Collaborative Transportation – the elusive logistics practice that promises a slew of benefits, but which has just never seemed to gain any critical mass. The question de jour is: will the push for Green supply chains finally make it happen?
I asked my friend Greg Aimi of AMR Research about transportation collaboration, and his first response to me was “What kind?”
OK, that’s a good place to start. I think there are four potential varieties (feel free to expand the taxonomy if you wish).
1. “Load linking” and “tours”: Probably the most commonly meant type, which involves two or more shippers agreeing to share a full truckload carrier. In one version, it is simply complementary lanes – one going from Cincinnati to Buffalo, and another shipper doing the reverse. Share the truck, the savings, and maybe other benefits that may accrue from such an arrangement. In other load linking scenarios, the “continuous moves" may be a bit more complex or even, in theory, dynamic.
2. Truckload “co-mingling”: In this version, multiple LTL-sized shipments from different shippers headed roughly the same place or direction are combined into a single multi-stop truckload shipment. Today this is most broadly used by 3PLs managing a facility or campus with different shipper clients, but there are also some individual companies making this happen together.
3. Local delivery “co-mingling”: Primarily in the realm of vision, the idea is, for example, that it doesn’t make sense for 4 or 5 beer trucks to each stop at the same bar to drop off a few cases of brew. So, some service could/should be created to combine deliveries from several beer companies. There have been visions for this type of arrangement over the last decade, but little real action – though I recently heard another such idea raised yet again for a different industry.
4. Forecast collaboration: This is the area where I actually first heard the term “Collaborative Transportation,” arising from a VICS process standard circa 2000 for shippers and carriers to exchange forecasts and capacities electronically, similar in a sense to collaborative demand planning (CPFR). My sense is that the VICS-specific version never really gelled, though certainly many shippers and carriers engage in this process at some level.
In this column, I am focusing on the first variety, “load linking and tours.” The interest in this opportunity has been very high for many years. I have been involved in many conferences where the topic led to overflow crowds in the meeting room. And yet…
I know of no one better to discuss this subject than Bob Shagawat, CEO of Shippers Commonwealth, and someone who has chased this collaborative dream for nearly two decade. Actually, the first time I met him was when he was giving a presentation on the potential savings for shippers from collaboration. As far back as the early 1990s, when he was working for Westinghouse (which at the time offered a TMS), he created a small collaborative group among his customers. Today, Shippers Commonwealth is one of several service providers that offer a load linking platform (Caravan) – though to my mind none of the platforms (e.g., i2, Sterling Commerce, etc.) have really gained significant traction.
For a variety of reasons, as we’ll discuss below, the potential cost savings have just never been enough to make Collaborative Transportation take off. But, then came the capacity crunch of 2004-06. Savings are one thing, but if you were having a hard time getting product to customers, that was something else.
Shagawat told me during that time that suddenly, interest in load linking/tours soared. Why? Because when someone in the “network” had a truck, another company might be able to latch on to a complementary move and secure the capacity.
But alas… the capacity crunch, as it always has, came to an abrupt end, the victim of extra capacity added to the market and then dramatically falling demand.
“Shipper demand for collaborative transportation will only return once the current glut of supply versus demand reverses, which we expect during the next 2-3 years,” Shagawat told me.
But let’s take a step back. Why weren’t potential transportation savings of 10% or greater in some cases enough to drive shippers to embrace collaboration?
First, we’ll note it takes some level of cooperation from the carriers, who in general have not been wild about the idea, especially so in periods of tight capacity. They also usually want be the ones in control about how to position their assets. Lately, however, I have talked to several in the industry who say that in this environment, carriers are a lot more receptive. Heck, maybe it can now guarantee them two loads instead of just one.
David Goodson, Managing Director of Cavallino Consulting LLC and someone who has been both VP of Transportation at Michaels stores and run trucking companies, among other logistics pursuits, firmly believes issues around cost/savings allocations between companies have been a huge barrier to the collaboration concept – even within a single corporation.
He offers this example: say a shipper has two divisions, one of which ships from a plant in Chicago, the other from Miami. The Chicago plant pays $2.00 a mile for a TL carrier to haul loads to southern Florida. The plant in Miami pays $1.00 a mile to the same truckload carrier to haul loads to Chicago. The average truckload rate per mile is $1.50. The shipper negotiates a continuous move rate of a $1.35 a mile for loads moving between the two cities. In theory, this saves the company 10%.
But, he says, “If the cost of the continuous move is allocated to the divisions at $1.35 a mile, the Chicago division is a huge winner. Its rate went from $2.00 to $1.35, a savings of about 33%. The Miami division is a huge loser, as their rates went from $1.00 to $1.35, an increase of 35%. So while the company may save 10% overall, the Miami division is subsidizing the savings for the Chicago division.”
Similar issues or worse would be true for such a continuous move between different companies. Where are the models or standards for how the savings should be shared? We can all say there should be a way, but I agree, in reality, that this has served as a large barrier.
AMR’s Aimi says that there have been other very practical issues, in addition to the savings allocation question. Those include: the reliability of the linked loads, and how they get handled when a tour is broken; having a single rate from a carrier that applies to two organizations; and getting organizations to change their carriers in a lane to take advantage of opportunities.
“The best models that I have seen work are when a particular company assesses its lanes and works directly with another or couple of suppliers or other manufacturers to get complementary lanes,” Aimi told me. “This is especially true when a dedicated fleet is being used and the patterns have reliable repetitiveness.”
In other words, when there are fairly limited arrangements, and I agree there are a decent number of these one-off arrangements out there. But aren’t those one-off efforts just scratching the true collaboration potential?
Potential cost savings have only marginally impacted the development of collaborative strategies. The capacity situation to me seems perpetually too dynamic to be a sustaining catalyst. Will we still be chasing this same vision for yet another 20 years?
But wait! We have a new wild card in the deck: Green supply chains and sustainability. Might this finally be the driver that puts transportation collaboration into high gear? Could we even have some of it mandated by government? I say yes and yes, but am out of space. More on this very soon.
Would you add new collaboration types to our four varieties? Why do you think Collaborative Transportation has never really taken off? Should we have some sort of standards about how savings should be allocated? Will Green make it happen? Let us know your thoughts at the Feedback button below.