You are on page 1of 12

Inside this Issue

The New Normal ................................ 2

Managing the New Normal ................ 2
Re-confguring Distribution Networks .... 3
Centralize Control-and-Command ......... 6
Collaborate with Carriers ....................... 7
Create Capacity .................................... 9
Concluding Remarks ........................... 11
From the Editor ................................... 12
About ProLogis .................................... 12
Moving Freight Today
How Shippers Are Creating Greater
Capacity, Reliability, and Rate Stability
July 2006
While analysts, policy wonks, and government offcials talk about the dire
need for more capacity in the nations rail system, ports, and highway
infrastructure, supply chain professionals are at work fguring out how to
keep the freight moving and getting it to its destination on time.
Reliable freight transportation is the lynchpin of effcient distribution/
supply chain networks. Gone are the days when corporate executives
could take effcient, low cost, and reliable freight transport for granted.
Executives today must cope with such problems as port and rail
congestion, highway congestion, rising oil and gasoline prices, a dearth
of long-haul drivers, complex security issues, and crew and equipment
shortages. These problems are likely to get worse before they improve.
What all shippers want today from their freight carriers are capacity,
reliability, and rate stability. Supply chain executives have devised a
number of strategies designed to help them achieve these goals.
Companies are adding consolidation or deconsolidation centers to
their global distribution networks to ensure that product fows at full
container loads and full truckloads.
Companies are taking responsibility for their own freight bills
creating effcient freight lanes, leveraging their aggregated
transportation spending to negotiate better rates and capacity, and
ensuring daily execution that realizes the best negotiated rates.
Companies are striving (a) to forge close collaborative ties with their
carriers and (b) to become the preferred customers of their carriers.
Companies are looking for ways to extract greater capacity from
their existing plant and equipment by improving cube utilization,
eliminating empty trucks and dead-head miles, and extending hours
of operation.
These strategies are not mutually exclusive, and many companies are
employing more than one to contain the rising costs of transportation,
fnd offsetting savings, and ensure on-time deliveries.
ProLogis Supply Chain Review
Trends from the Worlds Supply Chain Leaders
Paul Nuzum, Author
Principal, Supply Chain Insights
Adjunct Professor
University of Denver
Leonard Sahling, Editor
First Vice President
ProLogis Global Research
2 PrcIcgs SuppIy Chan Pevew
The New Normal
Supply chain executives have their hands
full. Every day, they are expected to increase
inventory turns, improve delivery times and
accuracy, and reduce operating costs at the
companies they serve. Meanwhile, distribu-
tion networks have gotten more complicated.
Todays supply chains stretch thousands of
miles, span oceans, cross multiple borders,
involve multiple handoffs, and utilize multiple
modes of transport. The potential risk for
glitches is high and growing.
Reliable transportation is the lynchpin of
effcient supply chain/distribution networks.
Indeed, companies will be able to deliver
product faster, on time, from farther away,
and at reasonable cost if, and only if, their
traffc managers can deliver fast, low cost, and
reliable freight transportation. Gone, however,
are the days when supply chain executives
could take such effcient freight transportation
for granted.
Freight transportation has become the most
volatile component of many frms supply chain/
logistics operations. Executives today must
cope with port and rail congestion, highway
congestion, rising oil and gasoline prices, a
dearth of long-haul drivers, complex security
issues, and crew and equipment shortages.
(See Photo, page 2.) Each of these problems
adds incremental risk to the supply chain,
and the problems themselves are likely to get
worse before they improve.
Supply chain executives are spending more and
more of their time handling freight transpor-
tation glitches and crises. We recently inter-
viewed a dozen senior executives in charge of
global distribution networks to learn about how
they are managing the challenges of the new
transportation climate. One of them summed
up the current predicament as follows: None
of these transportation problems is going to get
fxed overnight. This is the new normal. Lets
just get used to it and fgure out what options
are available for dealing with the problems.
Managing the New Normal
These executives concerns about freight
transportation transcend costs. True, many of
them have been hit with unforeseen 20% hikes
in their transportation budgets within the past
year. Yet they are all more concerned about
ensuring that their companies products are
on the shelf when their customers want to buy
None of these transportation problems is
going to get fxed overnight. This is the
new normal. Lets just get used to it and
fgure out what options are available for
dealing with the problems.
How Can the Freight Keep Moving When the Nations
Highways and Freeways are Clogged?
them. When lead times lengthen or become
erratic, inventory stock-outs become more
frequent, resulting in lost sales and, worse still,
lost customers.
Rates still matter, but so do other concerns.
Heres how the vice president of logistics at
a large sporting goods retailer explained it:
There has been a strategy shift. Years ago,
our overriding goal was to beat down freight
rates. Today, were successful if we can just
hold rates fat and were partnering with the
carriers. Were seeking capacity, reliability,
and rate stability.
This is exactly what all companies want
today from their freight carriers capacity,
reliability, and rate stability. In turn, they
have devised a number of strategies to help
them achieve these goals:
1. Re-confgure Distribution Networks:
companies are reorganizing these
networks to ensure that product fows at
full container loads and full truckloads,
from origin to fnal destination and with
the fewest-possible handoffs.
2. Centralize Command and Control:
companies are taking responsibility
for their freight bills, creating effcient
transportation lanes, leveraging their
aggregated transportation spend during
negotiations for rates and capacity, and
ensuring daily execution that realizes the
best negotiated rates.
3. Collaborate with Carriers: companies
are striving (a) to forge close collaborative
ties with their carriers and (b) to become
their carriers preferred customers.
4. Create Incremental Capacity:
companies are looking for ways to extract
greater capacity from their existing
plant and equipment by improving cube
utilization, eliminating empty miles, and
extending hours of operation.
These strategies are not mutually exclusive,
and some frms are employing more than
one of them to contain the rising costs of
transportation, fnd offsetting savings, and
ensure on-time deliveries.
Re-confguring Distribution Networks
Just as the shortest distance between two
points is a straight line, so the least cost
method of freight transport is to move product
at full-container or truckload rates.
Cost disparities between full and partial loads
are substantial. For example, the rate for par-
tial container loads can be as much as three-
times greater than the rate for full containers,
and the less-than-truckload rate can be as
much as four-times greater than the rate for
With freight rates climbing, transportation
managers everywhere have gone back to the
drawing boards to analyze product fows from
every origin to every destination. Theyre
searching for ways to aggregate product so
that it can be moved in full containers or full
truckloads, and theyre examining both pur-
chasing and demand patterns.
In many cases, companies are fnding that the
best way to build full container loads and full
truckloads is add a new link of distribution
facilities into their supply chains. Adding new
links to the supply chain, however, would ap-
pear to be antithetical to the industrys long-
standing quest for simpler, less costly, and
more effcient supply chains. For years, compa-
nies have dedicated themselves to streamlin-
ing their supply chains removing redundant,
extraneous links, consolidating their networks
of distribution centers (D/C), and increasing
inventory turns.
But the new links added to companies supply
chains are not D/Cs per se, but rather freight-
pooling hubs. There are two kinds con-
solidation centers, and deconsolidation
centers (sometimes called mixing centers).
One or more of these freight-pooling hubs will
be added to the supply chain if the cost sav-
ings resulting from shipping the full containers
or truckloads that are created in these facili-
ties exceed the incremental costs of operating
the facilities.
In practice, companies can create four differ-
ent kinds of distribution networks, and which
one they choose will depend on the shipping
4 PrcIcgs SuppIy Chan Pevew
Direct-to-DC Network: This is the most
effcient transportation network. In this case,
the vendor or factory ships full container
loads directly to each shippers D/C, with
full-container load pricing and no handling of
the product between the plant and each D/C.
(See Network #1 in Exhibit 1.)
Deconsolidation Network: A shipper
will add a deconsolidation center to his
network when each of his D/Cs handles a
volume that is less than a full container
load, whereas the combined volumes of
several D/Cs do add up to a full container.
Various suppliers or factories will then
ship full containers to the deconsolidation
or mixing center where they are split
into separate shipments destined for a
number of different D/Cs. These partial
container loads are then aggregated into
full truckloads destined for each of the
shippers D/Cs. While a deconsolidation
network adds a product-handling step, it
also yields cost savings by moving product
at full container and truckload rates. (See
Network #2 in Exhibit 1.)
Consolidation Network: A shipper will
add a consolidation center to his network
if he receives less-than-container volumes
from his suppliers or manufacturers.
In general, the shipper will locate the
consolidation center abroad at the port
of origin where less-than-container loads
from multiple vendors or factories can
be aggregated into full-container loads
destined for each of the shippers D/Cs in
the U.S. Although a consolidation network
also adds a product-handling step, it too
yields cost savings by moving product at
full container and truckload rates, and the
labor employed to handle the product is
paid at lower Asian rates. (See Network #3
in Exhibit 1.)
Exhibit 1: Consolidation and Deconsolidation Networks Facilitate Truckload
and Full-Container Shipping
eadcr/lactcries 5tcres
Consol|Jot|on Centets
0econsol|Jot|on Centets
0econsol|Jot|on Centets
Altetnot|ve Netwotls: (1} 0|tect-to-0C. (2} 0econsol|Jot|on.
(3} Consol|Jot|on. onJ (4} Consol|Jot|on-to-0econsol|Jot|on
www.prcIcgsresearch.ccm o
Network: Once again, a shipper will
add a consolidation center at the point
of origin when he receives less-than-
container volumes from his suppliers and
manufacturers. This time, however, the
shippers D/Cs do not have large enough
inbound volumes to support full container
loads from the consolidation center.
Instead, the consolidation center ships
the full container loads to the shippers
state-side deconsolidation center, where
products from other inbound vendors or
factories can be mixed and aggregated into
full truckloads destined for the shippers
individual D/Cs. While this network does
add two product-handling steps, one of
which involves higher U.S. labor rates, it
also ensures full container and truckload
pricing. (See Network #4 in Exhibit 1.)
In all of these cases, the justifcation for adding
an extra step into the supply chain is the cost
savings from full-container and truckload trans-
portation. As the costs of freight transportation
rise, those cost savings will escalate.
Here are three examples of these new distribu-
tion networks gleaned from our recent inter-
views with supply chain executives.
Case Study #1: A national distribution
company maintains a network of 39 D/Cs to
provide next-day delivery to customers scat-
tered across the U.S. Its suppliers are located
throughout North and South America and Asia.
The distributor had rolled out an aggressive
private-label program where the sourcing was
shifted toward Asian factories. Transportation
costs had become unwieldy. The company
carefully scrutinized its distribution network to
determine how its D/Cs orders could be aggre-
gated into full-container or truckload shipments
on a regional basis.
The company established fve new regional
mixing centers. One was located in central
New Jersey to handle the Northeast; an-
other in Atlanta, for the Southeast; a third in
Chicago, for the Midwest; a fourth in Dallas,
for the Southwest; and a ffth in Los Angeles,
for the West. These mixing centers receive full
containers or truckloads directly from sup-
pliers. These containers and truckloads are
unloaded, and the products are then mixed and
re-shipped as full truckloads to each DC every
24-to-48 hours.
At the same time, the distribution company
also established consolidation centers at
several Asian ports where shipments from its
Asian suppliers could be aggregated into full
container loads destined for its fve mixing cen-
ters. The cost savings from full-container load
pricing were substantial.
Neither the consolidation centers nor the
mixing centers maintain any inventory. Their
mission is solely to ensure and facilitate full-
container and truckload shipments between all
points in the supply chain. Additionally, with the
pre-planning involved in building these full-con-
tainer and truckload shipments, the company
was also able to collaborate with the carriers
and ensure equipment availability and consis-
tent delivery.
Case Study #2: A major sporting goods
retailer added a consolidation center in Asia
to build full-container loads from its vendors
Asian plants.
Not only could the company then move prod-
uct at full-container load rates, but it was also
able to bypass its vendors U.S.-based D/Cs,
reducing the delay between order and delivery
substantially. It had been taking 21 days on
average to move product through its vendors
domestic distribution networks. Those 21 days
included the time spent moving product from
the port to the vendors D/C, the time required
for the product to be processed through the
vendors D/C, and the transit time spent mov-
ing the product from the vendors D/C to the
retailers D/C.
Case Study #3: A leading large-format retailer
of home furnishings was using regional carri-
ers to move product from its fve D/Cs to its
500 retail outlets scattered across the U.S. and
Canada. The retailer found that the carriers
were providing erratic delivery service to those
retail stores located more than 500 miles from
the D/Cs.
Upon investigation, it turned out that the car-
riers experienced high turnover among their
long-haul drivers for distances exceeding 500
miles. Traveling such long distances resulted
o PrcIcgs SuppIy Chan Pevew
in long absences from home. The challenge for
the retailer was that many of their stores were
located 600 miles or more from its D/Cs.
The retailer went back to the drawing board
and re-examined its distribution network. Even
after reassigning stores and D/Cs, some stores
still ended up farther than 500 miles from their
assigned D/C. The retailer considered adding
another D/C, but opted not to do so. Instead, it
added several mixing centers where it received
pooled truckloads destined for multiple stores
and then arranged for local delivery to the indi-
vidual stores.
Centralize Control-and-Command
One clear-cut trend emerging from our inter-
views is that shippers are choosing to decouple
their freight cost from their product cost. In
other words, shippers are taking responsibil-
ity for the freight bill, whereas previously the
suppliers paid the freight and then added this
expense into the materials invoice.
Having taken responsibility for the freight cost,
shippers then establish centralized command
and control over the freight movement. They
are hoping to use their frms total shipping
volumes as leverage in negotiating incentive-
based contracts with carriers and to oversee
the execution.
Often in the past, shippers succeeded in nego-
tiating favorable carrier rates in specifc freight
lanes based on commitments to the carriers to
channel certain volumes through those lanes.
Too often, however, those commitments failed
to translate into tendered volumes because of
snafus within the shippers decentralized opera-
tions. Local traffc managers, for example, may
have been unaware of the incentive contract
and tendered the loads to other carriers.
Whatever the cause, the result is always the
same higher shipping rates. The disparity
between the best contract shipping rates and
those with alternative carriers can be as much
as 7%. And worse still, a shippers failure to
follow-through on his commitments also ends
up sub-optimizing the carriers operations and
weakens the shippers future bargaining posi-
tion with the carriers.
One senior supply chain executive at a major
retailer has fully automated the tendering pro-
cess at his company, thereby ensuring that the
best contract shipping rates are fully realized.
He went on to explain how the centralized and
automated command-and-control system that
he devised works.
1. In placing an order with a supplier, the
retailer specifes a one-week shipment
window, during which the supplier must
ship the order. Additionally, the supplier
must notify the retailer 48 hours prior to
the actual shipment.
Shippers are taking responsibility for
the freight bill, whereas previously the
suppliers paid the freight and then added
this expense into the materials invoice.
Heres an Example of Cube Sub-optimization.
www.prcIcgsresearch.ccm 7
2. Suppose, for example, that the supplier
wants to ship the order on the Wednesday
of the one-week shipment window. In this
case, the supplier must request a routing
from the retailer via EDI [electronic data
interchange] by 5 pm on the prior Monday.
3. Next, the retailer collects all of its routing
requests from its entire network and
runs them through its transportation
optimization and routing software package
to identify the most effcient routes and
carriers for each shipment or combinations
of shipments.
4. By 6 am on Tuesday morning, the retailer
sends tender notifcations via EDI to its
primary carriers i.e., the carriers who,
after negotiations, have offered the best
service and rates.
5. Carriers will accept the tenders within a
few hours and then haul the freight within
24 hours at the best negotiated rates.
As a general rule, centralizing transportation
decisions also enables a shipper to move
transportation planning closer to the point of
order so that it ceases to be an end-of-the-line
function. If a traffc manager fnds out about an
order just when it is ready to be shipped, he or
she wont have enough time to arrange for the
best carrier and rates or to combine shipments
into full truckloads.
Alternatively, when given centralized visibility
of the shipment at the time of order, traffc
managers have a wider window within which
to consolidate shipments and can then take
advantage of truckload, continuous movement,
and pooled distribution rates. For example, a
senior supply chain executive at a manufactur-
er of household cleaner products reported that
early centralized visibility had enabled his
company not only to reduce its off-contract or
maverick carrier spending, but also bolstered
the share of its orders shipped at truckload
rates to 65% from 35%. The cost savings in
the companys transportation spend worked out
to a 1% increase in its bottom line.
Several interviewees mentioned that their
companies had integrated centralized freight
transportation planning into the procurement
of seasonal buying and production planning.
One manufacturer, for example, routinely
books freight with carriers in March for the
shipment of goods scheduled for production in
September and October.
Similarly, a retailer routinely books ocean
freight in March when it places its orders for
seasonal buying from Asian manufacturers,
for goods to be delivered and shipped next
October. Both companies believe that their
advance-planning is critical to lining up carrier
capacity during the busy holiday seasons.
Collaborate with Carriers
Many companies are attempting to forge close
ties with their transportation providers and, in
the process, become a preferred customer of
their carriers.
At the same time, many carriers are tracking
their operating ratios i.e., expenses divided
by revenues by customer. Thus far this year,
carriers have raised their freight rates by 5-
to-17%, as compared with a year ago. Those
shippers whose freight is diffcult to move or
who are diffcult to deal with are seeing rate
increases near the high end of the range. In
contrast, carrier-friendly shippers are seeing
rate increases nearer the low end.
No wonder that many shippers are going out
of their way to become a preferred customer
of their carriers. Some shippers, for example,
are providing their carriers with forecasts of
expected freight movements. Some are active-
ly working with their carriers to reduce dwell
times. Some are performing two-way score
cards. And others are taking positive steps de-
signed to improve their carriers cash fows.
Forecasting Expected Freight Movements.
Many suppliers are taking a page from Wal-
Marts playbook. Wal-Mart routinely shares its
point-of-sale information and forecasts with its
suppliers; and they in turn share it with their
suppliers and carriers, thus ensuring that the
right product will be available at the right time
and in the right place.
Many suppliers now provide their carriers with
detailed transportation forecasts. First, they
compile forecasts of their sales and manufac-
turing schedules. Next, they convert those
S PrcIcgs SuppIy Chan Pevew
projected volumes into detailed forecasts of
shipments by size, by week over the dura-
tion of the planning horizon, by mode (rail,
truckload, or less-than-truckload), and by lanes
(origination and destination pairs).
Suppliers update their shipment forecasts
weekly or monthly. Given these forecasts,
carriers can commit capacity in advance and,
if needed, can contract for outside capacity.
These updated forecasts are critical because
they enable carriers to position capacity for
promotions, seasonal peaks, and new business.
Reducing Dwell Times. Carriers strive to
keep their equipment moving as much as pos-
sible, thereby fully utilizing their assets as well
as enhancing the productivity of their drivers.
Long-haul drivers waste a lot of time as
much as 25% of their workweek, by some esti-
mates waiting for equipment, dock availabil-
ity, loading, and unloading. Carriers sometimes
charge accessorial and detention fees and may
even refuse to service locations where they
have been detained excessively.
Shippers are taking a close look at their ship-
ping and receiving processes, searching for
ways to lower their carriers costs. One senior
executive described this new point of view as
follows: We have adopted a pit-stop mentality,
where we want to get drivers in and out of our
facility as quickly as possible.
Shippers efforts are succeeding in reducing
drivers dwell times. Drop-and-hook pro-
grams allow the carrier (a) to drop an empty
trailer to be loaded and then picked-up later
and (b) to pick up a loaded trailer that had
been dropped off earlier. In one such program,
the driver is never at the shippers D/C for
more than 20 minutes. Additionally, some ship-
pers are also increasing the size of the shipping
and receiving areas within their D/Cs to facili-
tate faster loading and unloading.
Drivers dwell times are lengthened when they
have to wait for an available dock door or for an
appointment. As freight transportation volumes
have increased, the number of dock doors has
become a bottleneck. Many shippers require
carriers to call ahead and reserve a deliv-
ery time. But drivers then are stuck making
multiple phone calls or faxes, involving tortu-
ous telephonic menus and frustrating delays.
Drivers generally prefer a web-based appoint-
ment scheduling system, which allows them to
schedule their own appointments on line.
To eliminate those dock-door bottlenecks, some
shippers have extended their hours of opera-
tion, thereby doubling or tripling their dock
door capacity. Shipping or receiving at night
and on weekends smoothes the operations of
both shippers and carriers.
Improving Carriers Cash Flows: Carriers
operate on thin margins, and cash fow is a
paramount concern. Shippers who pay their
carriers quickly and reliably will not only earn
the carriers gratitude but also fare better dur-
ing rate negotiations.
Billing cycles often are nightmares for carriers
and shippers alike. These cycles start with the
carrier issuing an invoice to the shipper, based
upon standard or contracted rates. In turn, the
shipper usually audits the freight bill to verify
the correct volumes and rates. When discrep-
ancies are found in the audits, they are either
deducted from the invoice or charged back to
the carrier. Final settlement can take weeks or
months, imposing large clerical costs on both
the carrier and shipper and also impairing the
carriers cash fow.
To streamline the billing cycle, some shippers
have turned to self-invoicing programs,
where the carrier accepts both the load and
the rate during the tendering process. Upon
delivery of the shipment, the shipper pays the
carrier directly without going through the older,
unwieldy billing cycle.
These programs are a win-win. Carriers get
paid faster. One shipper, for example, pays his
carriers daily via EDI on a shipment-by-ship-
ment basis. In turn, shippers are rewarded with
lower negotiated rates.
Two-way Scorecards: Shippers have long
used scorecards to evaluate carriers perfor-
mances. Many shippers are now also using
them to evaluate how well their own operations
mesh with those of their carriers.
Shippers have thus adopted a number of
metrics designed to evaluate how well their
own operations are helping or hindering those
www.prcIcgsresearch.ccm 5
of their carriers. These metrics include dwell
times, accuracy of count, quality of documen-
tation, disparities between forecast and actual
loads moved, and changed orders.
Shippers meet with their carriers quarterly or
even monthly to review these metrics. Both
parties strive for collaborative collegiality. As
with all collaborations, these reviews have be-
come a two-way street.
One brand-name manufacturer, for example,
has formed a Logistics Council comprised of its
largest carriers and 3PLs along with its internal
transportation, warehousing, and supply chain
planning groups. Once a quarter, the Council
meets for two days to review the latest ship-
ment forecasts and the latest readings of the
scorecard metrics.
But the Councils agenda also includes ideas
and proposals for how the company can im-
prove its operations for the good of its vendors.
The companys Manager of Transportation was
eloquent on this score: We ask them [the ven-
dors] two things. First, what are the industrys
best practices today from a shippers point of
view? Second, what can we do to improve?
Shippers hope that such collaborations will
yield them consistent availability of carrier
capacity along with minimal rate increases.
Within the industry, a closely watched met-
ric of availability of capacity is frst tender
turndowns. For shippers, the best practice is
to tender (offer) a load to the carrier that has
offered the best price and service stipulations.
Often, however, that carrier rejects the offer
because it does not have suffcient capacity
(driver or equipment) to accommodate the
load on the designated day. In that case, the
shipper then tenders the offer to another car-
rier which has offered less favorable pricing or
service than the frst carrier.
Professor Chris Caplice of the MIT Center for
Transportation and Logistics has studied this
tendering process. One in four frst tenders,
he found, got turned down. The price of the
second tender, when accepted, was about 7%
on average higher than the preferred carrier;
and the second-tenders shipments were de-
layed on average by two days or more. Those
delays impaired shippers customer service,
necessitated higher buffer stocks, and in-
creased the shippers transportation costs.
Create Capacity
Analysts, policy wonks, and government offcials
often talk about the dire need for more capacity
in the nations rail system, its highway infra-
structure, and its ports. While they are surely
right, their policy recommendations generally
entail ambitious, costly projects that may or
may not get funded and that, even when they
do get funded, will take many years to complete.
Meanwhile, as supply chain practitioners con-
stantly remind themselves, The freight must
move today. From our interviews, we found
that several companies are striving to extract
more capacity from their existing plant and
equipment. Toward this end, shippers and car-
riers are improving their cube utilization, elimi-
nating empty miles, and extending their hours
of operations.
Full, Half-full, or Empty?
Many shippers have focused on how to
fll those empty miles, thereby reducing
their transportation costs while also
bolstering capacity.
U PrcIcgs SuppIy Chan Pevew
Ineffciency #1: Better cube utilization sounds
exotic, but simply involves packing more stuff
into truckloads. (See Photo, page 6.) One retail-
er of sporting goods embarked on a campaign
to improve cube utilization of the truckload
shipments from its D/Cs to its stores. Its broad
product line included large bulky SKUs such
as canoes as well as densely compact SKUs
such as dumbbells. The retailer hired additional
workers at the D/Cs to do more effcient pack-
ing, but it also succeeded in improving the cube
utilization of its truckloads by 14% for a net
gain in capacity without having to buy any ad-
ditional trucks.
Its campaign has been a success. The cost sav-
ings in the transportation budget were about
twice as large as the incremental cost of the
added loading labor. Evidently some truckloads
are fuller than others.
Ineffciency #2: Trucking experts estimate
that as many as a third of all trucks on the road
are empty. They have delivered their loads
and are headed either back to home-base or
to their next pickup. Empty trucks log dead-
head miles and higher costs. Many shippers
have focused on how to fll those empty miles,
thereby reducing their transportation costs while
also bolstering capacity. (See Photo, page 9.)
One supply chain executive clearly outlined the
problem and the solution. The whole indus-
try is waking up to the fact that half the trucks
running on the highways are half or totally
empty. We use a dedicated feet to deliver to
our stores, but 80% of the time theyre empty
on the return trip. We have to get smarter
about how to share resources. We have to
identify synergies where another companys
shipment will eliminate the empty miles. Its a
win-win. We both gain capacity, and we both
lower our costs.
The question is: where or how to fnd the other
parties with which to share resources or cre-
ate synergies? Answer: networking. You have
to talk to people until you fnd someone who
knows someone or something that can fx your
One shipper found the synergies that he was
looking for by talking to his companys vendors.
He related this anecdote, Were an inbound to
our D/Cs and an outbound to our stores, and
we were looking for how to become the two
legs of a carriers triangle. We have a D/C in Los
Angeles that ships to our stores in California,
Oregon, and Washington. We use a carrier out
of Washington to handle this freight. The same
carrier also ships paper products all over the
country, but always ended up running empty
trucks from Salt Lake City back to Los Angeles.
Heres where the shipper found his synergy.
My company has a supplier in Salt Lake City,
so we could use him to fll the third leg of the
triangle. The carrier now delivers shipments
from our D/C in Los Angeles to stores in the
Northwest. From there, the carrier delivers
paper products to its customer in Salt Lake
City. And we then schedule a shipment from
our vendor in Salt Lake City to our D/C in Los
Angeles. This third leg forms a complete tri-
angle [or roundtrip] using dedicated equipment,
avoiding costly dead-head miles, and getting
the driver home for the weekend.
Finding such synergies is seldom simple. A
senior supply chain executive at a manufac-
turer had to cast his net outside of his circle of
customers, carriers, and suppliers. He found
his synergy through one of his companys 3PLs.
On behalf of a trading company client, the 3PL
was operating a pair of fully loaded routes from
Harrisburg PA to either Green Bay or St. Louis,
with a stop at the trading companys facility in
Chicago. The trading company also had con-
sistent freight volume for shipments from St.
Louis and Green Bay back to Chicago. What it
didnt have were any shipments from Chicago
to Harrisburg, so that its trucks were running
empty when they traveled from Chicago to
The manufacturer in question was then running
consistent, less-than-truckload (LTL) freight
volume from Chicago to Harrisburg. By ar-
ranging a pick-up schedule with the 3PL, the
manufacturer was able to move product from
Chicago to Harrisburg at less costly truck-
load rates and got product into its Harrisburg
customers hands a day sooner than it did with
the LTL carriers.
Delighted with these cost savings, the execu-
tive naturally wondered where else he could
reduce his transportation spend. In his words:
This type of matchmaking is usually done by
freight brokers, freight forwarders, and for-hire
carriers. But we decided to take the initiative.
Weve used our transportation management
software system to identify all of our freight
patterns so that we can seek out synergis-
tic opportunities such as [the one described
above] with other frms. Were able to do a
better job with faster service at a lower cost.
Thats a recipe for success.
Ineffciency #3: A D/C that limits its opera-
tions to one eight-hour shift for fve days a
week is operating at less than 25% of its full
24x7 capacity. Were seeing more and more
companies expanding their workweeks.
In some cases, suppliers have had to switch to
a 24x7 schedule because their customers had
previously done so and were insisting that their
suppliers should be able to ship to their D/Cs
at night and on weekends. After making the
switch, the suppliers often fnd that these 24x7
operations are conducive to smoother fows
of freight volumes to and from their D/Cs and
those of their customers. In turn, the smooth-
er, more predictable volumes lead to reduced
overtime, improved inventory turns, and faster
Additionally, companies also fnd that 24x7
operations add signifcantly to their shipping
capacity. The smoother volumes result in less
dock congestion as well as quicker loading and
unloading times. One of our interviewees fer-
vently wished that his company had made the
switch sooner: We can move a trailer in and
out of our facilities in less than half the time on
a weekend than we can during the week. Our
carriers couldnt be happier; it took bumps out
of their systems. We also found that equipment
was more available on weekends than during
the week. 24x7 is also a good ft with our drop-
and-hook program, giving drivers more fex-
ibility on pick-up times. And the rail and truck
lines have told us that smoothing the fow of
our shipments helps them provide capacity for
the hauls.
Concluding Remarks
The mantra for supply chain professionals is
still, The freight must move and get to its
destination on time. Additionally, they are
expected to increase inventory turns, improve
delivery times and accuracy, reduce the oper-
ating costs of their distribution networks, and
leap tall buildings in a single bound.
Moving the freight and getting it to its destina-
tion on time were always challenging tasks.
Lately, however, these tasks have become even
more challenging. Supply chain professionals
today must cope with port and rail congestion,
highway congestion, rising oil and gasoline
prices, complex security issues, acute short-
ages of long-haul drivers, and rail crew and
equipment shortages.
One senior supply chain executive was quoted
earlier as saying, None of these transport
problems is going to get fxed overnight. This
is the new normal. Lets just get used to it and
fgure out what options are available for dealing
with the problems.
Hes right, and supply chain professionals
worldwide have been busy doing exactly that
fguring out how to deal with those prob-
lems. In this report, we have described a num-
ber of the strategies and tactics that they have
devised to deal with the problems cited above.
Theyre all aimed at fostering greater capacity,
reliability, and rate stability.
We hope that readers fnd these real-world
strategies interesting and, better still, useful.
What we fnd most striking about these exam-
ples is the utter resourcefulness and ingenuity
that supply chain professionals bring to bear in
moving the freight and getting it to its destina-
tion on time.
The freight must move and get to its
destination on time.
ProLogis is a leading provider of distribution facilities and services with 377 million square feet (35 million
square meters) in 2,340 distribution facilities owned, managed and under development in 77 markets in North
America, Europe and Asia. ProLogis continues to expand the industrys frst and largest global network of
distribution facilities with the objective of building shareholder value. The company expects to achieve this
through the ProLogis Operating System and its commitment to be The Global Distribution Solution for its
customers, providing exceptional facilities and services to meet their expansion and reconfguration needs.
About ProLogis
Copyright 2006 ProLogis. All rights reserved.
This information should not be construed as an offer to sell or the
solicitation of an offer to buy any security of ProLogis. We are not
soliciting any action based on this material. It is for the general
information of ProLogis customers and investors.
This report is based, in part, on public information that we
consider reliable, but we do not represent that it is accurate
or complete, and it should not be relied on as such. No
representation is given with respect to the accuracy or
completeness of the information herein. Opinions expressed
are our current opinions as of the date appearing on this report
only. ProLogis disclaims any and all liability relating to this
report, including, without limitation, any express or implied
representations or warranties for statements or errors contained
in, or omissions from, this report.
Any estimates, projections or predictions given in this report are
intended to be forward-looking statements. Although we believe
that the expectations in such forward-looking statements are
reasonable, we can give no assurance that any forward-looking
statements will prove to be correct. Such estimates are subject
to actual known and unknown risks, uncertainties, and other
factors that could cause actual results to differ materially from
those projected. These forward-looking statements speak only as
of the date of this report. We expressly disclaim any obligation or
undertaking to update or revise any forward-looking statement
contained herein to refect any change in our expectations or any
change in circumstances upon which such statement is based.
No part of this material may be (i) copied, photocopied, or
duplicated in any form by any means or (ii) redistributed without
the prior written consent of ProLogis.
ProLogis Supply Chain Research Reports
Additional supply chain research reports are available. To download PDFs
of these additional reports, please go to
Youve read the same newspaper headlines and stories
that I have. The nations freight transportation
industry faces monumental challenges including
port and rail congestion, highway congestion, rising
oil and gasoline prices, crumbling infrastructure, a
dearth of long-haul drivers, complex port security
issues, and crew and equipment shortages.
Policy-makers are talking about the problems and
trying to build a consensus around particular solu-
tions. But they are still years away from funding,
blue prints, and actual construction. And by then,
the problems will have gone from bad to worse.
Supply chain professionals dont have the luxury of
waiting for policy-makers to design and implement
major overhauls to the nations freight transpor-
tation system. These men and women are in the
trenches having to make sure the freight keeps mov-
ing and getting to its proper destination on time.
From the Editor
Leonard Sahling
First Vice President
ProLogis Global Research
Paul Nuzum has talked with about a dozen senior execu-
tives in charge of global distribution networks to learn
about how they are managing the challenges of the new
transportation climate. The interviewees are pragma-
tists and doers, and they have dreamt up a number of
ingenious ideas all practical, lots of nuts-and-bolts,
and all aimed at dealing with, or circumventing, the
industrys problems. My favorite is the one where more
stuff gets packed into trucks, creating fuller full truck-