What’s Driving the Increase in Transportation Management Technology Spend?

DC Velocity and Descartes have conducted a transportation benchmark study for the last two years to help transportation professionals understand what is driving the market, and how the strategy and tactics of top performers differ from the rest of the pack. This year’s study again showed that IT spend in transportation management is expected to increase. Those companies that view transportation management as a competitive weapon will consume the lion’s share of the increase versus companies that think transportation management is a basic need/necessary evil (see Figure 1).

Transportation IT Spend Change Next 2 Years
Figure 1: Transportation IT Spend Change Next 2 Years (Source: Descartes)

So, what is driving the increase in spend overall and especially for top performers? The following are excerpts from the 2018 Transportation Management Benchmark Study that point to some of the most significant underlying reasons why and who will benefit the most.

Directly opposing macroeconomic trends. Transportation capacity has, and will, continue to be the most dominant factor in transportation management for the next five years (see Figure 2). The driver shortage and the hours-of-service regulations impacts are widely known, and there doesn’t appear to be a short-term fix. For reference, the study found that only 11% of the respondents thought driverless vehicles would have an impact. The other top trend, however, that is going to make the situation worse — e-commerce. E-commerce grew by 23% in 2017 according to eMarketer, and every additional e-commerce delivery requires a vehicle AND driver to get it to the consumer. With e-commerce growth expected to be between 15% and 20% over the next five years, the situation will get worse before it gets better. The adoption of transportation management technology becomes more important as it critical to helping companies get the most from the capacity that exists in the market.

Figure 2: Top 4 Regulatory/Industry Changes
Figure 2: Top 4 Regulatory/Industry Changes (Source: Descartes)

Hot competition, economies and costs. The study highlighted that customer delivery expectations continue to rise and competitors are using new transportation-based customer service models to compete (see Figure 3). There are numerous examples of how companies are using delivery to capture new customers and even drive incremental revenue. The study showed that companies where management viewed transportation management as a competitive weapon were 60% more likely to have industry-leading financial performance. Economies across the globe are also enjoying solid growth and, as a result, many companies are growing as well. Lastly, transportation costs have always been a focus, but are increasing due to the constrained capacity, not just in North America, but in Europe as well. Transportation management technology addresses all of these areas, helping to enable new competitive delivery models, getting more products to a growing customer base and helping to squeeze out costs where possible.

Figure 3: Top 3 Business Drivers for Expanded TMS Use
Figure 3: Top 3 Business Drivers for Expanded TMS Use (Source: Descartes)

Not a done deal. While transportation management technology spend overall is expected to go up, the study showed that many of the respondents struggle to get their transportation projects approved. Clearly, logistics organizations are not doing a good job educating senior management on the overall value of transportation management. The benefits of transportation management technology go well beyond the transportation organization, however, the study showed that organizations are not capturing that value. The situation is even worse for those companies where management does not see the strategic value of transportation management (see Figure 4) and points to why those companies that “get it” will get more of the increasing spend than those that “don’t”.

Figure 4: Primary Obstacle to TMS Investment
Figure 4: Primary Obstacle to TMS Investment (Source: Descartes)

Transportation management is more important than ever and, for many companies, is the way they differentiate themselves versus the competition. Technology is an important enabler of improved efficient transportation performance. While there is expected to be more investment in transportation management technology, it will be more concentrated. To understand how top performers’ transportation management strategies, tactics and technology decisions garner the investment and benefits, join the upcoming 2018 Transportation Management Benchmark Study web seminar.

As Executive Vice President, Marketing and Services, Chris Jones is primarily responsible for Descartes’ marketing and professional services organizations. With over 30 years of experience in the supply chain market, Chris has held a variety of senior management positions including Senior Vice President at The Aberdeen Group’s Value Chain Research practice, Executive Vice President of Marketing and Corporate Development for SynQuest, Vice President and Research Director for Enterprise Resource Planning Solutions at The Gartner Group, and Associate Director Operations & Technology at Kraft General Foods.