Multi-Modal Management: It’s a Group Effort

Part one of two-part series examines transportation challenges and emerging trends in supply chain


The U.S. freight industry’s transportation broker market is analogous to a trading floor on which transportation lanes are traded among freight carriers and shippers. Major players—such as C.H. Robinson Worldwide Inc. and Coyote Logistics LLC—have value propositions which include: real-time visibility to transportation capacity by lane/mode across several carriers and independent owners; access to several shippers’ supply chain networks and the customized requirements; established relationships that match demand and supply for transportation to minimize total cost-to-serve; and expertise and state-of-the-art tools to optimize carriers’ and shippers’ supply chains.

Emerging trends—collaboration and modal optimization

While the transportation broker market helped cut deadhead miles in the freight industry, there are still substantial opportunities for U.S. carriers and private fleets to reduce them even more. And reducing deadhead miles has become a multi-billion dollar opportunity that spawned two new trends: collaboration and modal optimization.

Generally speaking, collaboration refers to developing partnerships among players all along the value chain—both vertically and horizontally. Modal optimization refers to cutting costs and improving efficiency. Total transportation costs fall by building larger and more economical loads across modes or shifting to more economical modes.

These trends not only helped companies reduce their deadhead miles but also their costs for overall transportation and other supply chain activities such as storage and handling. And they helped create sustainable solutions by enabling more efficient use of transportation assets.

In addition, there is an opportunity to use collaboration (vertical and horizontal) and modal optimization to improve asset utilization and reduce supply chain costs by up to 30 percent.

Vertical collaboration refers to partnerships among players across the value chain, for example, consumer products companies (CPGs) with their raw material suppliers and retailers. The benefits of vertical collaboration include complementary transportation networks, scale and best-practice sharing. To date, the electronics and auto industries have successfully implemented this type of collaboration. Third-party logistics (3PL) provider Verst Group Logistics uses collaborative distribution to transport automotive parts from as many as 15 parts makers to Toyota, General Motors and Chrysler—a process which yielded a 30 percent reduction in supply chain costs.

Horizontal collaboration involves partnerships among players within the same layer of the value chain, for example, two CPGs or two retailers. The benefits include scale, improved product mix and similar origin and destination pairs. CPGs have successfully implemented horizontal collaboration in both the U.S. and Europe. DeMet's Candy Co., The Topps Co. Inc. and Sun-Maid Growers use a collaborative Kane-run distribution center. 3PL Kane Is Able gives cash rebates to retailers that participate in collaborative distribution. Retailers coordinate orders and manage delivery schedules.

At the same time that freight companies are starting to collaborate, they are also focusing on modal optimization to lower cost-to-serve and improve customer service levels. Increasing fuel prices and technological advancements in the transportation equipment and infrastructure industries have accentuated this trend.

This shift from single-modal to multi-modal shipments also blurred the lines between mode definitions. For instance, LTL increasingly encroaches on air space for next-day deliveries. Similarly, the greater-than-800 mile threshold no longer holds true for the “intermodal over TL” decision, with line-hauls as short as 600 miles shipped intermodal. DHL rolled out multimodal services from China to overseas markets including the U.S. in July 2010. As part of its goal to reduce cost-to-serve, the company combines air, over-the-road (OTR), rail and ocean into complex multi-stop (yet cheaper) routes for moving cargo from China to the rest of world. It expects to cut its transportation costs 20 to 50 percent by reducing deadhead miles, cost of handling and cost of storage.

Modal optimization using multi-modal shipments is gaining momentum because of the increasing pressure to lower costs of transportation. The Dial Corporation (a Henkel company) reported 35 percent cost savings since relying on multi-modal transportation for years now. Dial worked with its suppliers to have chemicals shipped in ISO tank containers by double-stack trains. These containers are drayed to a truck at the destination terminal to be shipped to Dial’s plant, resulting in lower waste and transportation costs. Similarly, pulp and paper industry supplier Eka Chemicals (of AkzoNobel) lowered its transportation costs by shipping products by rail to trans-load facilities and then delivering them to customers by LTL.

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