Practical collaboration
Emerging technologies are helping the ocean and trucking
industries work together in more meaningful ways.
BY ERIC JOHNSON
I
t’s hard to think of a more overused
word and more underutilized concept
in supply chain than “collaboration.”
The word conjures up vague notions of
logistics companies helping their customers, or shippers providing forecast data to
carriers to help them plan capacity better.
But, in a strict sense, neither of those
are examples of true collaboration. They
are more accurately described as business
relationships, and it shouldn’t take incentives for service providers and customers
to work together closely.
A more accurate description of collaboration is when two companies work together
despite having little incentive to do so.
Examples of this include when two competing companies find common ground, or
when two companies that would have never
thought about driving efficiencies through
a common platform end up helping each
other to do just that.
Technology is really the driving force
behind this type of collaboration, as
exemplified by two new automation
platforms—one focused on empty ocean
container repositioning and the other on
reducing empty truck miles—with this
goal at their core.
Johannes Schlingmeier, head of BCG
xChange, wrote his PhD thesis on empty
container repositioning. In his research,
Schlingmeier found that around one-third
of container imbalances were actually
company-specific.
“These were not being driven by a global
imbalance,” he said in an interview with
American Shipper.
In other words, while two-thirds of
empties are caused by external trade imbalances—China exporting more containerized cargo than it imports, for example—the
other third is due to internal carrier op-
erational inefficiencies. To rectify those
imbalances, sales people at ocean carriers
are incentivized to make sure trade lanes
are as balanced as possible. But that’s an
imperfect solution to a systemic problem,
Schlingmeier concluded.
Facilitating the exchange of
empty containers required
more than just the creation
of a platform. It also necessitated carriers agreeing to
work together in a new way.
“The expenses associated with transporting empty boxes to places where they can be
loaded with cargo represent 5 percent to 8
percent of a typical carrier’s total operating
costs and amount to $15 billion to $20 billion
each year for the industry overall,” he and
four co-authors wrote in a mid-November
paper on container repositioning.
BCG xChange, a subsidiary business of
the Boston Consulting Group, was launched
to tackle the problem through automation.
Schlingmeier theorized that if you could
overlay the locations of empties from several
carriers, container leasing companies, and
container trading companies, you could find
situations where those empties wouldn’t
have to be repositioned. They could simply
be used for an outbound move from that
same port.
It’s not exactly a new idea. The industry has been examining the potential for
“matchbacks” (also referred to as “street
turns”) for at least a decade, the idea being that importers and exporters could be
matched inland to eliminate empty drayage or longer haul intermodal moves to or
from a port.
Schlingmeier, however, was focusing on
eliminating empty container movement on
a larger scale and, just as importantly, the
costs associated with it.
But facilitating the exchange of empty
containers required more than just the
creation of a platform. It also necessitated
carriers agreeing to work together in a
new way.
“Avoiding an empty move can eliminate
$200 to $500, so for both parties, you’re
talking about $400 to $1,000 in savings,”
Schlingmeier said. “You’re not hurting your
partner or yourself.”
The platform itself was built in the summer of 2015 and launched in Hamburg in
November 2015 with 10 entities: seven of
the top 10 ocean carriers at the time, two
smaller ones, and a container leasing company. In the year since, BCG xChange has
grown that list to 70 customers, including
20 of the top 30 carriers globally, seven
of the top 10 leasing companies, as well
as regional carriers, non-vessel-operating
common carriers, and container traders,
Schlingmeier said in early December.
The platform leverages users’ global
balance data on a location basis, information BCG xChange says should already
reside in existing IT systems. Additional
information provided by users, such as
cargo flow information or booking data,
helps the platform’s algorithms find the
best matches possible. The platform also
uses public third-party data sources, such
as global sailing schedules, and fleet and
port databases, to improve the accuracy of
its matching algorithms.
Users are presented with matching opportunities on their dashboard, or can elect
to receive push notifications if a container
is available for a desired location.
BCG xChange is a “neutral clearinghouse” for transactions, so the two parties
involved need to set up contractual interchange agreements. The platform includes
a template developed with the Baltic and
International Maritime Council (BIMCO).
Users of the platform, which enables
exchange of dry 20-foot, 40-foot, 40-foot
high-cube, and 45-foot high cube containers
in 2,500 locations on six continents, pay
through a membership subscription or via
transactional pricing, in which both parties
pay a low single-digit percentage of the
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savings realized as fees, Schlingmeier said.
“To realize the full benefits of digital
interchange networks, carriers must approach them as marketplaces in which
they are willing to deal with a wide range
of new partners outside their traditional
comfort zone—including new competitors
and leasing companies,” Schlingmeier and
his co-authors wrote in their paper.
But collaboration tools are by no means
limited to the ocean freight market. For
years, trucking companies and shippers
have dealt with the issue of “deadheads,”
empty miles driven while not hauling
freight because a truck needs to be repositioned.
In late 2016, the
Green Bay, Wisc.ba sed t e ch nolog y
prov ider La nehub
launched with the
goal of addressing this
very problem.
The idea started
when Mark Hackl, a
Hackl
veteran of trucking firms, brokers, and
large domestic shippers, realized there
should be a technology-based avenue for
shippers to cooperate in such a way that
they reduce their freight spend, while also
helping carriers to avoid deadheads. So he
created a platform to allow users to find
lane matching opportunities with virtually no risk.
“Lanehub is for strategic procurement
professionals looking to source truckload
capacity by working together with other
companies to partner up and create efficiencies in your network,” Hackl said.
The system works like this: a shipper
uploads its contract lanes to Lanehub for
free via an Excel spreadsheet saved as a
CSV file. If it wants to find opportunities
where its lanes match with those of another
shipper, it pays a flat fee of $450 per month.
The system then determines which lanes
are matches based on constraints set by each
user. If there’s a match opportunity, the two
parties can interact through the platform to
determine if they want to go forward, and
the system even allows the two parties to
procure jointly with a carrier.
Carriers then log in to Lanehub to view
the joint package and agree on a price with
the shippers, with the assumption being
that carriers would provide a discount
on the joint rate package because they’re
eliminating deadhead miles.
If the carrier does offer a discount, the
system allows the two shipper parties to
decide how they want the discount split. If,
for example, one of the shippers is provid-
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ing the leg where carriers struggle to find
freight, that shipper might feel entitled to
a larger proportion of the total roundtrip
rate discount.
Within the system, Lanehub shows users
what the going rate on a particular lane is
via a database of 60,000 contract rates. Shippers can set parameters for their searches,
including the radius of potential matches.
The system also provides information
on so-called “problem lanes”—i.e. lanes
where there’s a higher rate of deadhead
miles. Users can add private fleet lanes as
well to find potential attractive backhauls
for that capacity.
“Think of this as an assistance tool,”
Hackl said. “It help users figure out a good
match. Can we absorb deadhead miles
and have the carrier still be excited? The
software allows them to aggregate volume
across lanes in a way that’s more attractive
to carriers.”
Hackl’s challenge is bringing sizable
shippers to the platform. Because the system relies on matching, it needs density.
The more lanes in the systems, the more
chances there are for matches, which is
why he’s been targeting larger shippers and
their bigger trucking networks. Lanehub’s
existing customer list includes the beverage
manufacturer Anheuser-Busch, brewer of
the famed Budweiser beer, among several
other brands.
“We need big shippers to get density for
small shippers,” he said. “We want Lanehub to grow through the network effect,
because it’s low cost and low risk. We’ll
grow it through the network effect rather
than a big sales force.”
For now, Lanehub is focused on the
truckload market and is designed for shippers to collaborate.
“This isn’t a load board, which is spot
[rates],” he said. “This is contract lanes.
It’s not designed for brokers and the spot
market. If freight is under their control
(such as in a managed transportation
services arrangement) then it would work
well for a 3PL.”
Hackl said users don’t have to load all
their lanes, but he encourages them to
“because they can identify through lane
profiling the problem lanes you didn’t even
know were problems.”
Users can’t see another shipper’s lanes
until they agree to partner, and can “unpartner” someone at any time.
“We monitor who is coming in to see they
are legit companies,” said Hackl. “Every
company has to consciously decide whether
they want to partner, so shippers would be
conscious of who they’re partnering with.
This gets back to the idea of, ‘let’s compete
on the shelf, not on the road.’”
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