Backhauling boosts logistics cost-effectiveness

Reaping a return

There are many apparent barriers to backhauling, not least of which is the sticky issue of branding and working with your greatest competitor. Yet there are enormous opportunities to reduce supply chain costs and carbon emissions if these hurdles can be overcome.

Gay Sutton finds out how some of the best companies are achieving these savings and how they manage the challenges.

Official figures are often depressing. But they can point to significant opportunities for improvement. According to Mike Bernon, Chairman of the CILT Reverse Logistics Forum, the average level of vehicle utilisation across industry is still below 50% although some sectors are doing significantly better. Moreover, the UK Department of Transport indicates that an astonishing 25% of road transport operations make the return journey empty. Of those that do better, much of it is carrying waste packaging material for recycling, or empty pallets and cages that will be filled again for the next outbound journey. This leaves a significant opportunity for backhauling – filling the vehicle with goods for the return journey, thereby cutting the unit costs of logistics and reducing carbon emissions. But what does it take to turn this theoretical opportunity into a reality? And what can we learn for companies that do it well?

“The UK Department of Transport indicates that an astonishing 25% of road transport operations make the return journey empty.”

In the past, the majority of backhaul utilisation has been driven by third party logistics providers. Commissioned to move materials for a range of companies they are under pressure to reduce costs and cut carbon emissions, and have access to a wide range of routes and product types.

“Very often,” Bernon said, “their fleets are dedicated by contract, so a vehicles goes out laden and returns empty. However, if they are allowed to by contract, they do backhaul.”

3PLs leading the way

Tradeteam, part of the global logistics provider DHL, is a specialist 3PL for the drinks industry, delivering into pubs and large supermarket distribution centres, and the company has developed a strong operational framework to exploit backhaul opportunities from supermarket delivery business. “Being part of DHL we have the ability to look across the whole of DHL for suitable backhaul loads,” explained Tradeteam managing director Gavin Murdoch. “So we begin by looking for reverse flows from other DHL contracts. If nothing logical matches up, we then go outside to a subcontract partner.”

“Being part of DHL we have the ability to look across the whole of DHL for suitable backhaul loads.”

Identifying suitable logistics companies and hauliers to partner with, and managing those partnerships is very much down to the Tradeteam transport planners. And this requires strong understanding of the flows in the marketplace. “However, a lot of work has to go into setting up this type of partnership if is to succeed,” he cautioned. Both parties have to commit to providing the work for each other and agree a mechanism to line up the dates and times of the flows in both directions. Based on this they can then underwrite the costs that are offered to both the outbound and return leg customer.

Developing a new mind set

“One of the big issues the 3PLs face, however,” said Professor Richard Wilding of Cranfield, “is encouraging companies to agree to backhaul arrangements and to engage in what we call ‘coompetition’, collaborating with a competitor.” Two companies that have successfully overcome the deeply ingrained psychological hurdles of working with their competitors are Nestle and United Biscuits. The two companies initially met at an Institute of Grocery Distribution (IGD) ‘speed dating’ session, a workshop set up to bring companies together to investigate opportunities for sharing transport resources. Having discovered their logistics operations and processes were a good match, they came to the brave and unorthodox conclusion they should leave competitive behaviour in the supermarkets and collaborate in logistics.

“One of the big issues the 3PLs face, however, is encouraging companies to agree to backhaul arrangements and to engage in what we call ‘co-ompetition’, collaborating with a competitor.”

Professor Richard Wilding of Cranfield

Step by step they examined and broke down the barriers to working together, and in 2007 the first United Biscuits lorry transported a load of Nestle products from the Nestle York factory to its own distribution centre in Bardon. The collaboration continues to evolve and saves over 280,000 km of road travelling and around 95,000 litres of diesel a year.

Best practice from the retail trade

Another initiative that many of the big supermarket chains find works very well is to utilise the delivery fleet to collect stock from existing suppliers during the return journey to the distribution centre. They are collecting products they are equipped to carry, and the warehouses they collect from comply with their rigorous operational and health & safety standards. “The approach we took,” Sainsbury’s said, “was to enter partnerships with suppliers as a haulier and not the supermarket/customer.” The supermarket purchasing side of the business is therefore completely separated from the haulier offering. “This makes our suppliers more comfortable with the agreement. We now quote for the business against other hauliers on a level basis.”

“The approach we took,” Sainsbury’s said, “was to enter partnerships with suppliers as a haulier and not the supermarket/customer.”

Meanwhile, European retailer Tesco has developed a sophisticated process to utilise backhaul for returned goods. “Five years ago, we had products coming back from 500 shops. Now we have returns from over 2000 shops,” said national returns manager Ian Towell. Even the small Tesco Express and Metro shops provide a convenient local return route for goods purchased online. “Achieving this has presented us with quite a reverse logistical challenge.”

Tesco’s solution is to backhaul the returns using the existing ambient food delivery chain, and to embed all the processes into the company’s IT management system to achieve an efficient and uniform response across the group, and complete traceability of products through the network. Returns are collected in-store in a secure cage. “When the cage is full it can be returned to one of our satellite depots on most returning vehicles. This might happen three times a week for a large store, or at least once a month for a small store.” When the satellite depots have collected a full load of 45 cages these are then transported to the Returns Centre at Saltley, Birmingham, keeping vehicle movements to a minimum.

Making it work

For companies looking to better utilise their empty vehicle space, Wilding suggests taking time to build strong relationships and embedding them in systems, not on conversations. And help is out there. Industry associations like the IGD, which works very closely with its members to promote collaborative logistics, are a good source of information, guidance and support. “IGD facilitates Efficient Consumer Response UK, a cross-industry group of supply chain professionals,” said Tarun Patel, director of supply chain IGD. “As part of their sustainable distribution workgroup, they have created a guide to Transport Collaboration that includes a seven step process to help organisations utilise transport resources and is based on the best practice from household retailers and consumer brands.”

IGD’s seven steps to successful backhauling collaboration
1. Produce a summary of lanes and volumes.
2. Identify potential collaborative lanes with possible partner.
3. Agree rates on a lane by lane basis.
4. Agree on key performance indicators and a review mechanism.
5. Run a pilot.
6. Review pilot.
7. Roll-out.