The intermodal industry is in a state of tumult, full of risk and beset by twisting market dynamics leading to low profit margins and overcapacity. Yet, it is possible to break this cycle, companies can transition risk into transformational steadfast business, and technology-based growth within current market opportunities.
Weak demand led to a severe lull in industry growth. Consistent capacity oversupply, coupled with limited profitability and pricing recovery, has created a disadvantageous trend of stagnation. Many companies do not approach their pricing strategy with any science and data-driven intention, resulting in lost profit opportunity. It seems there is often a focus on driving revenue to cover cost and expenses, rather than incremental and steady profitable growth.
In addition, fierce supply chain competition has been amplified by an increased focus on logistics automation. This has been seen in numerous examples including in distribution and warehouse robot automation, Amazon’s purported drone delivery, and, in the latest sign that the future is now, Tesla’s autonomous, electric semi-trucks. Freight companies who continue to rely on spreadsheets and disconnected systems will be left behind are at a substantial risk by being run over by their competition.
Therefore, freight company executives should also reexamine the changing nature of behavior in the B2B world. Just like the B2C market, there is an increasing focus on digital, video and virtual experiences that are changing interaction frequency and channels. If they understand and adapt to the innovative ways business leaders buy, they’ll have a stronger chance to win them over.
How should you respond to these business problems? Many companies think the cursory buzz words such as Artificial Intelligence and Machine Learning can be applied, but have a fundamental lack of understanding of how to turn those practices into business results. People are using the same words to describe Forecasting, Pricing and Customer Relationship Management (CRM) but they are being done differently now. Most companies are saying or working to combine these capabilities, but they are not delivering, nor do they have a track record of quantifiable positive business results that improve the bottom line. However, freight companies can look to both the airline and hospitality industries as beacons of innovation, and successful adaptation, of these complicated business practices.
One way you can emulate these industries is through a more detailed consideration of customer buying behavior. Investing in data-driven analyses will allow you to be more strategic and understand differentiators among their customer base. Having additional insight into factors such as time sensitivity of product transportation will give freight executives an upper hand in the business process.
With more data, you will also be able to make better decisions about taking highly competitive, unprofitable business. As markets improve, you will need to ask your older customers for higher rates, or provide tiered offerings to incent more business in general.
Just like the airline and hospitality industries, rail companies can dramatically increase profitable growth through strategic micro-customer behavior segmentation, pricing analytics, and more purposeful business actions.
Furthermore, the following actions will differentiate your company and deliver profit-enabling capabilities, eliminate the unknowns, and mitigate competitive risk:
1) Leverage B2B Revenue Management to drive results – Provide your Commercial Teams with the Right Tools. Commercial Teams should shift away from the underperforming practice of ‘cost-plus’ pricing, to Revenue Management (RM) fueled and enabled by data science. RM capabilities leverage Machine Learning, Artificial Intelligence, and advanced analytics to provide an analysis of customer behavior at the micro-segment level, which increases forecast accuracy for inventory optimization and provides real-time dynamic pricing optimization. Applying these RM core techniques, plus next generation RM differentiated capabilities such as: demand forecasting to your customers, partners, assets, routes and lanes, will enable you to have a better understanding for predicting business growth. If you fail to include these types of high-impact predictive capabilities in your business strategy, you risk leaving substantial money on the table.
2) Align commercial decisions with a strategy – Improve B2B Functional and Value Chain Integration. As your Commercial Teams drive positive bottom line results with Revenue Management core capabilities plus next generation RM analytics, the high-quality capabilities and resulting data can be leveraged by different functional departments with improved feedback loops and integration, to drive additional value. For example, Sales and Marketing can leverage data insights from micro-segment customer behavior, probability enabled opportunity pricing, and pricing optimization to better target and sell to customers. The long-term demand forecasts and pricing goals enable stronger, more highly-targeted business decisions through Strategic Planning. Network optimization, short-term demand and inventory forecasts, enable easier and more efficient Operations Planning and Execution. However, two key differentiators to make this all possible are the higher level of accuracy as well as improved end to end integration. These factors are essential for a comprehensive strategy to increase profitability and efficiency.
3) Align and Integrate Operations and Commercial – Drive Commercial Decisions with Innovation. Leveraging RM concepts like dynamic pricing and customer lifetime value optimization will allow your company to remain at the forefront of your industry competitors and are the only ways for a freight company to survive in 2018 and beyond. The ongoing digitalization of the industry is creating new and better data all the time. This increase in transparency and available market data has played a crucial role in the growth of other industries, including airlines and container shipping, and will do the same for freight rail as well. But this increased transparency also creates increased heightened pressure, and only those shippers leveraging the fresh data in innovative ways will create a strategic competitive advantage. Ongoing innovation across data, analytics, and a comprehensive digital platform are a necessity in the freight rail world of the future.