The Backhaul/ Co-mingled Freight Revolution

OK, for years and years, everyone has been talking about backhaul and co-mingled freight as a significant way to minimize transportation costs. The reality has been that for most shippers, it’s been a fringe operation and fallen far short of what could really be accomplished. What if, as a shipper, you thought of your transportation operation as a revenue or profit increasing opportunity? Dear logistics executive, how would that change your thinking, especially when the president of the company recognizes it? My advice is to figure it out now before he/she does. FYI, this applies to everyone, from the $50M food distributor to the multi-billion dollar consumer package goods (CPG) company.

So why will something that has been recognized for a long time change now? It’s pretty simple - corporate greed. Markets are not growing that quickly and competition is fierce, resulting in few places left in the company to easily squeeze out top and bottom line growth. But that’s not everything. We are seeing a shift in thinking and the ascent of shippers acting as common carriers or transportation brokers. Making this easier is the emergence of network-based cloud logistics technology. Lastly, where’s the greatest trapped open freight capacity in the North America - common carrier or private/dedicated fleet? The latter, by a long shot. As shippers realize that private/dedicated fleets that are today focused only on customer delivery could be deployed for inbound shipments or companies with complementary shipping patterns, there will be a revolution the truck-based transportation market.

If you are a multi-billion dollar manufacturer, retailer or distributor, would you “kill” for a $50M - $100M top line opportunity that has way better margins than your core business? Yes, you would. That’s what a leading distributor in the UK did, giving their fleet operations an 8 figure revenue target for backhaul revenue. The high profit comes because the majority of their fleet costs are already “sunk” before the backhaul takes place.

Even if you don’t own a fleet, you can become your own 3/4PL. That’s what a high volume CPG company is doing. Let’s just say that they cube out way before they weigh out, and put a lot of common carrier trucks on the road. For this company, the opportunity is to drive down their shipping costs by sharing their economy of scale with smaller volume CPG shippers going to the same retailers. The net is that versus the traditional LTL carrier they are cheaper for the smaller volume shipper, yet the smaller volume shipper absorbs a higher percentage of the transportation costs for the co-mingled freight.

How do you scale the backhaul/co-mingled freight opportunity? Not with spread sheets and emails. That’s why we are at the infancy of collaborative backhaul and co-mingled opportunity. It takes an infrastructure that collaboratively links all of the potential parties together. The real volume opportunity is with your supply chain partners and those companies operating in the same ecosystems.  Traditional enterprise technology doesn’t “get” the multi-party aspect and niche cloud applications, such as load boards, don’t provide the end-to-end process integration. In addition, the decision process is a little more complex than searching for shipment opportunities. Leading companies are making fleet versus common carrier selections based upon the profit opportunity. It’s counter intuitive to think that the “free” fleet can lose money, but that reality is totally possible if the fleet is driving all over to make opportunistic pickups.

My guess is that for the next 5 years, backhaul and co-mingled freight optimization is going to be an exciting opportunity for leading logistics executives to make a top and bottom line difference in their companies. The challenge will be to take an inward and cost-focused logistics organization and turn it into an outward and revenue/profit-focused corporate asset.

Is your company able to using backhaul optimization or co-mingled freight programs to increase revenues or reduce costs? Do you have a “revenue line” for it? Let me know.