Why Surge Pricing and Collaborative Logistics Go Hand in Hand

Original Article: November 16, 2017. SupplyChainBrain (online and e-news). “Why Surge Pricing and Collaborative Logistics Go Hand in Hand,” bylined article by Simon Bunegar.

Surge pricing, where the value of a particular item or a service increases according to demand, may soon be coming to logistics – and bringing green benefits in multiple ways.

A revolutionary switch to real-time digital pricing, where the cost of an item, can at least in theory, change 90,000 times each day, could have profound and far-reaching consequences for the logistics and retail supply chain, not to mention the drivers and vehicles at its very heart.

It is a paradigm that Phil Greening understands more than most. Greening, who is an associate professor at Heriot-Watt University of Edinburgh, Scotland, and director of the Centre of Sustainable Road Freight, a collaborative venture among industry, Heriot-Watt and Cambridge University, says: “In the future, dynamic pricing could prove transformative for the freight industry. But to really understand the implications for commercial operators who serve the retail industry, we first need to understand how supermarkets, for example, intend to deploy surge pricing. If they decide to use digital pricing as part of an innovative strategy to modify and smooth demand, in theory at least, logistics becomes easier. Why? Because put in the simplest terms, currently, the most successful supply chains are those that are resilient enough to cope with demand uncertainty. Today, warehouses provide a buffer against demand. But, suddenly surge pricing changes all that. Retail operators employing this ground-breaking model no longer need to amass a large repository of products in their giant storerooms because they know exactly what will sell, when it will sell and most important, what will not fly off the shelves.”

Greening believes that if this continuous-flow retail logistics model, which works in real time, is implemented by global retailers, it could prove to be a boost for green logistics and sustainable freight platforms such as freight exchange networks.

Says Greening: “Freight exchanges have a role to play in this connected world. Smoothed demand will permit retailers to reduce inventory and move from batched delivery to something more like continuous flow. Freight exchanges would then broker capacity suitable for these less than full truckload shipments.”

However, there is another more radical dynamic pricing blueprint that the world’s largest retailers could bring in, which Greening says could have “very different implications,” not just for the consumer, but for the freight industry too.

But the revolutionary and game-changing plan that he is referring to is not the one shoppers have become used to, which charges customers a premium on availability. “Consumers are yet to fully embrace the existing paradigm. Take the simple act of purchasing a sandwich for instance. It has divided many who feel that it is changing the shopping habits by making the sandwich cheaper in the early morning, but more expensive at lunchtime when demand for food surges.”

Greening believes that in the data-driven world we live in, “it will be the physical internet that could bring about the significant and momentous change” for retailers and haulers. While he concedes that the model is in the embryonic stages of development and is very much “blue sky thinking,” he paints a picture of how it could one day have a seismic impact on the freight industry.

“If you take this concept of disintermediation to the ultimate extreme, there are only two players in the buying and selling relationship that matter. They are, of course, the manufacturer and the consumer. In greatly minimizing, or in totally eradicating, the role of the retailer, this model, in harnessing the Internet of Things (and in the future, artificial intelligence), is focused on directly connecting the manufacturers in real time. In a landscape where the retailer’s role could be greatly diminished, those businesses that can seamlessly join the logistics dots, between consumer and manufacturer, will be in great demand.”

He believes that in this brave new world where the movement of freight will become ever more complex and nuanced, there could potentially be a much greater opportunity for freight exchange platforms to flourish.

“Those platforms that understand the value of collaboration and of harnessing the power of interoperable technology could have first-mover advantage. Why? Because in the future logistics landscape where cross-docking centers hold sway, the movement of freight will not be a linear process. In this ‘near perfect market,’ as switching costs will be low, journeys will only be partly planned. Real-time tracking will allow goods to be reassigned and re-routed at a second’s notice. Big data sets will drive freight movements and those freight exchange platforms that provide the cross-docking architecture, the real-time systems needed to create the necessary technological agility to navigate this chain, and, most important, the large exchange platforms that can provide the virtual fleets needed for this pioneering model to fully function, will be very much in demand.”

From an environmental perspective, this new, progressive and highly enterprising template could lead to more sustainable freight patterns on a global scale, Greening says.

“Leveraging and harnessing data will mean that logistics operators plan journeys as a series of linked deliveries — the aim being to reduce both cost and carbon footprint in equal measure. The radical change is the visibility, through an exchange platform, that data brings to the carrier. For example, it gives the carrier the ability to move products sideways at no extra cost, if the data sets reveal that there is an increased probability of connecting to another carrier that would ensure that the goods reach their destination much more quickly than on the original truck heading in the correct direction of travel.”

But he points out that there are several obstacles that need to be negotiated before this ambitious operating model can be widely adopted. Greening believes that a collaborative “vision-led approach between the freight industry, retailers, governments and global engineering and technology services giants is necessary for it to blossom.”

Greening says, “Freight exchanges, as part of a raft of mechanisms, could play an important role as they will be tasked with absorbing and conflating the reams and reams of data that emerge and packaging them into efficient and effective collaborative data streams to ensure profitable but sustainable freight movements.

“By 2050, vehicles will be able to fully communicate with each other and also the surrounding traffic infrastructure. Not only will they be able to transmit their location in real time, but sensors integrated into the vehicle chassis will enable the vehicle to relay to a freight exchange platform how much weight it is carrying in a split-second.”

With the freight exchange platform in possession of real-time location, the anticipated route and spare capacity, it is a series of complex algorithms that will enable the platform and the carrier using it to work out the incremental cost of carrying one single pallet.

Greening says that the RFID sensors on the crate mean that it can collect the transit costs across multiple operations in real time. So if, for instance, the container is transported to the next cross-dock hub and loaded on to another vehicle, it will incur a material handling cost, which will be relayed back to the freight exchange. When the pallet reaches its destination, the in-built sensor, through the freight exchange, will automatically transmit a bill to the sender. In these interconnected environments, it will be the most efficient freight exchange platforms that deliver the lowest charges to their clients that will win out.

But most of all, if this innovative vision is ever realized, it will be the environment that is the true victor, Greening believes.

“Freight is one of the most challenging sectors to tackle, illustrated by the fact that empty running and capacity utilization have stayed at the same levels for the last decade…. Any model, which helps eliminate dead-end mileage and maximize load consolidation, could help effect real change.”

Author

Simon Bunegar is senior vice president of marketing for CX North America Information Services Inc.

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