Collaborative Freight Strategies Offer Lower-Cost Alternative to LTL
Q: Why is it important for small and mid-sized consumer packaged goods (CPG) shippers to collaborate on freight strategies to remain competitive?
A: If they don't, they will continue to pay more than their larger competitors, who have the volume to ship more economical full truckloads.
For years, smaller shippers have accepted the higher cost and unpredictable schedules sometimes associated with less-than-truckload (LTL) carriers. That's changing as low-volume shippers are leveraging the matchmaking capabilities of third-party logistics (3PL) providers to combine freight from multiple companies shipping to the same region. This simple "share-the-ride" strategy can cost 25 to 35 percent less than using LTL for the same moves.
Q: What are the potential drawbacks of LTL?
A: The most expensive miles for a truck are the first 50 and the last 50. LTL may cost more because it involves multiple first- and last-mile sequences—as many as six—to move freight across the country through several LTL carrier networks and terminals.
Another drawback is that shipments sometimes take longer than you'd expect. A consolidated truckload shipment from Pennsylvania to Arizona takes about three days, compared to six to 10 days via LTL.
Q: What alternatives to LTL exist for small CPG shippers?
A: For region-to-region shipments, pool distribution is an effective, but underutilized, strategy. Let's say multiple companies in the Northeast need to ship products to the West Coast. With a pool strategy, these companies can ship to a regional consolidation center where multiple customer shipments are consolidated to create a single truckload for the direct, cross-country journey. Once freight arrives, a pool distributor handles final delivery.
Consolidation opportunities also exist for last-mile delivery, and many 3PLs have built campuses for distribution of like—and even competing—products to the same retail customers. These 3PLs engineer final truck routing based on each shipper's strict delivery requirements and urgencies.
Q: Freight consolidation is not a new idea. How are these collaborative freight strategies different?
A: Today, consolidated shipments are the exception, not the rule. But two new developments will help make collaborative distribution a dominant model for freight movement for smaller shippers.
First, shippers are recognizing that, while their products may compete on a store shelf, they do not compete in the back of a truck. So they are more willing to share logistics services and co-locate inventory with similar type products.
Second, retailers themselves have begun to take an interest in combining orders from multiple vendors on a single purchase order. After all, it's far more efficient to receive one full truckload of freight with product from four vendors than to receive the same volume of product in four separate trucks. 3PLs that distribute for numerous CPG companies can enable this retailer initiative.