Have you looked at Deferred Packaging and Transloading as a way to Reduce Freight Costs?
February 24, 2013
February 24, 2013
An article in the February 11 issue of Bloomberg BusinessWeek caught my eye and got me thinking about another way of reducing freight costs. Here is the idea.
Hardys became Britain’s best-selling Australian wine brand by selling wine for as little as $5 a bottle, despite the 37 percent surge in the home country’s currency since 2009. To do that and earn a profit, Hardys changed their paradigm for shipping wine. Accolade Wines, the producer of Hardys, came up with the idea of shipping the equivalent of 32,000 bottles of wine in a 24,000 liter plastic bag. The company reduced shipping costs by $3 a case by moving the wine 10,000 miles to a bottling plant that is a two hour drive from London. The bottling plant receives the shipping containers via truck each day.
Australia’s wine industry that generates the equivalent of $5.8 billion in annual sales, now ships more than half of its overseas shipments in bulk. The wine makes the 40-day trip to Europe in plastic “bladders.” Richard Lloyd, Accolade’s global logistics manufacturing director stated: “We don’t ship glass around the world; we ship wine.”
The BusinessWeek article highlights that shipping in bottles can add 25 cents per bottle to the cost. Shipping wine by the case fills a ship with containers of bottles. A third of the volume is taken up with bottles and cartons. While a 20-foot container can hold 9,000 liters of bottled wine, it can carry a 24,000-liter bladder at slightly higher cost.
While shipping freight in bulk is not new, it is not commonplace for certain commodities. For low cost products, that typically move in bottles or cans (e.g. no name fruit juices or tomato sauce), “deferred packaging” may help reduce freight costs.
Deferred packaging may also make sense when it is utilized in conjunction with transloading. A November 2012 article by Deborah Catalano Ruriani in Inbound Logistics highlighted some of the benefits.
Transloading offers a cost-effective way to bring ocean containers inland to distribution centers. By transferring cargo without sorting the contents for shipment to a single destination, transloading services can reduce total landed costs, and—when combined with value-added services such as palletizing and shrink-wrapping—reduce handling at the destination.
Transloading offers the greatest cost savings when ocean containers can be consolidated into fewer, larger domestic trailers. The cargo in three 40-foot ocean containers typically fits into two 53-foot domestic trailers. To best use space in ocean containers, cargo is rarely palletized at the point of origin. Palletization can be done during the transloading process to improve distribution center (DC) handling efficiency. While it is common practice to clear ocean containers at their final inland destinations, Ms. Ruriani suggests that it is better to make entry at the port of discharge. This ensures maximum flexibility in handling cargo, and eliminates the need to move the shipment in-bond, saving additional costs.
Supply chain efficiency can be increased with merge-in-transit offerings. This type of deconsolidation allows importers to combine products arriving in containers from different origins/shippers by transloading near the port of arrival into domestic trailers. And if importers source from domestic suppliers—who may also have product arriving via container—this cargo can be merged in transit to arrive together at the designated DC.
Transloading near the port of discharge provides the flexibility to bypass DCs and speed delivery to the end customer. The reduced DC handling charges and improved time in transit can help trim supply chain costs. Instead of shipping less-than-containerload, 20-foot, or light-loaded 40-foot containers from multiple overseas vendors to an inland DC, it is beneficial to ship fully loaded/optimized containers to a single container freight station near the port of discharge. From there, they can be transloaded, merged in transit with other inbound cargo, and shipped to the final destination using the transport mode that best fits the importer’s needs.
Clearly deferred packaging, with or without transloading, will not work for every commodity. For low value commodities that will not be damaged in transit while moving in bulk, where the cost of shipping bottles and plastic is a significant part of the landed cost, where customer satisfaction will not be injured by an extra few days spent on product packaging at, or close to the final destination, the economics of deferred packing may be worth exploring.
Dan Goodwill, President, Dan Goodwill & Associates Inc. has over 30 years of experience in the logistics and transportation industries in both Canada and the United States. Dan has held executive level positions in the industry including President of Yellow Transportation’s Canada division, President of Clarke Logistics (Canada’s largest Intermodal Marketing Company), General Manager of the Railfast division of TNT and Vice President, Sales & Marketing, TNT Overland Express.
Goodwill is currently a consultant to manufacturers and distributors, helping them improve their transportation processes and save millions of dollars in freight spend. Mr. Goodwill also provides consulting services to transportation and logistics organizations to help them improve their profitability. All posts by Dan Goodwill