Sharing: A hundred-billion dollar a year idea for freight

Being the parent of a toddler, sharing is a concept that I’m emphasizing at home a lot these days.  Turns out, it’s a good concept to remember at the office too.  A fantastic new report from the CELDi Physical Internet Project at the University of Arkansas details how if companies embraced the sharing of freight resources, “profits for participating firms would increase by $100 billion, carbon dioxide emissions from road-based freight would decrease by at least 33 percent  and consumers would pay less for goods.”

And that is assuming just a 25 percent adoption rate.

According to the report, the “transportation industry is largely segmented with over three-quarters of freight being carried using dedicated resources.” Meaning that manufacturers, consumer product companies (CPGs), retailers and other shippers most often want to move their goods on a truck that contains only their products.  This is the result of replenishment time pressures, delivery predictability,and order size requirements. This use of dedicated trucking, though, leads to a lot of underutilized trucks. Only 43 percent of current trucking capacity is being utilized, according to the report.

Think about that – nearly six out of every ten trucks you see on the highway could be taken off the road today with no impact on our overall capacity to move products.

The power to make this change lies most directly with the diversified manufacturers and CPGs.  By changing some of their practices, they can fundamentally transform how the movers of freight operate.

Specifically, the report calls on these shippers to adopt the specific changes below.

  1. Embrace vendor-managed inventory, which enables inventory to be held closer to the point of sale (often retailers).
  2. Reduce the minimum order size from a truckload level to a full-pallet equivalent.
  3. Use standardized modular containers when making pallets.
  4. Deploy different logistics models for replenishment stock – which is ideal for collaboration – and seasonal and promotional items, which are often better served with a dedicated freight model.
  5. Procure freight services via a freight transportation “auction” specifically designed for collaboration.

By embracing these actions, CPGs and diversified manufacturers can unleash a wave of innovation that will push their overall distribution model towards a relay network approach instead of the hub-and-spoke model so common today. This will lead to less long-haul trucking and much more predictable short-haul freight. It will raise the use of intermodal transportation (i.e. rail-truck combos) by 90 percent.

Retailers and logistics service providers will need to work with the CPGs and the diversified manufactures to provide the flexibility and services to enable this transition. But, by working together, all parties have a significant opportunity to benefit.

Truck drivers will be home much more often.

Trucking companies will see a huge drop in driver turnover.

Retailers will receive higher levels of service in terms of more frequent deliveries.

CPGs will see lower overall trucking costs and a reduction in inventory carry costs.

All of this is possible while also cutting global warming pollution from the freight sector by 233 million metric tons a year – equivalent to over four percent of total U.S. emissions.

The biggest barrier to adopting the practices seems to be our will to push beyond the current ways of doing business.  As the report notes, “88 percent of companies believe that collaborating with carriers, suppliers and customers will lead to more economical supply chain processes,” yet “only 10-30 percent of companies collaborate in their supply chain in any form.”

$100 billion in annual savings and more than 200 million metric tons of carbon reductions are numbers too large for us to pass up.  Let’s all learn to become better sharers.