Motivation for cooperation/sharing in logistics operations

An important approach to deal with inefficiencies in the urban freight system is for companies to cooperate more with each other. Here, we restrict the discussion to horizontal logistics cooperation, rather than vertical logistics cooperation (such as integration along the supply chain or sub-contracting).

Horizontal logistics cooperation may be defined as “cooperation between two or more firms that are active at the same level of the supply chain and perform a comparable logistics function”. These firms serve the same transport service segment and provide almost the same services. Hence, they are very much rivals, in the fiercely competitive industry.

Yet, we know that there are still many reasons for companies to want to cooperate. These include:

• Increases the company’s productivity of core activities
• Reduces the costs of non-core activities
• Reduces purchasing costs,
• Offers better quality of service at lower cost
• Specialize, while broadening the services,
• Enables contracts with large shippers
• Helps to protect market share.

In addition, as a side-effect of the improved efficiencies, traffic and resulting impacts can be reduced.

Types of cooperative logistics

In urban freight, we can identify three types of objects shared among cooperating companies:

• Order sharing
• Capacity sharing
• Information sharing.

In order sharing, “collaborating carriers combine, share or exchange customers orders or requests” for the purpose of optimizing their own transport capabilities and while as a whole, still provide the same level of service. An acceptable and fair method for allocating the costs and revenue according to the service provided by each company needs to be designed. Figure 1 shows how the routing of the vehicles can be improved, by reducing the number of visits to each stop, and by re-assigning the closer stops to the different carriers. The outcome of which is the reduced distance travelled and better service for the receivers.

Figure 1 Order sharing between competitors

While in the former type, the transport demand is shared; in capacity sharing, it is the transport supply, which is shared. In other words, there is a temporary loan or borrowing of transport capacity, either in terms of load units (e.g. containers), transport units (e.g. vehicles or drivers), or logistics facilities (e.g. consolidation centres or cross-docks), or also of storage capacity, in terms primarily of warehousing space. Figure 2 below depicts how transport units can be shared. Besides increasing the utilization of assets of the sharer, the service area of the receiver expands, increasing the income without excessive investment costs.

Figure 2 Sharing of transport capacity

The third type, information sharing, occurs when carriers share information (often anonymized or aggregated to protect legal and business interests) with other partners to improve overall efficiency of operations. Such sharing might need a trusted third-party to collect, aggregate and process the data from the partners. The information could be used, for example, to optimize parking management at a busy street or a loading bay, such that competing carriers do not arrive at the same time.

Figure 3 Information sharing can help avoid simultaneous arrivals by Tharsis Tech CC BY