Category Archives: Logistics

If You Really Want to Reduce Carbon (And Costs) in Your Logistics

The answer is really, really simple.

Don’t waste miles and
Don’t waste space.

Every mile you have to travel burns fuel, which burns cash and produces carbon. Thus, the best way to minimize your logistics cost is to reduce the amount of fuel, which is best done by reducing the number of miles you have to travel and maximizing the return from every mile. This is clarified by a recent article over on the Supply Chain @ MIT site on “Delivering Green” which presents three case studies in low-carbon logistics.

The article, which studied logistics operations at Ocean Spray, Caterpillar, and Boise found that each could reduce cost, and carbon, by optimizing their logistics network to reduce the number of miles travelled and optimizing the shipments to maximize the use of the space available in the truck, railcar, or shipping container.

For example, in the Ocean spray case study, when Ocean Spray partnered with the rail operator and fruit shipping companies to ship more product intermodally, they were able to reduce the n umber of empty boxcars that were returning empty to the Florida region, reduce transportation costs by 40%, and reduce emissions by 65%.

In the Caterpillar case study, when shipping and packaging efforts were combined and streamlined, which resulted in denser and more efficient shipments, Caterpillar, which imports parts from all over the globe for assembly at its Illinois manufacturing facility, was able to reduce its overall carbon emissions by over 340 tonnes of CO2 per year.

In the Boise Inc case study, Boise was only loading its railcars two pallets high and leaving a significant space between the second pallet and the roof. When it redesigned its pallet, it was able to fully utilize the capacity of the railcar. Doing so allowed the company to reduce its overall CO2 emissions by 190 tons.

Efficiency makes a big difference.

I Am The Freight Container

I am the freight container
And I now just where I stand
Another freight enabler
And another caravan
Today I am your champion
As I have won your hearts
And I know the game
You won’t forget my name
And I’ll still be here
In a hundred years
As I’m still state of the artI am the freight enabler
As I have reduced your price
The things you did not know at first
You learned by doin’ twice
And you cannot replace me
No mater what they say
No one else can dent
by ninety seven percent
shipping costs compared
to loading freight impaired
by old bulky wooden crates.

Little did Malcom McLean know when he first invented, patented, and then sent the first metal shipping container on its way on April 26 in 1956 that it would do more to enable global trade than any treaty or global trade organization ever would. As pointed out in this recent economist blog that asked why have containers boosted trade so much, a recent paper by Daniel M. Bernhofen, Zouheir El-Sahli, and Richard Kneller on “Estimating the Effects of the Container Revolution on World Trade”, has disentangled the impact of trade deals from that of shipping containers and derived a rather shocking result. Analyzing the data from 22 industrialized countries, the study found that that containerization is associated with a 320% increase in bilateral trade over the first five years and a 790% increase in bilateral trade over 20 years. On the other hand, a bilateral free-trade agreement only boosts trade by 45% over 20 years and membership in GATT (the General Agreement on Tariffs and Trade) raises trade by 285%. In other words, a trade agreement will boost trade 50%, membership in GATT will increase trade by a factor of two and a half, but containers will increase trade by a factor of 8!

So, not only did they greatly reduce shipping costs (by 97% according to the shipping records maintained by Mr. McLean who saw his costs per tonne fall from $5.83 per tonne for loose cargo to $0.16/tonne), but they have already done more for global trade than any long winded bureaucrats and diplomats ever will.

Need a Truck? BuyTruckLoad.com!

Believe it or not, counter to every nerve in your body, you should be buying a portion of your freight business on the spot market! Take a minute, get those gasps out, and SI will explain why.

Simply put, for the vast majority of product-based companies, freight is the one category that is inefficient from a contract perspective. At first thought, this might not make sense as efficiencies and cost savings typically come from good planning, but this is precisely why you can often get significantly better rates spot-buying your freight than contracting it.

To see this, you have to look at the situation from your carrier’s viewpoint. It is most efficient, and most profitable, when it’s trucks are kept full. Your contracts keep your carrier’s trucks full at most half the time. Specifically, your contracts keep your carrier’s trucks full from point A to point B. Maybe it has a few pallets to take back to point A, but that doesn’t fill the truck, and it’s only efficient (from your point of view) if the carrier waits until the truck is full to take the pallets back. In order to maximize efficiency and profitability, the carrier needs business from point B back to point A. The chances of the carrier getting precisely this business when competing against 70,000 other carriers and only getting called to the bid on one of every 10,000 or 20,000 freight contracts being tendered are probably 40,000 to 1. Not good odds.

Plus, even if the carrier’s lucky enough to get business that geographically fills, say, 80% of the route from B back to A, chances are the timing doesn’t line up right and the truck ends up sitting idle for a few days on a regular basis, which also takes away from efficiency or profitability.

Because of this, and because of the fact that the carriers have to hedge their bets when you ask them to contract three, six, and twelve months out, you end up paying, on average 14%-15% more for contracted freight than you do freight purchased efficiently on the spot market (if you know what you are doing or use a good freight brokerage). In particular, even if you’ve done a great job on your contract, you’re probably paying, on average, over $1,400 for a load that you could get for $1,300 or less on the spot market.

That’s why Sean Devine and John Labrie, each with over a decade of transportation sourcing and optimization (at CombineNet, Emptoris, and Con-Way), built BuyTruckload.com — the first automated truckload brokerage service. This service, built on an advanced real-time truckload optimization model, takes your requirements, searches their database of over 70,000 carriers (and current spot market prices) across the United States (each with an average of 4 trucks), and gets you a quote that is, on average, $100 less than you would expect to get otherwise (buying yourself with a limited selection of carriers), and $200 less than you would if you were contracting months in advance (based on an average truckload price of $1,400+ and an average savings of 15%).

It’s quick, simple, and almost obvious — and that’s what makes it so useful. As a buyer, all you have to do is define the acceptable authority types (contract, common, broker), the acceptable / required equipment types (bus, van, flatbed, refrigerated, dry van, etc. — they allow for 16 different types), the cargo authorities (private, property, etc.), the safety alerts you will (not) accept (unsafe driving, driver fitness, etc.), the required number of power units, and where you need the trucks and the system will identify the relevant carriers. Define your shipping requirements, and it will generate binding quotes. It’s that simple, and if you use the right mix of contract and spot-buy freight, it could save you a lot of money.

Please note that the right mix is key! Even if the 15% savings are there for you, it’s probably not a good idea to put all of your freight on the spot market. You need to know you have enough reserved freight for critical products (at critical times) and carriers need to know they have enough baseline business to sustain themselves. the doctor‘s gut is that you probably want a 2 to 1 ratio between contract and spot market, on average. In some industries and/or categories, this ratio will be higher (because, let’s face it, you don’t care if you get those office supplies a day late), and in others it will be lower. But a 2 to 1 ratio is probably a good starting point.

Poor Working Conditions in the Supply Chain Start at Home!

Last month, we told you that new estimates put the driver shortage at 240,000 drivers and that it’s all our fault. Why? Despite the fact that 40,000 new commercial licenses are granted annually by the DOT (Department of Transportation), turnover is 100+ percent per year due to poor working conditions.

But it seems that poor working conditions aren’t limited to our drivers. It seems that our dock and warehouse workers are also getting the short end of the shaft when it comes to working conditions (to the point where the high salaries commanded by the dock workers, which can exceed $120,000 in the Port of LA for example, might not be worth it). As per this article in the National Business Review on why we should “stop hurting our container opening dock and warehouse workers”,

  • imported sea containers increasingly have toxic substances in them
    such as glues (from shoes), emitted gasses (from wood or MDF), and residue from fumigants,
  • unprotected workers who enter these containers can die
    and those who don’t typically get very sick and some develop long term health issues, including cancer, and
  • up to 30% of shipping containers contain dangerous levels of toxins
    with 18% of containers containing toxins at a level legally reportable as unsafe and almost 90% contain some toxic fumigant or volatile organic compound. WTF?

Kind of puts the salary demands in perspective when you consider that their jobs contain more potential dangers than a coal mine!

And if this isn’t bad enough, we also have the warehouse workers who, according to this recent infographic on Warehouse Safety and BLS data,

  • have a 14% of being injured on the job,
  • have a 3% chance of being seriously injured in a forklift accident on the job, and
  • have a 0.02% chance of being killed, most likely from a forklift accident!

Ouch! Our dock workers have it bad. Our drivers have it bad. And our warehouse workers have it bad. I think it’s time to stop focussing exclusively on the outsourced supply chain in a search for poor working conditions. There’s plenty of poor working conditions to fix here at home!

Why Does Shipping Cost so Much?

Oil, of course. Most trucks run on diesel, the fractional distillate of petroleum fuel oil, and the cost of oil, which is almost 100 times what it was 50 years ago, keeps rising at an average rate that is over 10 times the rate of inflation, as calculated using the consumer price index over the last 50 years.

But is that the only reason? No. Someone has to drive the truck, and labour costs go up, albeit not as quickly every year.

And someone has to buy the truck, which contains a lot of steel, which has also been rising over the last 30 years. The inflation adjusted hot rolled coil transaction value has more than doubled over the last 30 years, which partially explains why trucks are so expensive.

Are these the only reasons? From a simplistic point of view, you need a truck to carry your goods, fuel to power the truck, and a driver to get it to the destination. You have maintenance, but that can be built into the cost of the truck, and you have administration, and that can be built into the cost of the driver. So one might think these are the reasons and there’s no way to decrease the cost of shipping, as none of these costs aren’t going down soon, but if one did, one would be wrong on both counts.

There’s one more reason shipping costs so much. Empty pallets and empty loads. What typically happens when you ship a product is that your 3PL shows up with an empty truck, loads your pallets of merchandise onto the truck, and delivers them to the destination, where the truck is again emptied. It then drives empty to its next pickup which, if it’s lucky, is in the same city, but could be half a state away. At a later time, it returns to your supplier, picks up the empty pallets, and either carries them back to you for reuse, or, if you are part of a pallet-exchange program, the nearest manufacturer. In either case, the truck is completely empty before pickups and after delivery and effectively empty when it is carrying empty pallets. This takes driver time, fuel, and wear-and-tear on the truck. This cost money, and this cost has to be recovered – from you!

This is a big reason why shipping costs so much and your biggest chance to lower costs. If you want the best rates you can, you need to select a 3PL that does a lot of business in your area so that it’s trucks aren’t empty for long and that minimizes the distances that empty pallets are carried.