Shippers, Unite!
By Patrick M. Byrne -- Logistics Management, 7/1/2004
In the transportation business, it's been several decades since strong profits were commonplace. Now an already difficult situation is getting uglier. Fuel prices are rising dramatically, giving carriers no choice but to raise prices. As a result, customers are facing an increase in rates without a concomitant increase in service. And the tenuous relationships that already exist between carriers and shippers are becoming more frazzled.
Fuel prices may currently be the largest fly in the transportation ointment, but they're hardly the only irritant. Tighter hours-of-service regulations, driver shortages, and higher tolls in both the United States and Europe are also straining truck capacity.
In addition to these complicating factors, companies are moving fewer goods more frequently. This means that more trucks are traveling partly loaded or empty. Meanwhile, customers are demanding faster response and tighter delivery windows from their carriers even as they build more centralized warehouses (which increases transportation times and costs) and do more global sourcing (which reduces item costs but increases transportation distances). Small wonder that carrier profitability—and consequently, carrier choice—is weak and getting weaker.
Share the Burden
The solution to most of these problems is increased collaboration. With modern technology, collaboration has become more feasible. Consider Ágoratrans, the European Web marketplace that helps match loads and trucks. Structured around partnerships between shippers and carriers, Ágoratrans hosts private forums that execute end-to-end processes, such as load planning, tendering, and delivery confirmation. The system includes a transportation management tool, closed transport communities, and a public exchange.
As shown in the chart, Ágoratrans offers carriers a package of services designed to reduce costs and encourage use by shippers. For example, e-procurement capabilities can cut overall costs while making participation feasible for smaller carriers. Carrier-specific financial services are another benefit, with collective buying power potentially creating savings on insurance. Over time, members also are expected to reduce empty miles by 25 percent. And prompt electronic payment, another part of the package, is a considerable incentive for carriers accustomed to waiting 120 days or more for payment.
There also are opportunities for technologically sophisticated collaboration between shippers. For example, Kimberly-Clark, a paper products manufacturer, and Lever Fabergé, a maker of home- and personal-care products, recently built a shared consolidation center. The two companies have 93 percent of their customers in common, so sharing their logistics and technology networks has the potential to reduce their logistics costs by up to 16 percent.
A Model for Managing Transportation
No universal procedure exists for shippers seeking to build a collaborative transportation relationship. However, the business-proven techniques of sourcing transportation, optimizing loads and routes, and sharing tracking and transaction information can help put companies on the right track. Consider the following template for developing a working collaboration:
1. Lay the groundwork. Sharing information and resources requires a high degree of standardization and consistency. For this reason, adjustments such as the following should precede a collaborative undertaking:
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Improving the quality of volume and scheduling forecasts.
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Developing new or enhanced communications links with carriers via EDI or the Internet.
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Optimizing mode-mixing and mode-shifting opportunities.
2. Find opportunities. The potential for shippers to collaborate exists whenever two companies ship to and/or from the same location. Rationalizing transport providers, leveraging a common rate structure, and sharing savings can be tricky, but the basic inaugural process requires the following:
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Identifying companies with similar or compensating traffic flows.
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Calculating transport demand and the critical supply mass needed for a specific transport.
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Maximizing visibility across regional organizations.
3. Make it happen. The next step is to develop workable routings and align contracts. This stage often requires advanced tools, methodologies, and third parties to achieve the following:
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Re-evaluate intercompany transportation vendors and contracts.
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Streamline and possibly centralize transportation operations.
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Rationalize costs without undermining service or maintenance.
4. Keep it going. To maintain their competitive edge, partner companies must continually improve their collaborative arrangements. The greatest needs include:
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Consistently improving management of real-time data.
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Regularly analyzing alternative transport modes and technology-support opportunities.
Sometime in the future fuel prices may recede. But in the short term, transport costs will continue to consume 50 percent or more of a typical manufacturer's logistics budget, with shippers and carriers everywhere feeling the squeeze. For both sides, achieving greater efficiency through tight collaboration is the only viable response.
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