01 March 2018
The introduction of the ‘neutral trustee’ as a new player in the supply chain market
Building demand sided horizontal collaboration in a legally compliant way for efficiency and corporate sustainability
By Dr Patrick Stumm and Michael Bogen
“Full-truck-load” (FTL) transport via road is the primary mode of transportation for high volume business-to-business goods in Europe. One of the major inefficiencies in the EU transport market is created by FTL empty vehicle movements, the empty running of vehicles between trips (unloading and re-loading). In Europe a fifth of international journeys are performed by empty vehicles.
The NexTrust project is addressing this inefficiency by implementing an innovative business model that is changing the way transport capacity is purchased and executed today. A key component of the innovation is the market introduction of a new player in the supply chain market: the neutral trustee. This new, innovative support and management entity enables demand sided horizontal collaboration in a legally compliant manner, leading to more efficiently operated transport and enhanced corporate sustainability.
Shippers, e.g. manufacturing companies, usually outsource the transportation of their goods from their manufacturing sites to warehouses and/or to their customers. For the most part, shippers look only at their own transport lanes and goods movements when trying to optimize these flows. As a consequence, transport capacities across Europe are significantly underutilized, resulting in many vehicles running empty or only partially loaded. Every truck movement has a distinct origin and destination (O/D); however, the vehicle usually has to be repositioned for its next trip, resulting in empty running when the next O/D pair is different. The European transport market is by its very nature extremely fragmented, with thousands of shippers purchasing transport services separately, and hundreds of thousands of transport companies offering their services independently. Shippers and carriers do not have visibility to the complete picture, creating inefficiency that makes collaboration challenging.
With demand sided horizontal collaboration between the shippers now in place, carriers have been given a newly designed network comprised of more efficient road transportation flows, with maximum asset utilization and economies of scale. Presenting carriers with “lane combinations” (joined lanes) as opposed to single trips, offers them the maximum operational flexibility, while still providing improved predictability in transport flow balance, is something they do not enjoy today.
The research activities of the FTL demonstrator looked into the critical components required to build a trust environment among shippers. The challenge is that collaboration faces a number of barriers and legal restrictions. For good reasons, competitors may not exchange sensitive commercial data which might lead to less competition in the market. Any violation can lead to severe penalties, which is why most companies refrain from collaborations or make only very restricted use of them. To date, successful collaborations in the transport sector have mostly been a matter of luck, i.e. two companies discovering synergies more or less by chance. Luck should have nothing to do with it.
With the innovative NexTrust business model, the new player, the trustee is installed as neutral, independent supporting entity between the shippers, which acts under strict confidentiality and EU competition law compliance.
The trustee provides two main support functions. First, the service is categorized as a “Transport optimizer”, which includes transport flow matchmaking to identify synergies between partners. Second, the service support and management function provide “a trusted environment” and all that it implies, enabling the collaboration journey, from identification of freight flows through preparation of the collaboration, to supporting the actual execution in cooperation with carriers.
The NexTrust FTL research activities in the first phase used the Giventis ELG-Web™ platform to identify synergies between shippers, enabling smart visibility across them, thus allowing a more intelligent and sustainable supply chain to be built. In this way, the FTL project team addressed the currently fragmented logistics “silos” from individual shippers, replacing them with a more efficient “cross-shipper” connected trusted transport network.
In this document, the reader will see a description of the trustee management tasks that were developed and then utilized to structure the collaboration and overcome any barriers or constraints to collaboration scenarios.
The ‘trustee’ is supporting the entire collaboration process, from managing benefit sharing (to avoid price fixing) to KPI calculation (as data is confidential for this as well), to execution support to maximize benefits.
The results of the FTL research activities are demonstrating the tremendous market benefit which can be achieved through horizontal collaboration among shippers with cooperation from carriers. In the period 2016/17, the first FTL collaboration optimized 21,480 shipments of 6 shippers to 61 roundtrip (closed loop) lane combinations across Europe.
For the first time ever in European logistics history, shippers were pro-actively cooperating to purchase a more efficient transport network collaboratively, in compliance with EU competition regulations.
In the period 2017/2018, the analysis of freight flows added a second optimization algorithm in form of FTL continuous movements (open loop with short distances between unloading and re-loading locations).
As a result, around 100.000 FTL shipments of 9 shippers were optimized into 198 roundtrip combinations, while 377 continuous move combinations were created, bringing the entire number of collaboration combinations to 575.
Horizontal Collaboration FTL Pilot Cases
In the operation phase of setting up FTL collaboration, the shippers selected from the identified opportunities the most cost efficient matches as pilot cases for research purposes. In the period 2016/17, the FTL collaboration resulted in 9 Pilot Cases, and in 2017/2018 an additional 14 Pilot Cases were designed to test the research concept in real market conditions, for a total of 23 FTL pilot cases. The FTL collaboration Pilot Cases consisted of 92 locations across Europe.
Overall, the research activities for FTL collaboration were successful, with multiple pilot cases established to test for a certain period the innovative concept. These implementations demonstrated considerable success, despite the adverse market conditions (reduced market capacity) which were prevalent in the second half of 2017.
The FTL collaborative combinations demonstrated a positive impact on sustainability, in average a CO2 reduction of 27.7 % and a reduction of 36.0 % of vehicle-kilometres VKM. Extrapolating the pilot cases and the potential of the optimized lanes, the FTL collaboration could achieve the removal of 38 million annual empty vehicle kilometres from the road when taking into account the full empty backloads. This would be the equivalent of driving around the circumference of the Earth 940 times (!). Put another way, it would require around 1 million new trees, with a ten year growth timeframe to remove the same amount of pollution from the roads as this new FTL network. Horizontal Collaboration therefore can tremendously support the Paris Climate agreement and the EU climate goals.
The FTL demonstrator achieved an important contribution to the overall NexTrust project and its objective. It was demonstrated that through demand sided horizontal collaboration the competitiveness in the European logistics market can be increased in terms of efficiency and sustainability.
Demand sided horizontal collaboration is now on the “tipping point” of transition to market acceptance in European logistics. To make it a reality, NexTrust is demonstrating why the supply chain requires a new trusted service support and management function to enable horizontal collaboration in a trusted legally compliant environment, which will lead to more efficiently operated transport and enhanced corporate sustainability.
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