The worst of the pandemic supply chain problems may be behind us, but most CFOs aren’t satisfied that another crisis doesn’t lurk around the corner. Combine that with economic uncertainty, inflation and all the other challenges finance chiefs face today, and there’s still plenty to worry about.
Pat Dillon, CFO of Flock Freight, a supply chain technology company based in Encinitas, California, thinks he’s found part of the solution to these concerns. He spoke with StrategicCFO360 about a new approach to supply chain management, why he thinks most systems are stuck in the 19th century and why 2023 represents an opportunity to get a grip on supply chain costs.
How can technology help industry adapt to market forces when it comes to the supply chain?
We all know that technology has transformed the way we access and consume goods. But the way we move them is stuck in the 19th century.
In a $1 trillion annual U.S. freight trucking market, trucks are moving 24/7—but many of them are moving with a significant amount of empty space. That’s because strict delivery deadlines force businesses to reserve entire trucks even when they don’t have enough goods to fill them. It’s wasteful to ship air in any environment, but businesses have done it anyway because they’ve lacked a better option.
Now, we finally have the technology to pool freight at scale, eliminating empty space and inefficiencies from our supply chain. Although the underlying AI and probabilistic pricing engines are complex, the concept is simple: keep trucks full by connecting multiple shippers whose goods are heading in the same direction with carriers who are already driving that way.
We call this shared truckload, or STL. By finding and filling the empty spaces on trucks, we can avoid the physical constraints of traditional shipping. Shippers save money, carriers earn more, and goods are delivered on time and damage-free.
As more transportation management system vendors integrate STL, more businesses will have access to the shared truckload option. And with wider availability, more businesses will realize the value that shared truckload offers, but only a few of us provide. They will be able to pay for the exact space they need, rather than select from fixed options at a set price. At the same time, carriers will be able to fill up their trucks and earn more per trip. Together, these benefits will lead to shared truckload becoming an ever-larger share of the traditional freight market.
How can companies build a smarter supply chain that can better withstand a shaky global economy?
Global economic factors like inflation, labor disruptions, fluctuating fuel prices and global pandemics aren’t going away so there’s no question that we need a more resilient supply chain.
During the pandemic years of 2020 and 2021, consumer preferences shifted from services to goods. At the same time, labor shortages and supply chain disruptions prevented supply from meeting that demand. Last year, we saw that trend reverse: supply largely caught up, while demand reached a more typical balance between goods and services.
For companies that ship palletized goods, this year represents an opportunity to gain more control over their shipping costs and methods. The trucking market hasn’t had this much surplus capacity since 2019. The less empty space in trucks on the highway, the less shippers burn into their margins.
Shared truckload is the key to unlocking that excess capacity. Breakthroughs in artificial intelligence and machine learning are helping the freight industry more accurately anticipate supply and demand dynamics. The shared truckload solution empowers businesses to take advantage, and ultimately move their goods more efficiently.
The technology behind shared truckload could go beyond trucking. It also offers a glimpse into a more coordinated, data-driven supply chain among traditional air-and-sea modes and across global freight networks.
It’s inaccurate to say that our supply chain is broken. It’s working as designed — but that design is outdated. We need a smarter, more sustainable supply chain geared toward resilience. There is no reason that communities across the U.S. should have empty shelves when the next disaster happens—at least not due to freight.
What is Flock Freight’s approach to cash management in the current environment?
For a company at our stage of development, growth remains incredibly important—but getting to profitability has certainly ascended to the highest priority.
We remain cognizant of the broader macroeconomic environment, especially when it comes to extending credit to our customers and minimizing bad debt across the firm. We conducted a full audit of our third-party software expenses and found meaningful savings by reducing the number of seats for certain licenses and eliminating duplicative licenses.
More importantly, we are constantly improving our overall working capital efficiencies and making sure our terms are appropriate for our customers—and that we’re getting paid on a timely basis. Part of that includes taking a more collaborative approach with our customer base. For example, we can use prepayments or examine our customers’ proprietary financial statements as part of a credit review, which allows us to continue serving their freight needs without taking on undue credit risk.
How should companies approach cash management in the current environment?
We’ve seen how the most successful businesses overcome any environment: innovation focused on the customer or end user, strategic capital allocation and basic fiscal discipline. At Flock, we have remained hyper-focused on all three of these elements since our founding in 2015. But given the state of the capital markets for the last year or so, I think fiscal discipline has demanded more attention from companies.
How does the Inflation Reduction Act help the transportation industry combat the climate crisis?
I’m a firm believer that sustainability and profitability go hand in hand. To provide enough incentive for enough people to embrace sustainability, it has to make business sense to do the right thing.
The Inflation Reduction Act encourages businesses across the economy to take steps in the right direction. For example, upcoming changes in emissions reporting rules could offer new avenues for companies to reduce their environmental footprint.
Companies are broadening their apertures beyond Scope 1 and 2 emissions—emissions controlled by a company and emissions from the use of energy, respectively—because federal regulations don’t treat all emissions equally. That’s a good thing for shippers. At the same time, investors are looking deeper into the value chain of their portfolio companies to meet their own carbon pledges.
That’s why I’m particularly optimistic about the potential for shippers to lower their Scope 3 emissions—emissions across the value chain, many of which they can’t directly control. Here’s why this matters:
The U.S. Department of Transportation tells us that trucking emits 442 million metric tons of carbon per year. Trucks are moving goods 24/7 across state lines, but many of them aren’t filled to capacity. The empty truck problem comprises a massive portion of unnecessary Scope 3 emissions from diesel fuel.
Shared truckload technology solves that problem by pooling freight from multiple shippers—which can slash emissions by up to 40 percent. It’s a smarter choice from both a regulatory and a profitability standpoint. Companies can unlock the Scope 3 metric in their emissions assessments, while getting more profitable with their excess capacity.
If America’s truckload industry committed to sustainable freight shipping by using shared truckload, we estimate that carbon emissions would fall by over 10.5 million metric tons every year. That’s what I mean by making it make business sense to do the right thing.