Shippers are collaborating to create a more environmentally friendly future for transportation
By Fabrizio Brasca and Hal Feuchtwanger
Driven by economic, social and regulatory pressures, shippers the world over are seeking more cost-effective and sustainable ways to move product from source to shelves. Shippers have worked for decades to streamline and strengthen their own transportation networks, and in recent years, environmentally-conscious organizations have expanded those efforts to include suppliers, partners and customers.
Today, to further reduce their costs and carbon footprints, enlightened shippers are pursuing efficiencies and sustainability beyond the borders of their traditional transportation ecology. A higher form of sustainable cooperation has emerged—called multi-shipper collaboration—that leverages cross-shipper visibility, powerful analytics, and an innovative transaction-based exchange that encourages shippers to share and optimize excess and available trucking capacity.
By collaborating in this new and effective way, shippers are significantly reducing costs, waste and their collective carbon footprint.
Pursuing sustainable transportation
A number of powerful trends are reshaping the transportation sector. Higher-value, lower-weight products, such as electronics and pharmaceuticals, now represent a more substantial and growing percentage of total freight volumes and are increasingly shipped by truck, rather than by rail. At the same time, truck freight transport costs have decreased relative to other shipping modes, due in part to competition resulting from the deregulation of trucking nearly 30 years ago.
Both manufacturers and retailers are working to reduce costly on-site inventory through the use of just-in-time (JIT) inventory systems that typically require trucks for smaller, more frequent and more reliable deliveries. Meanwhile, many warehousing and manufacturing facilities have been relocated to suburban or rural areas, where cheaper land and labor are available, but which are often inaccessible by rail and require longer hauls by truck carriers.
While these trends have driven an upsurge in demand for over-the-road transport services, other powerful forces—including economic pressures and more stringent environmental regulations—are spurring organizations across the supply chain to seek more efficient and sustainable transportation solutions.
A new Environmental Protection Agency (EPA) program being phased in through 2010 regulates heavy-duty vehicles and fuel, requiring high-efficiency catalytic emission controls and reducing the allowable sulfur content for both diesel fuel and gasoline. Once fully implemented, those tighter environmental controls are projected to reduce the emission of nitrogen oxide by 2.6 million tons a year and to reduce the emission of soot or particulate matter by about 110,000 tons annually.
Those changes alone are expected to yield many very positive results, preventing an estimated 1.5 million lost work days, 7,100 hospital visits and 360,000 asthma attacks in children each year.
That progress, however, comes with a cost. The American Petroleum Institute estimates that to comply with new ultra-low sulfur diesel (ULSD) regulations, the domestic refining industry has already spent $8 billion. The U.S. government also estimates an ongoing $0.05 to $0.25 per gallon increase in the price of ULSD fuel.
Given these powerful trends, how can organizations develop a workable program of greener transportation?
Specialists in sustainable transport now recommend a three-stage approach designed to reduce transportation-related emissions, while also helping companies control costs and improve the efficiency of truck-based shipping.
The first step is to measure and report on emissions-related activities. Manufacturers, shippers and third-party logistics providers (3PLs) can do this by developing an ongoing capability to monitor and document the organization's carbon footprint.
Next, transportation firms should design and plan for sustainability. They should create and evaluate network changes that will contribute to greater sustainability, while always considering the financial and efficiency implications of any change.
Finally, companies must learn to collaborate with partners and to comply with increasingly stringent sustainability requirements. By working within a consortium-based business model, shippers and others can identify collaborative opportunities to reduce waste, cost and carbon emissions.
A green evolution
Like many high-level objectives, sustainability requires a long-term commitment to making incremental gains in transportation performance. Most organizations progress through the following natural stages of transportation sustainability. Experience teaches us that as they move through the increasingly-sophisticated and collaborative stages of this evolution, companies gain both hard cost and productivity benefits—as well as the social and business benefits of improved sustainability.
Internal network optimization
The most obvious and logical place to begin the search for greater transportation efficiency and sustainability is within an organization's own internal transport network. Most shipping-dependent companies began this process years ago, working to identify internal opportunities to reduce costs and waste, and to streamline the enterprise supply chain.
Internal network optimization can and should yield measurable returns, in part because organizations are most familiar with their own operations and because they have the control and ownership needed to affect rapid and effective change. Fixing your own network, however, is often just the "low-hanging fruit" of transport optimization. To affect broader transportation enhancements, and to move toward a greener corporate position, companies must look beyond the borders of their own enterprise.
An expanded ecosystem
Most large retail and manufacturing organizations rely on diverse and complex supply chains. Once they have wrung measurable new efficiencies out of their own network, the next logical place to seek transportation optimization is with suppliers, partners and customers.
Many transport-dependent organizations have at least begun the process of working with their vendors and partners to seek savings in costs, trips and emissions. By expanding the breadth of an optimization effort to include their entire transportation ecosystem, organizations can leverage today's sophisticated supply chain design and management systems to drive cost savings, improve performance, and create sustainability up and down their supply chains.
Multi-shipper collaboration
Those shippers that aggressively pursue improvements in their internal networks and their extended transportation ecosystems often make the obvious network and operational adjustments capable of having a meaningful impact on transportation efficiency and sustainability. To make further gains, they must look beyond those established networks and relationships to seek optimization opportunities by creating farther-reaching collaborative relationships with other shippers.
By evaluating transportation flows across multiple shipper networks, this collaborative approach promises to reduce unproductive miles and their associated carbon emissions, most notably for private and dedicated trucking fleets. While there have been some previous attempts to identify and leverage collective opportunities across shippers, those efforts have typically been informal, non-binding and frequently less than successful.
To fill this void, a new and more refined approach to multi-shipper collaboration has now emerged. This new approach begins with a comprehensive effort to identify truly synergistic, shipper-to-shipper transport opportunities. It requires a more holistic and structured process, and utilizes constraint-based techniques to identify, analyze and pursue optimization opportunities.
This third-generation of collaboration represents a more socially responsible approach to shipping—one that satisfies practical cost- and efficiency-driven business requirements while also creating a greener, more sustainable transportation model. In fact, by evaluating collaboration as a logical element in a larger sustainability effort, shippers can realize both immediate transactional benefits and long-term social and business advantages.
Making collaboration work
By focusing on "unproductive" miles, this collaborative cross-shipper approach makes otherwise unusable freight capacity available to shippers and 3PLs. Effective multi-shipper collaboration is best formulated using a two-step process.
In the first step, consistent freight flows that can be matched with consistent equipment capacity are leveraged across multiple shippers as part of a logical transport planning process. This process begins with the creation of a comprehensive network overlay for two or more shippers. By examining those networks in comprehensive detail, managers can identify natural synergies and opportunities for routine freight solutions. When routine, repeatable opportunities are found, they are transitioned into the standardized transportation plans of the respective shipper networks.
This search for consistent strategic transport opportunities requires sophisticated analytic capabilities, and the good news is shippers can now utilize best-in-class tools to make more informed and successful transport decisions. At the strategic/tactical level, this consortium-based approach to collaboration should address the consistency of freight flows and equipment capacity, and involve direct shipper-to-shipper negotiations, lane and rate commitments, and commitments based on volume and timing.
A strategic supply chain application, for example, can be used to capture and evaluate detailed historical information from multiple independent sources. That information can then be used to develop shipper-specific perspectives on transportation-related costs, capacity usages and emissions output. By allowing organizations to consider a wide range of shipping alternatives—including truckloads, rail, intermodal carriage, cost-optimized less-than-load shipments, multiple-stop truckloads and EPA SmartWaySM certified carriers—shippers can control marginal costs while improving both transport and emission-control performance.
A transportation-oriented modeling solution can then be used to monitor, evaluate and report on all key transport-related activities, including network strategies, modes, carriers and other transport variables. Today's most advanced tools employ sophisticated data and optimization techniques, allow "what-if" analysis, and are specifically designed to compare merge-in-transit, co-mingling, multi-leg, multi-drop, dynamic hub and other transport strategies. Shippers can deploy an advanced transportation modeling tool to maximize asset utilization, to improve on-time delivery and customer satisfaction, and to achieve an optimized freight balance that will reduce transport-related costs and emissions.
Once organizations have addressed these strategic and tactical opportunities, they can leverage an even higher level of collaboration to tackle the operational challenges of remaining excess freight. In this second step, uncommitted or incremental freight that cannot be matched with consistent equipment capacity should then be considered as part of an "exchange-based" operational or transactional planning process. At the operational/transactional level, this consortium-oriented model is ideally suited to address inconsistent or incremental freight flows and equipment capacity, spot lanes and rates, and situations that provide little or no volume or time-based commitments.
To meet this need, a new transportation capacity exchange (TCE) concept has emerged. Industry experts say a TCE would leverage detailed overlays and analysis of multiple shipper networks, with a hosted web-based portal where excess capacity opportunities would be posted, matched and contracted for resolution. In the emerging TCE model, shippers and 3PLs offer unused capacity, other organizations acquire that capacity at a competitive rate, and the collaborative partners share the resulting reductions in costs and carbon emissions.
To better understand how this cooperative approach can support more sustainable transportation networks, let's take a closer look at the TCE model.
A transportation collaboration exchange
As currently envisioned, a transportation capacity exchange would serve as a syndicate of trusted partners who would use the TCE to share incremental freight and excess transport capacity, thus improving the efficiency and sustainability of their transportation operations.
This transaction-based exchange could be implemented in a number of ways: by a shipper that does not currently use integrated load planning across various internal divisions; by a 3PL to serve different customers; or, in what may be the most promising formulation, among non-affiliated shipping companies that work with a trusted partner to form a consortium network-based TCE.
To deliver measurable benefits, a workable transportation capacity exchange should perform two basic functions. One, it should support the qualification and matching process, including both the initial search to identify the appropriate consortium relationship for a participant, as well as qualification and matching for individual load requests. Two, a TCE should function as a communications portal to support the management of transactions through the operational life cycle.
To accomplish those two key requirements, a TCE will ideally be supported by a competent solution and service provider. That trusted partner must be capable of supporting the identification of opportunities across participant transportation networks. The solution provider should also provide the platform needed to match capacity with transportation requests and to facilitate the crucial communications process.
For shippers striving to be green, a TCE can be a powerful part of the sustainability tool kit.
Benefits of the TCE
The transportation collaboration exchange holds significant promise for shippers in virtually every transport sector.
A transportation collaboration exchange:
- Enables shippers to identify, offer and sell otherwise unused capacity
- Makes that excess capacity available to other shippers at economic rates
- Creates visibility into available capacity across participating shipper networks
- Allows for both manual and automatic matching of load requirements and available capacity
- Provides comprehensive transaction support
- Spreads shared cost savings among collaborative partners
- Reduces both shipper-specific and aggregate carbon emissions
The future of transportation networks
Shippers face intense pressure to improve the performance, cost efficiency and sustainability of their transportation networks. Having wrung cost and inefficiencies out of their internal transport networks and their extended partner-based supply chains, forward-thinking shippers are now exploring cooperative relationships that reach far beyond their traditional networks.
By working together, smart shippers are getting greener.
Multi-shipper collaboration represents a logical next step in the evolution of sustainable transport networks. This approach uses advanced data and analytic capabilities to identify and exploit mutually beneficial opportunities to optimize trucking across shipping organizations. An innovative new transportation collaboration exchange—supported by a trusted service provider and populated by interested shippers—will enable shippers to post, match and share marginal load and capacity offers.
In today's challenging transportation environment, shippers can adopt this broader collaborative approach to control transport costs, to improve customer service and to tread more lightly on our global environment.
Fabrizio Brasca is i2's vice president, global logistics. Hal Feuchtwanger is i2's managing director, global logistics.
