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Embracing technology enables the supply chain evolution

Docked container ships.
Victor Ofstein
Published at | Updated:

These are uncertain times. Rising inflation, interest rate hikes, a downturn in the capital markets, and other macroeconomic factors are causing businesses of all sizes to take storm-weathering measures. Pre-dating the current economic concerns, however, is the rising cost of getting goods from A to B.

The cost of shipping a 40-foot container of goods from Shanghai to Los Angeles nearly quintupled between 2019 and 2021. Thankfully—at least for importers—ocean shipping costs recently started to decrease. But, any savings for small and medium-sized businesses (SMBs) will likely have been eroded by other factors, such as the cost of fuel (60% increase year-over-year). A recent report issued by the Council of Supply Chain Management Professionals estimated that supply chain costs for businesses rose by as much as 22% last year.

A global storm in the freight industry

The rising cost of doing business is just one in a list of challenges for the logistics industry. A perfect storm of factors—from truck driver shortages to the backlog of containers on ships and jam-packed warehouses due to Covid-19 restrictions—has led to some of the worst freight transportation disruptions in U.S. history.

Case in point: 74% of shipments at U.S. ports were delayed at the point of discharge in the last three months, up 15% from the average at the beginning of the Covid-19 pandemic, according to data from visibility software provider FourKites.

Those delays translate to longer wait times and higher costs for shippers and end consumers. A survey conducted by the U.S. Chamber of Commerce and MetLife found nearly 60% of small businesses in the U.S. struggle to keep up with customer demand due to supply chain disruptions, often resulting in lost revenue opportunities. These disruptions, along with the volatility in shipping costs, limit the predictability of when—or if—shippers will receive their goods.

These pressures have heightened mainstream interest in and awareness of the global supply chain and, more specifically, the U.S. logistics infrastructure. Every day, there are multiple stories in the media about federal spending plans to alleviate supply chain woes, new areas of concern, and when to expect a return to normal.

Tech marks the future of supply chains

Although overlooked in the past, technology has the potential to dramatically transform the way goods are transported, just as it has transformed how people communicate, travel, and work, among other things. At this point, however, the biggest hurdle to such a transformation is not a lack of technology but a lack of widespread adoption.

Logistics providers in recent years have made progress in modernizing and digitizing their operations. Investment in supply chain technology totaled $52 billion in 2020, up from just $2 billion in 2011, according to an analysis from FreightWaves.

Shippers and logistics companies are increasingly embracing transportation management systems (TMS). Such software helps them manage shipments, comply with regulations, and generate necessary paperwork and documentation. There are also load boards and freight exchanges, online tools that allow companies to communicate their available vehicle capacity, helping them maximize the movement of goods and fill empty vehicles on their return journey.

And yet, until recently, this technology has not helped companies answer one of the most important questions in the freight transportation industry: Where’s my money?

Digitizing payments is crucial for SMBs

Despite the emergence of digital payment options, many shippers and transportation providers, especially the SMBs that make up the bulk of the logistics industry, still pay their bills with paper checks.

In the $600 billion freight industry, 60% of motor carriers in the U.S. have six trucks or fewer, according to Miami-based factoring services company Summar. An analysis by the U.S. Bureau of Labor Statistics of data from Jason Miller, an associate professor of supply chain management at Michigan State University, suggests the average size of a U.S. trucking establishment is just 9.4 employees. These small and medium-sized businesses are particularly prone to cash flow issues and vulnerable to shipping delays and price hikes.

Although financial technology may not solve all the underlying issues behind the current supply chain bottlenecks, widespread adoption of digital payment solutions has the potential to save shippers and logistics companies time and money, helping them to overcome unexpected hurdles in times of crisis.

For example, upgrading from the manual processing of customers’ credit card payments to Melio’s online payment system saved New York-based forwarder Janel Group 7.5 hours a week in payment processing time.

Moving forward with tech

Billing and accounting no longer need to be pain points for the freight and logistics industry. Today’s technology is easy to use, fast, inexpensive, and customizable. Brokers, forwarders, truck drivers, and others now have the ability to pay with credit cards and track their payments online instead of in a physical book.

Amid supply chain disruptions and labor shortages, freight and logistics companies are looking for ways to make their operations less expensive and more efficient. Now is the perfect time for the industry to embrace financial technology.

Sign up for Melio today for a straightforward, reliable, and simple way to pay and get paid.

Victor Ofstein is head of strategic partnerships at Melio.

This article originally appeared in The Journal of Commerce online.

*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.