Logistics services explained. Freight management


Freight management in logistics means comprehensive cargo flow management using multiple vehicles between multiple dispatch and receipt points to optimize transport processes. The bigger the shipping company, the more trucks, and vans it has at its disposal, the more opportunities it has to leverage economies of scale and reach.

Freight management might refer to a network of direct connections between shippers and recipients of goods or a network of connections based on cross-dock terminals. The latter I will explain in a separate post.

A freight manager, for example, will be a transport company with several thousand trucks fleet, which operates daily connections between several hundred of its customers and transports thousands of tons of various types of cargo per day. Having many customers in many locations enables a cost-efficient arrangement of return transports.


CUTTING EMPTY MILEAGE

Freight management aims to optimize transport costs. It is achieved, first of all, by cutting empty transports, i.e., arranging the transport process in such a way that each transport to and from ends with taking a return cargo. It is usually impossible to get a return cargo from the customer to whom we have just delivered the shipment. However, it is possible to rearrange the return route so, that the cargo space on most of this route is full, even at the cost of extending the entire route compared to the original one. It may also be that the truck travels across Europe, from place to place, while the freight manager changes the drivers performing these transports. The goal is to have the lowest possible number of empty runs in the overall transport balance, i.e., empty mileage with no cargo in the cargo space.

If, for example, cargo is transported between Warsaw in Poland and Liege in Belgium, the vehicle could return to Poland empty. However, from Liege, it could be instead redirected to another customer in Belgium, who will have the cargo transported to a recipient in Germany at that moment or in the next few hours. After delivery in Germany, the truck can be redirected again to another customer located in Germany for the next load, heading to the Czech Republic. Another redirection may take place from the Czech Republic to Slovakia, where the driver will pick up the cargo from a Slovak producer intended for export to the United States, which will be delivered via the port of Gdansk.

So, if a truck left Warsaw for Liege with a load and then returned to Poland empty, the entire cost of the trip back and forth should be assigned to the original load transported from Warsaw to Liege. But thanks to the round way back, which may not have been a direct one, as the truck took cargo to Germany, then from Germany to the Czech Republic and from Slovakia to Poland, the transport costs were spread back and forth over a larger number of loads. In this way, the freight manager could reduce the costs of transport per one unit of cargo and thus count freights for his customers at rates lower than if they had opted for empty transport on the way back to Poland.



CUTTING LTLs

Another freight management tool to optimize transport costs is cutting less-than-a-truck loads (LTLs), i.e., loads that do not fill the entire cargo space. They might be combined with LTLs by another sender to create an FTL, or at least a load bigger than loads of each shipper separately. Let us assume that the load from Warsaw to Liege is not a full truckload (FTL). The transport costs could be reduced if, for example, in Germany, it was possible to add several dozen pallets intended for a customer in the Netherlands. Spreading freight costs over a larger number of loading units in the cargo space means lower transport costs per loading unit. One of the main preconditions for cargo consolidation is however standardized cargo units by individual shippers. If we want to fill most of the cargo space, the use of standardized loading units, for example, Euro-pallets, will allow a very large amount of cargo to fit in the cargo space. If loaded correctly 33 Euro-pallets can be placed tightly onto a semitrailer at one level. Stacked it makes 66.


BOOSTING WORKLOAD

By far, however, that is not all that freight managers do to lower their costs. Another freight management goal is to boost vehicle mileage over a year. The point is to spread the fixed costs of a vehicle, for example, of a truck, over as many miles as possible during the year. A possibility here is separating a tractor unit from a semi-trailer. Freight managers might operate a greater number of trailers than tractors providing for continuous workload for both. Storage on a trailer is also a paid service. A tractor, for example, can leave the trailer at a logistics terminal for unloading and immediately set off on another route to pick up another consignment, or in this case, another trailer from another site. At the same time, this first semi-trailer will be unloaded and possibly also loaded a moment later or will remain loaded for a while and will be considered a warehouse on wheels. After loading this trailer, the freight manager can send another tractor with another driver to collect it. The catch is that tractors work while the trailers they pull are unloaded or loaded. This approach allows increasing the number of working miles traveled by tractor during the year. In this case, annual fixed costs of a tractor, e.g., depreciation or leasing fees (the freight manager’s fixed costs) are spread over a greater number of miles loaded traveled and hence unit costs of transport fall yet again.


ICT

Freight management relies today strongly on modern ICT systems, including those based on artificial intelligence and cloud computing. The latter is used to quickly get access to large processing capacities needed in the digital optimization process. Transport companies do not have to own servers to digitally arrange and rearrange vehicle routes in the digital twin on an ongoing basis, following transport orders flowing continuously in from individual customers. The best freight managers recalculate the network of connections several times within 24 hours, each time arranging it so that there are a few empty shipments as possible and as few non-full truck loads as possible.


Currently, 16% of truck mileage in Europe is empty, and the average vehicle load is 60%. However, the best freight managers can reduce the ratio of empty freight to total freight to just a few percent.


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