less-than-truckload Archives

A Socially Responsible Manufacturer Thrives Despite Coronavirus

Transportation | By Steve Banker • 08/03/2020

less-than-truckload — *Dr. Bronner’s is a Fair Trade Manufacturer*

Dr. Bronner’s, a socially responsible manufacturer of organic soaps, has seen its sales boom during the coronavirus pandemic. The San Diego headquartered company was deemed an essential manufacturer. The company followed the Centers for Disease Control guidelines and continued to manufacture. Year over year, hand sanitizer sales grew 3 times, liquid soap – which is 70 percent of the company’s business – spiked by 50 percent, and the company by over 30 percent.

The demand for sanitizer was much higher than the company could fulfill. They are bringing on more manufacturing capacity so that by the end of the year they can grow sanitizer sales to over times what it was last year. One of the impediments to manufacturing hand sanitizer is that the facility needs to have a drug license, which Dr. Bronner does not currently have.

The company has a global supply chain. They import organic oils from nations such as Sri Lanka, Ghana, India, Samoa, and Palestine. These imports were not a problem. The President of Dr. Bronner’s – Michael Bronner – told me getting the necessary packaging has been their biggest headache during the pandemic.

The company’s creation story includes Nazis, concentration camps, and the founder being thrown in a mental institution for too forcefully promoting social issues. Nevertheless, as a supply chain professional, what I found most interesting was the company’s socially responsible value chain. I have never talked to a more progressive company. For Dr. Bronner’s, social responsibility encompasses progressive business practices, producing organic soaps, fair trade, and environmentalism.

Progressive Business Practices

Dr. Bronner’s is a Benefit Corporation with the State of California. A Benefit Corporation is a for-profit corporation whose goals include having a positive impact on society and the environment within a legally defined framework. Mr. Bronner explained, that as a “legal entity we can put it in our bylaws that we don’t just have to maximize the returns of shareholders.” Other goals and constituencies also matter.

The company is also a Certified B Corporation. Certified B Corps are for-profit companies certified by the nonprofit B Lab to meet rigorous standards of social and environmental performance, accountability, and transparency. B Corp Certification provides a third-party measurement of performance. Mr. Bronner explained “being a Benefit Corporation gives us legal protection to do good things with our profits. Being a B-Corp shows the public that we are actually doing those good things.” Mr. Bronner explained that the B Corp serves as the independent third party validator that a Benefit Corporation is living up to its social and environmental commitments. The company scores very highly as a B Corp.

Additionally, Dr. Bronner’s caps the total compensation of the highest-paid executives at five times that of the lowest-paid vested employee. There is no difference between the benefits offered to company leaders and those offered to eligible workers.

Organic Soap?

It never occurred to me that modern soaps could be organic. I just assumed soaps were made using synthetic chemicals. That, Mr. Bronner explained, is true for most soaps. Many commercial soaps are made from petrochemicals. Castile soaps, the type of soap made by this consumer goods company, are made of plant-based oils. Dr. Bronner’s soaps are made from coconut, palm, olive, mint, or palm kernel oils. All soaps are made by combining oils with alkalis. Dr. Bronner’s alkalis are either sodium hydroxide (lye) for bars or potassium hydroxide (potash) for liquids. Alkali is made by running electricity through saltwater. Potash is a mineral that is mined. The company does not add any dyes, whiteners, or synthetic fragrances to their soaps.

But even if Dr. Bronner’s soaps are not made from synthetic chemicals, does that make them organic? The term “organic” can mean different things to different people. Dr. Bronner’s soaps are certified as being part of the USDA National Organic Program (NOP). Products with more than 95% organic ingredients carry the USDA label on the front. The company’s soaps are over 90% organic and carry a “Made with Organic Oils” statement.

When I mentioned Dr. Bronner’s to my wife, she had heard of the company and did know its soaps were organic. When she backpacked through Europe during a college summer break, she used the soap to wash her hair, her body, and BRUSHED HER TEETH with the soap.

Fair Trade

Dr. Bronner’s engages in fair trade. What is fair trade? Fair trade is an arrangement designed to help farmers in developing countries achieve sustainable and equitable trade relationships. Members of the fair trade movement pay higher prices. Laborers work in better social and environmental conditions than are common in that nation. The movement focuses in particular on commodities.

At Dr. Bronner’s, fair trade means that the consortium that produces the natural oil products get above-market prices. Dr. Bronner’s pays a 10% premium on the cost of raw materials and labor. The premium goes into a fund administered by a committee of farmers, farm workers, factory workers, agricultural field officers. This fund then pays for local development projects like schools, hospitals, and bridges as well as vital equipment.

At Serendipol in Sri Lanka, where coconut oil is farmed and processed, the company works with more than 1,200 farmers and employs 250 workers for processing the coconuts. In some cases, like in Sri Lanka, Dr. Bronner has set up the consortium and the natural oil operations are vertically integrated into the firm. In other locations, they work with third-party fair trade organizations. Benny Andrade, the Senior Manager of Logistics at Dr. Bronner’s, told me that to be successful in setting up a fair trade consortium, the company needs to learn the culture. Dr. Bronner’s offers a fair trade internship program. The interns, Mr. Andrade said, learn that “fair trade not as easy or as fun as it sounds. It is hard work.”

Environmentalism

At Dr. Bronner’s, environmentalism encompasses reducing greenhouse gases, using recycled packaging, reducing water usage, and landfill waste. For those interested in the organic soap maker’s progress in these areas, the company produces an All-One! Report.

I initially set up my interview with Dr. Bronner’s executives to discuss an initiative to reduce greenhouse gas emissions from trucking. That will be the focus of the rest of this article.

The Issues with Less-than-Truckload Shipments

In terms of their supply chain, 80 percent of what the company sources comes from abroad. Those goods travel via ships most of the time. Ocean is the most environmentally friendly mode of transport. But when goods get to the US., there will always be an inbound shipment from ports to their factory involving trucks, and outbound shipments usually travel on trucks as well. 80 percent of the company’s sales do occur in the US, so this is a not insignificant source of their GHG emissions.

Dr. Bronner’s is a relatively small company, $129 million in annual revenues. This means that domestic packaging supplies bound for the company’s factory often travel less-than-truckload (LTL). Further, when they ship goods to retail customers, those goods usually move less-than-truckload as well.

Less-than-truckload carriers operate using hubs with spokes. The carriers’ trucks leave from a hub, pick up a few pallets here and a few pallets there. They bring the pallets back to the hub where the goods are unloaded, and then pallets headed in the same direction are loaded back into a full truckload shipment. The truck then departs and makes several deliveries to different shipper’s destinations or proceeds to another hub. A cross country shipment can involve a shipper’s pallets moving on several trucks and through several hubs before getting to the destination.

This is a less costly but less efficient mode of delivery than full truckload (FTL) shipments. FTL shipments move in a direct path from an origin to a destination. Not surprisingly, less-than-truckload shipments generate higher greenhouse gases and are more prone to being late, which leads to fines from big retailers. These shipments also result in more damage to goods because the pallets are unloaded and then reloaded several times.

Mr. Andrade, the Senior Logistics Manager, ran into a colleague in the industry that mentioned a startup logistics provider that offers a shared truckload shipping solution for businesses called Flock Freight. A truck broker is a middleman that connects shippers that need trucks with carriers, often small mom-and-pop operations, that need loads. I also talked to the CEO of Flock Freight, Oren Zaslansky. Flock Freight, it turns out, is a very interesting logistics company that is working to transform the way freight is shipped in a way that benefits carriers and shippers.

The freight industry is undergoing a digital transformation. Technology is being used to speed the process of confirming that a carrier will transport a shipper’s load, predict how long it will take to deliver a load not yet tendered and whether loads already on the road will arrive on schedule. Technology is also being used to forecast what lane rates will be in coming weeks, to allow shippers to benchmark whether they are paying above or below market rates on a lane, and in an attempt to drive down the number of empty miles – miles without a load – that truckers drive. This is a Big Data game, the more freight spend a broker or managed transportation provider has visibility to, the better they can do these things. This is both a technology and a Big Data play.

Flock Freight does not have a billion dollars of freight under management, but because of the way they are using routing optimization, risk forecasting, price elasticity, and machine learning, their CEO says they can be an effective digital broker without that much freight under management.

What Flock Freight does is get tenders from shippers, for example a load a shipper wants to move from Los Angeles to New York City. Flock Freight will instantly commit to a tender at a given price. Flock Freight’s algorithms go to work on predicting whether it is likely that other shippers will have freight they will want to add into a shared multi-stop truckload delivery. Flock Freight is using its historical data to predict what the likelihood other shippers will want to combine their less-than-truckload shipments onto a truck along the general route the truck is taking in the pertinent time period. If the likelihood is high that the load can be combined with other loads, they charge a rate that is only marginally higher than what a less-than-truckload carrier would charge. For a very low-risk shipment, the charge would be about 10 percent higher than what an less-than-truckload carrier would charge. The shipper is willing to pay more than a less-than-truckload rate because they get better service and suffer less cargo damage than what they can get from a less-than-truckload carrier.

If the math suggests that it is unlikely that they will be able to add other cargo along the route, Freight Flock charges a rate only slightly lower than what a full truckload carrier would charge. This high charge is likely to discourage most shippers from accepting the price, reducing the company’s risks.

What I’ve described is a very hard mathematical problem. What makes it insidiously difficult is that they do not load and unload cargo like less-than-truckload carriers do. If a few pallets from a shipper are loaded in the nose of the trailer, the first cargo on the truck, that cargo will be the last cargo taken off the truck at the final stop. Similarly, the second shipper’s pallets, loaded right behind the first shipper’s load, will be the second to last load that is unloaded. In other words, they use first on, last off sequencing to minimize cargo damage. Many logistics firms are hiring more data scientists. But data science is at the heart of Flock Freight’s business model.

Dr. Bronner’s is in the early stages of a relationship with Flock Freight. They use Flock Freight primarily on the inbound side, where they have more control over the supply chain. Mr. Andrade reports they like the savings/service level tradeoffs – lower fees than truckload, better service than less-than-truckload. Mr. Andrade also believes they will have less cargo damage. Flock Freight’s more direct routing will lower Dr. Bronner’s’ greenhouse gas emissions associated with transportation, although Mr. Andrade says that Flock Freight will need to do some work to provide the kind of reporting they want for their sustainability reporting by the end of the year. Flock Freight, like Dr. Bronner’s, is a B Corp, which did play into the company’s decisions to partner with them in freight shipping. The soap producer likes working with other socially responsible companies. Finally, the trucking industry is very fragmented. It is often reported that more than 90 percent of trucking firms have six or fewer trucks. Dr. Bronner’s likes supporting small companies and innovators changing the status quo; Mr. Andrade sees it as analogous to their Fair Trade initiatives.

Conclusion

Being a socially responsible company can create a strong brand, a committed workforce, and loyal customers. It comes at a cost. The products will generally be more expensive, limiting sales. Progressive companies are often small, requiring them to use less-than-truckload. Less-than-truckload has adverse service and environmental impacts. In short, fair trade and environmental initiatives lead to socially responsible manufacturers having more complex supply chains.

Small & Medium Sized Businesses Save Money with Transportation Consolidation Programs

Consumer Packaged Goods (CPG) | By Steve Banker • 03/21/2016

Large companies have the benefit of volume and can often ship full truckload. For small and medium-sized companies to compete on price and service, consolidation programs can be a key mechanism for leveling the playing field.

I talked to Chip Nolin, the Director of Logistics at Seventh Generation, about a new transportation consolidation network they are using. This new network solution is helping them save money while improving service levels to their most important retail customers.

Seventh Generation, a mid-sized company based in Burlington Vermont, develops and sells environmentally friendly cleaning and personal care products. Given their environmental focus it is not surprisingly that they publish a sustainability report and take the task of reducing greenhouse gas emissions seriously.

Transportation costs are a significant contributor to the company’s total costs. “Inbound transportation is easier,” Mr Nolin said. “We can use truckload and even intermodal where possible to keep costs down.”

But the outbound side presents challenges. The company wants to continue to grow, so service – in terms of both on-time deliveries and shorter lead times – is critical. Better performance in on-time deliveries will also help Seventh Generation avoid chargebacks. However, as a mid-sized company they usually don’t have enough customer volume to ship full truckload (TL). “Seven pallets to a location are fairly common,” according to Mr. Nolin. Consequently, the company ends up shipping most of their products less-than-truckload (LTL), which is more expensive than truckload (TL) shipments, less reliable, and worse for the environment.

LTL carriers use a form of consolidation, in fact in Europe LTL is called “groupage.” LTL carriers use “hub and spoke” operations where small local terminals are the spokes (‘end of line’) and larger more central terminals are the hubs. Spoke terminals collect small amounts of local freight from various shippers and then consolidate those shipments into long-haul TL moves to hubs in other regions of the country. The receiving hub then sorts and cross docks LTL quantity shipments for local delivery. But LTLs make more money the more consolidation they can achieve. In many cases, LTLs are willing to delay scheduled shipments so that they can gather goods off a newly scheduled inbound load.

Traditional Hub and Spoke LTL Network

Seventh Generation’s supply chain involves internal product development, outsourcing of production to a contract manufacturer, and outsourcing of logistics to a Third Party Logistics (3PL) firm. Their 3PL is OHL. Seventh Generation has been doing business with OHL as their sole source 3PL since 2009. “This is a real partnership,” according to Mr. Nolin, “based on a long term relationship.”

OHL has helped improve their distribution network. Seventh Generation distribution takes place out of OHL distribution centers (DCs) located in close proximity to a dense cluster of Seventh Generation’s customer ship-to locations. This in itself helps Seventh Generation drive down total miles.

Seventh Generation is housed in OHL’s multi-customer warehouses. For example, in Cranbury, New Jersey they share warehouse space with another OHL consumer goods customer, located within an OHL “campus” that includes additional DCs with other consumer goods customers. This is campus model is what helps OHL drive consolidation programs for their small and medium-sized customers.

OHL has been helping Seventh Generation with a retail consolidation program. The way this program works is that OHL can combine less-than-truckload shipments from a variety of small and midsized consumer goods suppliers located on the OHL campus and then ship them full truckload to a retailer’s distribution center. This saves money for OHL’s customers, improves transit times, and helps to prevent the retailer’s yard from becoming too cluttered.

But Mr. Nolin was excited about a relatively rare type of consolidation network OHL has gotten them involved in. In this model, many small and medium-sized suppliers’ ship goods via LTL to a cross dock run by a rather unique LTL carrier. Like OHL, this carrier also specializes in serving consumer goods companies, but they are not willing to deliver to just anybody, like a typical LTL. This carrier is focused on making deliveries to high volume retailers. In situations where neither OHL nor this LTL carrier has enough volume to ship full truckload, they combine their volume to create better savings and service opportunities for both sets of customers.

This model can involve more complex routing. It is not just one consolidated TL shipment going to one retailer’s DC. Rather these can be multi-stop loads, where the carrier stops at a large pharmaceutical retailer’s DC and drops part of the load, then stops at another distributor’s DC and drops more of the load, and so forth until the truck is empty.

Mr. Nolin describes this as a “hybrid” network that is part traditional hub and spoke, like LTL networks, and yet also has components associated with the traditional retail consolidation model.

Using this new program, Seventh Generation is currently shipping to 37 retail DCs across 6 retailers. About half their SKUs participate in the program; and the SKUs include products that both cube out and weigh out. Mr. Nolin reports very good results, “average savings of 7.5%. And the savings are even bigger with smaller than average shipment sizes” (1 pallet vs. 7 pallets). Mr. Nolin also reports reductions a 20-50% reduction in lead time which has resulted in reductions in charge backs based on service improvements. This is a win-win-win: a win for Seventh Generation, a win for OHL (who has a happy customer), and a win for Seventh Generation’s retail customers.

Guest Commentary: Time for a New Class of Freight Rating

Guest Commentary | By Geoff Comrie • 07/30/2013

“I want to know the real, total cost of my shipments before I make them.” Over the years, we have talked to a lot of shippers and logistics companies who are in the “rating gap.” These shippers don’t need a full TMS, which includes sophisticated planning and execution, but clearly require a highly-functional contract management system or service to determine their expected real total freight cost.

What is the Gap?
Here is a diagram of where and why the rating gap exists. This “Gap” has been very difficult to bridge because complex rating is so difficult that only a TMS with sophisticated rating capabilities can deliver solid “total costs” estimates.

To get correct cost or up-charged sell rates, you can start with basic rating, but you’ll have to know a lot more. You also have to take into account some basic pricing parameters, such as:

Type of freight cost – rate base, pallet, mileage, cube, area, flat rate, etc.
Client routing requirements
Geographic limitations
Direct or Interline Service
Accessorial charges
Client Requested Accessorial charges (i.e. Liftgate, Residential Delivery)
Automatically Added Accessorial Charges (i.e. Fuel Surcharge, High Cost Delivery Areas)

Here are common reasons why you need the real total costs:

Properly accrue your shipment costs for accounting reasons (i.e. reporting or Sarbanes-Oxley compliance).
Provide your customers with accurate shipping choices in the sales process.
Manage markups to your customers.
Make sure you are not going to lose money on free shipping offers to customers.
Provide vendors with a simple web portal to determine correct mode and carrier.

Why does the Gap Exist?
The major issue is that LTL shipments are really hard to correctly rate. Too many shippers are relying on base rates (e.g., YRC 2013) to get a good approximation. This rarely yields anything close, and the difference between expected charges (based on base rate) and actual total charges is usually 20 to 200 percent off. It’s so difficult that a whole industry exists to audit freight bills from carriers because so many are significantly different from the expected charges.

In addition, many TMS solutions lack sophisticated rating capabilities. Also, TMS vendors are not really incentivized to decouple their rating engine and contract management system from the TMS, which forces some shippers to buy more than what they need just to get rating capabilities.

Should I Care About the Gap?
Yes, a valid question because complex issues take time to consider. But here are two examples of what happens inside the Gap, beyond the base rate:

2000 lbs., Atlanta to New York City, 3 pallets:
Base rate: $ 375.96
Real cost: $ 740.26

2000 lbs., Atlanta to New York City, 4 pallets:
Base rate: $ 376.96
Real cost: $ 1,213.26

I won’t get into the details for above, but if interested, I have placed these examples on our website.

In Closing: Some Numbers
ERP and TMS systems do not have a good track record in regard to contract management technology. In fact, a survey in American Shipper (Transportation Procurement Benchmark Study 2013) shows 60 percent of small/medium shippers are using manual/spreadsheet for contract management and only 4 percent of these shippers are using the contract management module of their TMS.

The fact that less than 40 percent of shippers even use a TMS is also related to this gap. I believe there are plenty of shippers who either have not found a suitable TMS or don’t want to buy a full system just to do comprehensive rating. A sharper point is that most TMS technology is not capable of such rating, or else more than 4 percent of shippers would be utilizing their TMS’ contract management module.

Do you see this gap in the industry? I’d love to hear your comments and input.

Geoff Comrie is Vice President of Business Development at 3Gtms. Geoff founded Transite Technology in 2002, and led the company from inception until the merger with 3Gtms in early 2013. Over the years, Comrie has attained a recognized level of expertise on LTL rating, and is a frequent speaker and discussion contributor on this topic. He has twenty years of experience in technology sales and management, with companies such as Pansophic and Siemens. Geoff is a graduate of Western Illinois University with a bachelor’s degree in computer science.

Guest Commentary: Modern Transportation Management Systems Make LTL Neutral Rate Bases Obsolete

Guest Commentary | By Geoff Comrie • 11/20/2012

Long ago, a LTL (less-than truckload) neutral rate base (NRB) was promoted as way for shippers to more easily compare shipping costs between carriers because carrier contracts and the actual rating process were both complex. A NRB was seen as a compromise based on simplicity, but neither the business interests of the shipper or carrier were optimized.

I believe, however, that neutral rate bases have outlived their purpose.

Today, modern transportation management systems (TMS), with robust contract and pricing management capabilities, have negated the need for a NRB and allow for both shippers and carriers to reap the rewards of a well-negotiated, collaborative contract.

How is this done? There are many LTL carriers in the U.S. and not one of them services every part of North America equally. For many reasons — too many to get into here — some regions and lanes make stronger business sense than others. And when the needs of the shipper are aligned with the strengths of the carrier, both the shipper and the carrier enjoy a profitable and healthy relationship.

It is well known that almost no two carrier contracts are identical, even year-to-year by the same carrier. What appears to be a conspiracy between carriers to make their contracts difficult to compare is more a reflection of how well carriers know their costs to the penny. This results in complex and different rate structures — what kinds of costs are associated with certain kinds of freight, how much to charge for specific accessorials, how much it costs to service various lanes and facilities, and so on.

Modern Contract and Rating
This is where highly-detailed contract management systems are invaluable in quickly determining the complete and actual costs of a shipping transaction. These systems account for every detail and nuance, providing shippers with reliable, least-cost choices within seconds.

There are many contract management (CM) systems around. Strategic and functional value boils down to detail and process, not the pretty colors of a user Interface. It can certainly be intimidating when you first look at a very granular CM system because it just “looks complicated” due to all of the carrier contract information that needs to be entered. But the work is absolutely necessary and can mean the difference between getting back a simple estimate versus the actual cost, or even if the freight can be delivered to a certain address.

Hard Work + Detailed Input = Reliable Output

I cannot overstress this point.

Here’s a real-life example of what can happen if a contract management system isn’t robust enough to consider important details:

You have a 2,000 lb. shipment moving from Atlanta to New York City, with a freight class of 55, requiring an inside delivery by the carrier.

ABC, an “undetailed” contract management system, returns a hundred-weight (CWT) rate of $93.99, yielding a gross freight charge of $1,879.80. After your well-negotiated discount, the net freight charge would be $375.96.

You ultimately choose to use this carrier because, according to the transportation management system’s utilization of ABC contract management, this was the least cost carrier.

Unfortunately, this shipment is going to cost you much more than $375.96.

ABC does not take into account the additional accessorial cost for Inside Delivery even though it’s clearly stated in the carrier contract. ABC simply has no capability to have this detail recognized in the contract management system. Inside Delivery has a cost of $14.50 per CWT, yielding a total charge of $290 for this accessorial.

Further, ABC doesn’t recognize there is an automatic additional delivery charge of $60 for delivery into the borough of Manhattan.

So the total cost is actually $725.96, not the $375.96 returned by ABC.

Ouch!

In summary, to lower your transportation costs, use your own negotiated carrier contract in tandem with a modern transportation management system. This delivers lower shipping costs and better accuracy, which is important in delivering fundamentally good customer service and if you are looking to build a certain margin into your shipping services.

But, if you are still going to use a neutral rate base, then do a bit of homework. With carrier acceptance being neutral, pick a neutral rate base that is not really governed by the carriers, is cost-effective and offers the highest value, because your financial benefit, as shown above, can be compromised by up to 20 percent. In addition, look for a NRB that uses modern technology that any current and future software can use, offers the most rating options, and offers friendly licensing terms.

You can view transportation management as simply moving freight from one point to another. Or you can view it more strategically, as a way to save money, increase customer retention, and as a profit center. It is this strategic perspective that is driving shippers and 3PLs to adopt sophisticated transportation management systems. But as you evaluate TMS solutions, it’s important to remember that it all starts with well-negotiated carrier agreements, and the utilization of a robust contract management system.

Geoff Comrie is the CEO of Transite Technology. He has twenty years of experience in technology sales and management, with companies such as Pansophic and Siemens. Geoff has funded Transite from its inception in 2002 and has been the primary driver for product strategy, sales, and operations. Geoff is a graduate of Western Illinois University with a bachelor’s degree in computer science.

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