As truckload capacity continues to tighten, both shippers and logistics service providers are looking for ways to leverage existing capacity as efficiently as possible. Multi-shipper consolidation is a great opportunity for shippers to share available capacity and save money — and for third-party logistics providers (3PLs) to enhance their value proposition — but relatively few shippers have “walked the talk” when it comes to collaborating with other shippers to co-load freight. Has the time come?
I spoke with Jim Davis, Vice President of Client Solutions at MercuryGate, to get an overview of the benefits associated with multi-shipper consolidation; the challenges involved and how to overcome them; and the role transportation management systems (TMS) can play in enabling this process and the critical capabilities required. Here’s what he had to say:
You spoke about multi-shipper consolidation at MercuryGate’s User Conference, and there were a lot of questions from the audience, especially from logistics service providers. Are you seeing more interest in multi-shipper consolidation from LSPs and shippers? If so, why and what types of questions are people asking?
Shippers are dealing with capacity constraints, and on the 3PL side there’s always cost pressure. The margins aren’t that great to begin with, so there’s financial pressure pushing 3PLs into taking a look at this. This has always been the holy grail of optimization. There’s always been a lot of interest in it, but there have also been a lot of issues preventing successful execution of this process.
So, what are some of the benefits of multi-shipper consolidation? Are they different for shippers compared to 3PLs?
The overarching benefits are cost savings and reduced damages as a result of moving from truckload (TL) to less-than-truckload (LTL). There’s also reduction of carbon footprints, improved transit times over LTL, and the convergence of capacity — that is, if you have a truck that’s 2/3 full today and you’re also shipping a LTL load that could fit on that truck, then you’re utilizing two pieces of equipment and capacity that’s not necessary to consume. From an optimization perspective, there are permutations of optimization. So the greater number of things that you’re looking at, the greater the possibility for savings. That’s huge. Also, there’s the normalization of transportation processes. If you converge all of these into one process, that definitely improves your efficiencies in terms of labor costs. There’s really universal benefit on both the shipper and the 3PL side.
Of course, if it were easy, everybody would be doing it. What are some of the big issues and pitfalls preventing broader adoption of multi-shipper consolidation?
No matter how you slice and dice it, it’s hard. There are a lot of things that go into it. But some of the biggest pitfalls are how you cost out, how you allocate costs, the financial implications of splitting out your general ledger, and how you establish your chart of accounts. That’s a lot of stuff to take into consideration. Also, how do you figure out if something is damaged, who it belongs to, and where does the claim go against? Then there’s the simple compatibility of goods, customer shipping rules, and whether those shippers require certain carriers and special services. On the shipper and potentially even on the 3PL side, you’ve got a lot of disparate systems that you have to communicate with. How do you split out that interface so that all of the data goes into the right place? That’s definitely an issue.
How can companies overcome these issues?
Specifically on the cost and allocation issue, we’ve been working on this for about eight years. I remember sitting in a room in Reno, trying to figure out a way to solve this problem. We went through every possible permutation, and just couldn’t solve it. We walked away saying, “We can’t do this.” I talked to one of MercuryGate’s founders and he told us to take the individual OD [origin-destination] pairs rated amount using an NMFC tariff for every single order on that load, and then take the sum of those costs and find the ratio from the individual to the total. That gives you a representation of all of the variables that you need. That’s your weight, density, cubic information, and distance traveled. That ratio, in theory, should give you the net results of the allocation.
There’s no simple answer to the OS&D [overage, shortage, and damage] challenge. It requires a lot of work on the shipper or 3PL side, and some investment if the company isn’t already doing this. You’ve got to be able to effectively identify the individual pallet or case – and this could require bar coding pallets or individual cases – to determine whose damage, overage, or shortage this was. Compatibility of goods and shipping rules are standard within most TMS optimization tools now, but you just need to really make sure that whatever your rules are, you’re not executing based off tribal knowledge. They need to be executed systematically. It’s very important, or you wind up with garbage-in and garbage-out. You have to make effective decisions systematically or your results will be bad. Next, and just to hit on the points that you’re talking about with customer fears and resistance, I’ve found that going to my customers and being honest about what you’re doing and what your value-added statement is, works. Let the numbers drive the effort. If that doesn’t sell the customer, then that customer is not a candidate for the program. You need to be straight up and honest around that. Finally, around the disparate systems, really this is a simple technical issue in most cases. I’ve seen some situations where it’s not, but definitely allow your middleware (your TMS) to separate and aggregate data into these disparate systems as required and just plan appropriately for the interfaces.
Let’s talk about the role of technology now, specifically a transportation management system (TMS). What are some high-level considerations companies need to think about?
Watch the short clip below for Jim’s response.
I encourage you to watch the rest of my conversation with Jim for additional insights on this topic. Then post a question or comment and keep the conversation going!