Current issues in logistics and transport

Back in 2004 a large survey of supply chain managers by Accenture identified ‘collaborating with multiple partners’ as their greatest challenge.  It remains a major challenge.  Over the intervening period, numerous examples have emerged of big companies sharing logistics assets and thereby saving money, reducing emissions and often improving service quality.   The most celebrated of these collaborations have been in the ‘fast-moving consumer goods’ sector between companies such as Unilever and Kimberly-Clark, Nestle and Pepsico and P&G and Tupperware. Given the rich potential benefits of such collaborations, their rate of formation has been disappointingly slow.  There is evidence, however, that momentum is building.

Among the companies attending the ECR / IGD conference on ‘Reducing Wasted Miles’ on April 21 in Nottingham there was certainly strong commitment to explore new opportunities for collaboration[1].  This latest ECR / IGD campaign joins many earlier initiatives by ECR, ELUPEG, Lean and Green and the EU-funded project CO3 to get companies to work together.   I see these programmes as moving us from the first ‘opportunistic’ phase of supply chain collaboration, which relied on chance encounters between like-minded logistics managers, to a ‘systematic’ phase when companies routinely seek out possible logistics matches  more strategically.  This requires a change in the corporate mindset and a recognition that merging logistics operations offers greater efficiency gains than anything that a single company can do on its own.

In a presentation to the ECR / IGD conference I argued that mindset was one of six conditions beginning with the letter M which must be met to foster logistical collaboration.   Others include motives, which are still primarily commercial but acquiring a green hue, metrics, which must be defined in a way that accurately and fairly tracks the performance of a collaboration and the models the now exist to help optimise  costs and benefits among partners.  Ministries also have a role to play in ensuring that competition law doesn’t obstruct logistical collaborations which are patently in the public interest.  Finally, collaborative initiatives must be well aligned with market trends and properly engage logistics service providers, allaying any fears that they might have that collaboration simply involves shippers ganging up to squeeze their margins.

If there were a seventh M, it would be momentum, because too often in the past efforts to promote collaboration have petered out leaving managers sceptical about its longer term prospects.  This time should be different. We are now entering the Sharing Economy, when the sharing of assets is becoming a guiding economic principle at all levels from the individual citizen to the global corporation. We now have the analytical tools to model, plan and manage collaborations along and between supply chains.   And above all we have the favourable experiences of growing numbers of companies that have ‘taken the plunge’ and become keen advocates of the new collaborative paradigm.

[1] http://igd.com/reducingwastedmiles

Written for Kuehne Logistics University publication
Click here to download PDF of this blog

As a European logistics specialist travelling on the Indian road network for the first time, I was struck by the virtual absence of articulated trucks, comprising a tractor unit and trailer. Most of the road freight seems to be moving in small, open-topped rigid vehicles with two or three axles and brightly coloured liveries. In fact, at last count, they represented around 85% of all trucks on Indian roads. From a European perspective, the Indian road freight system may seem inefficient. After all, there are economies of scale in road haulage: the bigger and heavier the load, the lower are the unit transport costs per tonne‐km or cubic‐metre‐km.

Indian rigid truck

The standard Indian rigid trucks have a cubic capacity of around 30 m3 and gross weights ranging between 9 tonnes (on 2 axles) and 25 tonnes (on 3 axles).

By comparison, the main ‘workhorse’ of the European road freight sector is an articulated 5‐axle vehicle with a 13.6 metre trailer, offering 82 m of space and having a maximum gross weight of 40 tonnes.

European articulated truck

Surely then, it would be in India’s interests to move to a truck fleet more closely resembling that of European countries.

Not necessarily.

One must be cautious about recommending the transfer of logistics technologies from one country to another. There are often very good reasons, for example, for international differences in the composition of national truck fleets.

In several respects the Indian truck fleet is probably well adapted to the country’s physical and economic circumstances. Much of the country’s road infrastructure would be unable to accommodate articulated vehicles with large turning circles, while relatively few of the country’s factories, warehouses and shops have the reception facilities and manoeuvring space required by these vehicles.

Most Indian carriers would also lack the capital to acquire European‐style articulated vehicles. They are generally very small, predominantly owner‐driver businesses operating in an intensely competitive market, surviving on tiny margins and very low rates of return. Even if they were able to afford a large articulated vehicle, the nature of the Indian logistical system would not allow them to exploit the additional flexibility offered by ‘articulation’. In Europe there are typically around 1.7 trailers for every tractor unit allowing companies to decouple loading and transport operations. Most Indian truckers would lack the resources to acquire additional trailers and control their use. Perhaps the main explanation of the dearth of articulated trucks in India is that, at this stage in the country’s development, they are not actually needed. Bulky, primary products still make up a large proportion of the commodities moved by road. These are generally dense products that do not require the additional space that an articulated trailer offers.

Also, relatively little of the freight moved by road in India is conveyed on pallets or in roll cages, unitised handling equipment that takes up additional space. The very low labour costs in India make it more economical to ‘handball’ loose product, thereby maximising vehicle loading and eliminating the need for unitised and mechanised handling. Low labour rates also weaken the economy of scale argument for bigger trucks. In Europe the labour costs typically represent around a third of total road transport costs; in India it is around 10%. Procurement practices also influence the demand for road services and hence truck capacity. In many sectors, goods tend to be ordered in smaller quantities than in Europe reducing the need for large vehicles.

Although the current dominance of small rigid trucks can be explained and probably justified, it is likely that as the Indian economy develops, as its transport infrastructure is upgraded and as the logistics service sector evolves, greater numbers of articulated vehicles will appear on the roads. The Transport Corporation of India, the country’s largest logistics company, estimates that between 5 and 8 billion rupees (70 and 115 million Euros) could be saved annually if the national fleet of articulated trucks was increased by 10%. These savings would accrue mainly from reductions in fuel consumption and road wear and tear. The World Bank has also advocated a switch to articulated vehicles. Given the relatively long truck replacement cycle in India, however, it will probably several decades before India becomes as dependent on the articulated truck as European countries.

Reproduced from World Economic Forum blog, December 2011.
https://www.weforum.org/agenda/2011/12/life-without-trucks/

Can you imagine a world without trucks? It’s not a scenario that keeps many people awake at night, but perhaps it should. If, for whatever reason, road haulage operations were suspended, the resulting dislocation of supply chains would result in economic collapse within a few days. This is the conclusion of a study I have carried out of the likely impact on the UK of a total shut-down of its road freight system.

This eventuality is not as far-fetched as it may seem. In September 2000, steep increases in fuel prices provoked some UK hauliers and farmers into blockading oil refineries and blocking roads, causing a national crisis within three or four days. Since then strikes have seriously disrupted trucking operations in France, Spain and Portugal (June 2008), Australia (July 2008), India (January 2009), Greece (September 2010) and Shanghai (April 2011).

The trucking sector is particularly prone to this type of action. In most countries, its profit margins are very tight. This leaves carriers’ finances vulnerable to cost increases, particularly of fuel, whose price is highly susceptible to global events, and which typically accounts for around a third of total haulage costs. Although the trucking industry is highly fragmented, protests over prices, wages, taxes, tolls and regulations can precipitate mass action. Carriers and drivers know that such action can have a swift and debilitating effect on an economy giving them industrial ‘muscle’.

The conclusions of the UK study were far-reaching and profound. After only five days, the country would see retail stocks of most grocery products exhausted, almost all manufacturing closed down, all elective surgery in hospitals suspended, half the national car fleet without fuel, mail and parcel deliveries terminated and retail banking seriously disrupted by the collapse of the ‘cash logistics’ system. As the analysis made no allowance for panic buying, the reality would in all probability be far worse.

Individually, businesses can do little to protect themselves against such a sudden and systemic withdrawal of a vital transport service.  Traditional business continuity techniques would provide only marginal relief.  High-level contingency planning, involving close government and industry collaboration, would be required to deal with an emergency of this magnitude.