Projected impact: Moderate
Timeframe: Already here
Collaboration has long been regarded as one of the intelligent features of human beings to increase efficiency and capability. Participants joining the collaboration can benefit from each other and achieve goals that are hard for any single individual to reach. We might have had the experience to share a car with others for the sake of less gasoline or simply as a nice treat to friends. The collaboration among passengers not only benefits themselves but also contributes to the local economy in economic and environmental terms.
Similar collaborations happen in freight transport. Two or more shippers bundle their freight and jointly load transport vehicles. This process is defined as horizontal collaboration. The word horizontal means that actors on the same level of the supply chain, in this example, all shippers, are forming the team (European Union, 2001). It distinguishes from vertical collaboration, in which actors from different levels of the supply chain, e.g., a shipper and a carrier, team up.
There are advantages of horizontal collaboration. Shippers could consolidate their freight for large shipment loads, which encourages scale economics. For example, rail transport generally incurs lower unit transport cost and discharges less unit greenhouse gas emission, but it exhibits economies of scale. A single shipper might not have sufficient volume, but multiple shippers could accumulate their freight and trigger the scale of rail transport. Besides the scaling effect, horizontal collaboration could foster more stable flows and therefore a better utilization of the vehicles’ capacity. For example, when a shipper had a slump in its volume, the others might still have sufficient freight to maintain adequate capacity utilization of the vehicles. If the total freight volume in the market is unchanged, a higher capacity utilization will lead to less number of vehicles and consequently, savings in money and emissions.
There is a mounting body of research justifying that horizontal collaboration is critical to maintaining logistics industry and our society sustainable. Despite the increasing freight flow, the road transport network is already over-utilized, and there is too much traffic in cities. European Commission (2012) finds that the total monetary cost of congestion mounts up to 134.3 billion euro in 2012, which is equivalent to about one percent of the total GDP of EU-28. On the other hand, however, trucks travel up to half of their return trips empty (World Economic Forum, 2016), and the loaded trucks are typically only using 57% of their maximum gross weight (Doherty and Hoyle, 2009). If shippers could collaborate and load trucks together, the number of truckss will be reduced.
However, though horizontal collaboration is generally regarded as a good practice, it remains difficult to implement. There are in general two types of barriers, the technical barrier, and the trust barrier. From the technical side, a standardized, cloud-based logistics ecosystem is required so that shippers could participate and seek for collaboration opportunities in it. AEOLIX is such an ecosystem. It allows stakeholders with different background to share freight flow information and enhance collaboration.
Even an advanced platform such as AEOLIX will not be able to solve all the problems. Compared to the technical issues, the mindset of people is, to some extent, a bigger barrier. Are firms willing to collaborate with others? Are they keeping their freight flow data as confidential as their core IPs, or they can share that for collaboration purpose? Or, is a third-party required as a trustee so that competing firms could load trucks together via it? Via the implementation of AEOLIX, these questions will be answered.
Author: Chuanwen Dong
Examples from industry
- Doherty, S. and Hoyle, S. Supply chain decarbonisation: The role of logistics and transport in
reducing supply chain carbon emissions. Logistics and transport partnership programme,
World Economic Forum, Geneva, Switzerland, January 2009.
- European Union, 2001. Commission notice: guidelines on the applicability of Article 81 of the EC Treaty to horizontal cooperation agreements (2001/C 3/02).
- European Commission, 2012. Measuring road congestion. URL tttp://ftp.jrc.es/EURdoc/JRC69961.pdf.
- World Economic Forum, 2016. Digital Transformation of Industries: In collaboration with Accenture White paper.