How LTL Shippers can Maximize Their Service/Cost Opportunity
In the past 20 years in the CPG industries, the big have done more than just grown bigger. Not only have they acquired small to mid-size manufacturers, but they have also merged with or acquired many of their former competitors. Old brands are shed faster than new ones are created. Successful businesses have sprouted by acquiring and revitalizing "tired" brands that were not receiving the marketing support they once had because of the real or perceived lack of growth in the category or brand.
As the big have grown bigger, their leverage over truckload carriers has also grown. Any reasonable analysis of truckload freight rates, not counting fuel, shows little growth in rates over the past decade despite the carriers' continuing issues with a shrinking pool of driver replacements; higher costs for new, more environmentally friendly equipment; unproductive regulation; and the lack of investment in retail and foodservice distribution centers by the receivers. For LTL shippers, getting a door assigned and getting unloaded in a timely manner at the receivers' locations has become much more difficult because the number of doors available for unloading and receiving hours have not kept pace with the growth in volume.
This is only one of the challenges facing LTL shippers, and, to be fair, LTL carriers. Here are some of the other challenges:
- LTL transportation is more expensive. It is more expensive because it is less efficient. By definition, using one vehicle to drop orders over multiple stops is less efficient per pound, per case, or per pallet versus a single stop truck load or a multi-vendor consolidated load to one destination.
- Deliveries are less dependable. We live in a world of metrics. All shippers are held to increasingly tighter delivery windows. For a small shipper fighting for shelf space, stockouts either in the warehouse or on the shelf bring consequences from punitive fees to SKUs dropped from approval.
- Costs are less predictable because the nature of LTL shipping creates more risk.
- Damage rates are frequently greater. The more times a pallet or an order is moved through a variety of LTL terminals to its ultimate destination, the greater the risk of damage, the risk of being put on the wrong truck, or the risk of being left behind.
- Longer in-transit times could translate to more raw materials at the plant and buffer inventory at the shipper's plant warehouse or distribution center to compensate for the additional days of orders in transit.
- LTL rates tend to rise faster than truckload rates because LTL shippers tend to be smaller and, therefore, have less negotiating power. However, increases in LTL rates do not necessarily translate to higher profits for the carriers. LTL costs are less predictable because the volumes in any specific transportation lane from week to week and month to month are less predictable.
These are challenges faced by all LTL shippers. They are unlikely to change in the short term. So what alternatives does the small and medium size shipper have? There are several strategies which can be employed independently or as a package to help improve service, reduce costs, and minimize additional inventory.
Leverage the Services of an Asset-Based 3PL Network
Every region in the US has a set of asset-based 3PLs which can serve as consolidation centers for multiple shippers to the same destinations within that region or to the same pool points or consolidation centers in other regions. The services provided by these centers provide the small and medium size shippers the opportunity to aggregate their volumes into more complete truckloads. There are 3PLs dedicated to specific temperature requirements and commodity types. There are even some who can cover everything from -20 degrees to ambient.
The concept of aggregating orders on the same truck to the same destination is not new. Perhaps what is new is that through using a shared service, the smaller to medium sized shipper is starting to level the field with the truckload shippers going to the same retail or foodservice distribution centers.
For out-of-region service, an LTL shipper can use an asset-based 3PL to consolidate their its pre-selected orders along with other LTL shippers' pre-selected orders to pool points (LTL terminals) or 3PL consolidation centers serving a destination region. While the final leg or last mile delivery is still in the hands of another carrier, the shipper has still shared the costs with other shippers of getting his freight into the destination region, typically the longest leg of the delivery. Even if shippers are using different regional consolidation centers, while not optimal, it is certainly a lower cost, higher service model than each LTL shipper making a separate run to their its preferred pool point or consolidation center within the destination region.
With an imaginative originating 3PL and some critical mass of shippers, trucks shipped into the destination region can be filled and dispatched more frequently than once a week. This will improve service levels and reduce the pressure for additional safety stock. There is also an opportunity to make drops at common receivers before or after the pool point or consolidation center drop.
Consolidation Centers for Retail or Foodservice Customer Delivery
As a small or medium shipper, there are a variety of very sophisticated network modeling tools available to support the decision to use a 3PL warehouse to either cross dock LTL orders onto multivendor truckloads to the same destination or to manage an inventory for servicing those same customers in that region. More sophisticated 3PLs will have developed transit lanes that are scheduled to more efficiently spread the volume of work (i.e., their labor requirements) over the week and guarantee service to their shippers' customers.
By creating a weekly sailing schedule and forcing its LTL volume into those lanes, the 3PL can usually deliver a very predictable cost and reliable service. The major drawbacks for the shipper are either the establishment of another inventory location and its incumbent complexities or coordinating the on-time receipt of all orders in order to make the cross dock cut off times. While creating another inventory pile may not seem appealing, lower delivered costs and better service can be the benefit. On the other hand, for small and medium shippers, building an infrastructure to manage and monitor multiple cross dock locations can be equally challenging. In making that decision, do not just analyze the economics. Carefully examine the history and performance of the 3PLs under consideration. Make sure their culture and strategic vision aligns with yours and honestly evaluate the capabilities of your own organization to work with a 3PL and persevere through the missed cutoffs, failed deliveries, and upset customers that will inevitably occur when new systems and processes are initiated.
What Should a Shipper Expect by Moving from LTL to Consolidation Services?
Lower Costs: Using shared services typically costs the shipper between 25 – 35% less than LTL.
Dependable Service: Through their its technology, a 3PL will have visibility to all outstanding orders for both the same lanes and same destinations. Publishing a schedule not only leverages the critical mass to build cost cost-effective loads but also gives the shipper the opportunity to deliver to their its customers at least weekly.
Predictable Rates: Because the 3PL is using TL carriers, freight costs are more competitive. The more volume a 3PL builds in and out of its center, the more carriers will compete for that outbound volume.
Less damage, Less Risk of Error: The fewer hands and forklifts that touch the product, the higher the probability it will arrive on time and in good condition.
Reduced Inventory: Orders can move on a regular schedule with minimal handling through a consolidating 3PL. There is no need to hold orders either to fill a truck or wait for a larger order from the same customer. Reducing transit times will reduce your need for safety stock, reducing carrying costs and improving product freshness.
Better Information: The track and trace capabilities of a 3PL responsible for delivering your products will be more reliable and more timely than any series of LTL carriers regardless of their technology.
Most importantly, using consolidation services will make it easier to deliver consistent, dependable service to your customers with less risk of damage or error. This gives the small to medium size shipper the ability to compete with the truckload shipper on the features of their product and not on the efficiency of their delivery methods.
If you're interested in discussing how Atlanta Bonded can help you meet your shipping challenges, call Hal Justice at 770-425-3000.
About Atlanta Bonded
Atlanta Bonded Warehouse is a leading third-party logistics provider, specializing in temperature-controlled and dry distribution services. Based in Atlanta, Georgia, ABW operates over 2.2 million square feet of award-winning facilities, providing both public and contract warehousing, transportation, and co-packing solutions from 8 locations in the Southeast. Colonial Cartage Corporation, an asset-based in-house carrier, provides scheduled LTL service across the Southeast, Southwest, Midwest, and Great Plains; dedicated truck load service; and plant support transportation, delivering exceptional service with an excellent safety record. For more information about ABW and Colonial, visit www.atlantabonded.com.
Atlanta Bonded Warehouse Corporation
3000 Cobb International Blvd.
Kennesaw, GA 30152