March 20, 2012
Column | fastlane

A tried-and-true route to shaving freight expenses

Looking to cut transportation costs and the number of trucks on the road? Consolidation programs, also known as "shared services," might be the solution.

By Clifford F. Lynch

In this age of ever-rising fuel prices and the push to reduce carbon footprints, logistics and supply chain managers are constantly searching for ways to cut transportation costs as well as the number of trucks on the road. One proven technique for doing so is through consolidation programs, sometimes referred to as "shared services" or "collaborative distribution."

This is hardly a new idea. For over 50 years, consumer goods companies have slashed costs by consolidating their smaller orders with those of other manufacturers to create one or more large shipments. Although the shipping climate back when these programs were introduced was quite different from today's, the current environment could not be better for this tried-and-true concept.

As for the origins of the practice, the first food consolidation program was set up in the late '50s by a warehouse in Huntington, W.Va. At that time, major food manufacturers shipped most of their customer orders by rail, which presented the problem of how to serve smaller accounts that did not buy enough to fill a rail car. Utilizing one of the more bizarre rail tariff provisions in effect at the time, the public warehouse came up with a plan: It would consolidate compatible orders from multiple clients and load the merchandise into a separate rail car bound for each individual destination (up to three), thereby allowing its clients to ship goods at carload rates (plus stop-off charges) rather than at significantly higher less-than-truckload (LTL) rates.

Not surprisingly, the concept was a hit with shippers. And though consumer goods shipments gradually shifted from rail to truck, shippers continued to use consolidation programs in order to get truckload, rather than LTL, rates. Participation in consolidation programs has waxed and waned over the years, but lately there's been an uptick in interest.

Today's consolidation programs are typically administered by logistics service providers (LSPs) that, with their large client bases and sophisticated systems, are able to combine what would have been LTL shipments into truckloads, reducing freight and handling costs as well as carbon emissions. The leading providers boast systems that combine orders, by customer and requested arrival dates; route the shipments; and electronically tender the freight to the appropriate carriers. One particularly effective program is that offered by Scranton, Pa.-based Kane Is Able. Its "Collaborative Distribution Program" has produced both handling and transportation savings for shippers as well as their customers. It is a classic example of how new, creative thinking about an old concept can result in new successes.

C.H. Robinson has also taken steps to make it easier and more economical for its customers to consolidate shipments.

For those companies that haven't given such programs much thought, this might be an opportune time to do so. The traditional objection has been that outsourcing carries some additional expenses, but those pale when compared with rising truck costs.

You don't have to be a small shipper to find value through collaboration. In an era of small just-in-time shipments and reduced inventories, even large corporations make small shipments. Nor do you have to spend time finding the right collaborative partners. The LSP does that, ensuring that all of the products to be consolidated are compatible.

These programs obviously require the cooperation of shippers, LSPs, and customers. And they won't reduce fuel prices per gallon. But when managed efficiently, they can—and do—go a long way toward maximizing fuel efficiency.

About the Author

Clifford F. Lynch
Columnist
Clifford F. Lynch is principal of C.F. Lynch & Associates, a provider of logistics management advisory services, and author of Logistics Outsourcing – A Management Guide and co-author of The Role of Transportation in the Supply Chain. He can be reached at cliff@cflynch.com.

More articles by Clifford F. Lynch

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