Monday, June 10, 2013

Creative, collaborative—and unusual—co-loading

Written by  Sonney Jones, Division Director, Transportation, Dal-Tile, a division of Mohawk Industries, and Ben Enriquez, Country Director, Transplace Mexico, for Railway Age
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A standard U.S. 53-foot X 102-inch trailer can hold 43,000 pounds of lading and 3,800 cubic feet of freight at full capacity. A 60-foot high cube boxcar can handle almost five times that weight and delivers twice the available cubic capacity. In order to optimize capacity utilization, companies employ numerous resources and sophisticated software solutions to get as close to these “perfect load” metrics as possible. When either of these limits is reached, most load planners consider the load “complete.” But is it really?

Few companies possess product diversity to reach optimality—maximum use of both weight and cube of a trailer, container, or railcar simultaneously. Shippers with dense (i.e., high pounds per cubic foot) freight reach legal loading weight limits, but can leave a significant amount of available cubic capacity unexploited in the trailer or railcar. Likewise, shippers with lower density (i.e., low pounds per cubic foot) freight fill the cubic capacity, but leave overall weight capacity underutilized. As a result, they collectively spend millions of dollars for literally unutilized capacity.

In an effort to improve trans-enterprise capacity utilization, Dal-Tile, the largest manufacturer and distributor of ceramic tile and natural stone in North America, developed an international co-load program that combines its high-density freight with other shippers’ low-density freight to simultaneously consume available weight and cube volume, producing financial and environmental benefits without significant sacrifices in terms of service.

Redefining the “perfect load”

Dal-Tile understands the cost, complexity, and challenges of shipping a dense, heavy product. In 2011, the company transported the equivalent of 11,000 truckloads from Mexico to U.S. consumption points. While outbound loads were near the U.S. legal loading weight limit, each trailer departed its Mexican origin with only about 20% of the available cubic capacity used. This wastes capacity and underutilizes all transportation resources, including fuel.

While evaluating Dal-Tile’s transportation operations with Dallas-based third-party logistics services provider Transplace, one theme continued to stand out: the under-utilization of cubic capacity on Dal-Tile’s over the road (OTR), intermodal, ocean, and rail shipments. The two companies identified the opportunity to combine shipments of Dal-Tile’s dense wall and floor tile with other companies’ bulkier, less-dense freight as a way to improve cubic utilization on trailers, containers, and railcars.

Since not all products provide compatibility with Dal-Tile’s specific needs, the first step was to create a profile of the ideal partner. Factors such as product type, value, and overall density were considered, along with distribution network and associated shipping lanes. Adding another layer of complexity was the need for these partners, as well as the employed carriers, to be willing to transport the combined shipments across the U.S.-Mexico border—an already cumbersome and exceptionally detail-oriented process.

Industry knowledge and in-depth research allowed Dal-Tile and Transplace to identify several companies that matched the shipper partner profile. They first approached a large toy manufacturer with a bulky, lightweight product that yielded high volume, cross-border shipments. Despite initial interest from both parties, the complexity of a collaborative shipping plan like this required alignment in a number of dimensions that just weren’t possible. Due to the product value of the toys, the ratio of transportation costs to sales revenue was so low that the savings achieved from collaboration just did not seem significant.

Figure4During this time, Transplace identified another company that appeared to fit the criteria—Whirlpool. The global appliance manufacturer was considered because of its large mid-range items such as laundry machines and refrigerators that, despite their size, provided the right balance of cube and weight to complement Dal-Tile’s rather homogenous product mix. As the collaborative shipping strategy evolved, Convermex and Werner Co. were also added as co-load partners. Convermex’s plastic cups, plates, and utensils, and Werner Co.’s aluminum and fiberglass ladders were also a good match to the targeted density. Just as important to having complementary products, each company also had traffic lanes that aligned with those of Dal-Tile, and had previously looked into collaborative shipping strategies.

Once qualified, Dal-Tile and Transplace contacted both companies to present the financial and environmental value proposition of co-loading and begin discussing potential logistics solutions design. Since no two companies are alike in product, operations, or shipping requirements, a solution had to be engineered for each unique opportunity. Understanding how each company was structured, its priorities, potential constraints, and technology infrastructure were just some of the details that had to be reviewed. Transplace then worked to create freight costing models representing both “before” and “after” scenarios that clearly identified the discrete logistics cost per unit for each partner—a critical step in developing trust and understanding within these burgeoning partnerships.

Next began the process of test loading with each shipper to determine actual freight compatibility in action. After studying each partner’s freight characteristics, loading schematics were developed and selected for testing. At a common location, the partners jointly executed the proposed loading designs to help visualize potential obstacles. Once the benefit analysis and test loads were complete, a full operational cycle was executed. During this phase, actual materials were loaded at the origin and received at the destination in order to identify loading, quality, or operational issues. With ladders, styrofoam cups, or appliances riding on top of or alongside ceramic tile, and traveling via boxcar, intermodal doublestack containers, and OTR motor carrier modes, there were a number of potential quality concerns for the products to reach their destinations as expected.

As with any project, continuous improvements have been implemented over time in terms of managing the movement of goods. In one case, there was too much initial inventory at the origin consolidation and loading point, requiring that inventory levels to be adjusted. There was also some “crowding” of boxcars at destination, which resulted in erratic peaks in demand for cross-dock and drayage services at the destination node. By surpassing the capabilities at destination, it caused some dwell time and storage costs at the destination cross-dock. These issues were quickly addressed and the operation was synchronized to avoid capacity constraints.

Crossing the border

Collaborative load design and execution wasn’t the only challenge being faced in this project. Crossing the border from Mexico into the U.S. can be a daunting process, even for a single company with a homogenous shipment, but the challenges are compounded when you have products from two shippers sharing the same container, boxcar, or trailer, covered by multiple bills of lading.

Key to the success of this project was education and relationships. The co-load partners had to develop transparent processes with U.S. and Mexican Customs, and make sure everything was fully documented and filed properly. With strong, established, and deeply experienced Mexican operations, Transplace had a solid rapport in place with customs officials and the U.S. Department of the Interior, which aided in alerting officials of Dal-Tile’s plans to transport consolidated shipments. In addition, considerable effort was made to ensure C-TPAT compliance was fully maintained throughout the process.

Figure3However, the complex and unusual nature of this project increases the number of issues that can arise. The first Whirlpool/Dal-Tile boxcar to cross the border was flagged after x-ray inspection indicated a significant density variation in the product packed solidly in the boxcar. The Transplace customs team was able to walk officials through the shipment construction and explain how the co-load process was executed. They also communicated that regularly scheduled shipments would follow, helping pave the way for a smoother process going forward.

Co-loading produces co-benefits

With co-loading, product must be consolidated and deconsolidated at various nodes in the supply chain, but it does not mean that all products must be re-handled. The process for each co-load pairing has been carefully engineered and monitored to ensure net benefits are meaningful, and that any additional work performed indeed adds value.

By second quarter 2013, Dal-Tile expected to execute 15-20 co-load shipments per day with a variety of partners. Both Dal-Tile and its co-load partners have seen a consistent 20% to 30% net reduction in process and resource costs as a result of the program. In its first year of co-load operations, Dal-Tile realized more than a $1 million reduction in freight costs, and sees the potential to reduce the combined transportation costs of Dal-Tile and its partners by $12 to $15 million annually.

Prior to teaming up with Whirlpool, Dal-Tile was shipping its Monterrey, Mexico to Baltimore products primarily via intermodal and OTR transport. Despite running at maximum weight, the containers were traveling 1,920 miles at 20% cubic utilization. Similarly, Whirlpool was running a boxcar 2,000 miles at approximately 20% of its weight capacity. By co-loading products, they now generate a single boxcar shipment that yields 70% to 80% of the capacity of private service for each shipper, with a shared expense that results in a lower logistics cost per unit, driven by the modal change and reduction in the total capacity required for the 2,000 mile length of haul.

The Dal-Tile/Whirlpool collaboration is expected to reduce diesel fuel consumption by more than 300,000 gallons annually, as well as the associated CO2 and other emissions. The Dal-Tile/Convermex relationship stands to eliminate 1,200 moves annually, eliminating the carbon footprint of another 70,000 gallons of diesel fuel. Co-loading with Werner Co. eliminates another 500 moves annually. Combined, these three projects are expected to eliminate the consumption of more than 500,000 gallons of diesel fuel annually.

Additionally, there have been fewer boxcar freight claims as compared to historical private-service boxcar ratios. Due to the combination of an effective blocking and bracing or tie-down process on the tile, as well as having all major voids filled with airbags upon departure from Whirlpool’s loading facility, Dal-Tile has not experienced any significant product damage since the program began—which was not the case when shipping tile privately in boxcars.

The concept is a simple one: When a company buys transportation capacity, it is buying both weight and cube. When either of these is not optimized, capacity is being wasted. Dal-Tile has taken an innovative approach to challenge the shipping norm by partnering with other forward-thinking companies in pursuit of the new “perfect load.”

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