Welcome to “Expert Insights” – an interview series where we talk with industry thought leaders and experts about different topics surrounding logistics and supply chain – gathering their insights and experience firsthand.
We continue with Mike Bogen, Supply Chain Collaboration Evangelist and Industry Expert. Mike is the Managing Director of digi-trust.eu, a newly formed venture with a focus on legally compliant horizontal transport collaboration supported by purpose built digital tools; and CEO of Giventis International BV, a Netherlands-based company that develops and deploys information management and BI digital tools to facilitate logistics collaboration. He’s also the founding member and pilot case leader for the NexTrust EU funded research project. digi-trust.eu was created as the commercial extension of the NexTrust project and is now a subsidiary of Giventis. Mike’s industry experience spans the U.S., Asia and Europe in logistics software technology and transportation management.
This is the second of a four-part series with Mike. To provide context to the current climate, the entire interview was conducted in late February 2020, prior to the worldwide spread of COVID-19. You can find Part 1 here.
We know sustainability is a key trend.
Not enough. Not nearly enough.
What do you think are the main considerations for shippers, and how quickly do you think they are to develop or adopt best practices? How will they weigh the environmental benefit of sustainability efforts versus the impact to their bottom line?
There are large shippers that talk a very good game. And that’s as far as they go. If you go to a shipper today and say ‘I’ve got two solutions for you. Both are identical in service level. One is going to cost you 10% more, but the reductions in GHG [greenhouse gas] emissions is going to be considerably less’, I’m willing to bet 9 times out of 10, they’re going to take the cheaper solution. Plain and simple. Now, there are shippers that really try and talk a good game, and have followed through on it, but they’re in the minority.
So, you think we have a long way to go. Do you think that’s the same if you look at Europe vs the U.S.?
Europe is far ahead because Europe is at least trying to invest in sustainable transport innovation and level the playing field. For example, making the effort to change from road to more environmentally friendly intermodal solutions, but there is only so much they can do. You need vision. It’s a bit trite to say it that way, but you need vision and you need people who can think outside the box and execute on the vision.
Everybody works off their own budget. If I’m a multinational shipper in Europe, my transportation decisions are being made by procurement people. And procurement is incentivized by reducing costs to the business and thus reducing the cost to transport. They are not incentivized to reduce greenhouse gas. So you might have somebody on the logistics operations side that says ‘yes, we can do this, we can make it work, and we can find an environmentally sustainable solution for moving our goods’, but if you don’t have alignment between procurement and operations, it doesn’t work. We see that over and over and over again. In a lot of organizations, the two are not aligned.
In North America, it’s worse because we don’t have the societal pressure so there is no investment in innovation - there is definitely investment in Europe in sustainable transport and sustainable logistics. There is investment to create new innovations. Not seeing it in North America. And everybody is going to talk about ‘we’re getting into autonomous vehicles and more efficient vehicles’, but that’s not the answer because you’re still working with the same outdated business processes.
And you’re dealing with an extremely fragmented market. When you think about the biggest similarity in the road transport market in Europe and North America it’s the supplier [carrier] fragmentation. There are literally hundreds of thousands of transport companies operating in either region. And a lot of the suppliers [carriers] in Europe have only 4 or 5 vehicles, so it means that the larger shippers are not necessarily going to think about using them because they need more predictability in their transport chain. That’s one of the reasons that Teleroute [Alpega’s online Pan-European freight exchange] exists.
Teleroute provides a marketplace for those carriers to offer their capacity to freight forwarders and vice versa. And that’s where somebody like Uber Freight is going to come in with their “transport asset shared” business model and say ‘hey, I’ll go in take these carriers with 5 vehicles, and I’ll screen them, take care of the insurance, handle security, etcetera’, and in a sense, they’re creating the virtual carrier. So that is, in one sense, the start of a sustainable strategy. But it has a long way to go.
How important is carrier and shipper collaboration? What do you see as the primary benefit? And the risks of not working collaboratively?
I think it represents the best chance for achieving goals in fuel efficiency and sustainability especially when you can get carriers and shippers on the same page. The problems that we’ve had, and this is more in Europe, is that for example in the NexTrust project, carriers were involved, but it was shipper-centric collaboration. Shippers would say at a theoretical level, not an operational level, ‘yes, we’d like to collaborate, we’d like to synchronize our transport lanes in order to reduce empty running’, but once they got to that point, they would then throw the problem over the wall to the carriers and say ‘shipper x wants to work with shipper y, we’ve set this up, we have fair gain sharing rules in place, there’s a trustee in place to ensure antitrust regulation compliance…now you as the carrier, you go and make it work.’ And that doesn’t work!
Bringing the carrier into the equation early in the process is a critical success factor. And having the carrier be the one to say ‘ok, I can do this, I can make it work, but you Shipper A and you Shipper B may have to tweak your operational processes.’
Most shippers though are limited in what can be changed in their supply chain. There is often no room to hold goods, to hold containers, hold trucks, trailers, or what have you for a couple of extra days. A lot of these manufacturing facilities are setup in such a way that there isn't room. Even DCs [distribution centers] are not set up for a tremendous amount of flexibility.
And even things that we take for granted like trailer/container pre-positioning (“drop and hook”) in North America, you don’t see as much of that in the European market, mostly due to physical facility constraints. So, you really do need shippers to get together, with the carrier, and be open minded! Everything must be done with a trustee, so they follow anti-competition and antitrust law.
But there should be a way for the carrier and shippers to - and it won’t work in all cases - problem solve together on how to make the collaboration effective at an operational sense. And if you can do that, it sounds easy but it’s not, you really have the opportunity to make headway.
Look for Part 3 of our “Expert Insights” Series interview with Mike Bogen next week where we discuss digitalization, transport technology, and driver shortages.