagement to demonstrate value, and that can be a six to eight week process, where we're able to demonstrate how we can work with your fleet.

Ajesh Kapoor:
Okay. The next one is the tricky question. It comes from Ted, he asks "How do you deal with inaccurate data from shippers, be it size, weight, special requirements, issues where loads are not ready when they were supposed to be for pickup. When you have a risk of missing delivery appointments?”

Rajiv Saxena:
‍Operational challenges like this are never going to go away. With SemiCab, our optimization works in real-time, so it is always learning. The predictive piece is not just for when the demand is going to come up, but it includes where it is going to come up, or where the truck is going to be at any particular point of time. The advantage of the machine learning technology that we use is that we can apply it to multiple scenarios. When can you predict that something is going to go wrong with a particular trip/load assignment, you can feed it into the optimization algorithm and let optimization deal with that in terms of assigning and rerouting.

The second benefit of machine learning is that as issues arise over time, a pattern emerges. We’re able to adjust to that and learn from it. The dynamic piece, the continuous piece of how we optimize and how we adapt never goes away. The combination of prediction through machine learning and optimization is how we address that.
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Okay. I think we may be a few minutes over. I'm going to hand it over to Noelle. Feel free to email any other questions and we’ll be happy to answer them!

Noelle:
‍Yes. Please send in your questions and we will be sure to share this presentation with you. And we'll have a recording of this available for all attendees and anyone who registered for the event. Thank you for attending today, and thanks so much to all of our guest speakers Elmarie and Rajiv, we really appreciate you being here.