Increasing demands of freight
Each year, four billion tonnes of freight are transported across Australia[i] - that’s 163 tonnes per person. And it’s set to increase. As our exports grow and as consumers demand more, expecting their goods to arrive sooner and direct to their doors, the amount of freight we transport is increasing faster than our population[ii].
But our vast geography and our sparsely distributed population mean it’s difficult – and costly - to meet rising consumer expectations. Plus, with most transportation taking place via road rather than rail, shippers must also manage the inherent risks and shortcomings of that mode.
Therefore, it’s a very real possibility that as customer demand increases, the potential gains will be nullified by increased costs of transportation. It’s a complex challenge facing every shipper in Australia, requiring a sophisticated and agile logistics solution.
Tyranny of distance
Australia is the sixth largest country in the world. With a land mass of nearly 7.7 million square kilometres[iii], we are nearly three and a half times bigger than the UK, France, Italy, Germany, Austria, Spain and Portugal combined. Despite our enormous size, our population is a fraction (1/13 to be precise) of those countries.
Not only are we few, but we are also far between. Our 25 million people are concentrated along the eastern and south-eastern coasts, and dispersed outside the main urban areas, with numbers plummeting the further from the coast you travel. While our most densely populated area - inner-city Melbourne - is roughly on par with Paris in terms of population density with 19,500 people per square kilometre[iv], when we consider the rest of the country, our average dives to only three people per square kilometre[v]. That’s the same as Siberia[vi].
This inevitably means great distances between a company’s manufacturing or warehouse facilities and their customers. Our two largest cities - Sydney and Melbourne – are separated by 880 kilometres, taking 10 hours to traverse. Sydney and Perth are a massive 3,950 kilometres apart by road. If this is the situation at best, you can imagine the implications for shipments going to more remote locations such as mining and agricultural sites, or regional hospitals and supermarkets, which need to be serviced as well.
Adding complexity to the system
They might be dispersed, but all the customers have the same exacting demands. So they require different logistics strategies to get their goods within the required timeframes. But the trouble is, most providers offer only one solution. Around three quarters (74%) of non-bulk freight - that which is packed in pallets and containers - in Australia is transported via road[vii].
Consider a B2B company selling tools into a national hardware retailer. They might require orders to be delivered to their stores within 72 hours. With a store in every city in Australia, a different transportation mode is required depending on the location of your warehouse to meet that 72-hour requirement.
Or take for example automotive parts for agricultural machinery. Typically, it may suffice for a company to deliver goods within 3-4 days of order. For that, road transportation would be adequate. During the narrow harvest season however, when farmers collect their ripe crops and realise their gains, a smooth operation is critical for success. If the combine harvester malfunctions, the company will need to ship the essential part within 24 hours. A carrier will transport goods using a network to the best of their ability. If they only have trucks – as most carriers do- they will send it via road, which will take the 3-4 days, causing havoc for the farmer needing to maximise uptime during harvest.
(But a true 4PL with proprietary technology, like efm, will draw on various modes of transport to tailor an optimal solution that mees the requirements without waste.)
The effect of precise timeslot matrices and penalties
Taking time demands a step further, it’s now commonplace for receivers such as supermarkets and retailers to have a timeslot management system in place. Scheduling times for drivers to arrive at the warehouse and unload or reload their cargo helps to optimise their warehouse operations.
However, for shippers it adds complexity to the supply chain and risk as a breach of the schedule incurs financial penalties and potentially a terminated contract. So when a truck is travelling down the road and it encounters a last-minute weather event that slows down the transport, it can have a significant flow-on effect at point of delivery.
A control-tower view of the whole supply chain can help. A 4PL can provide a dashboard view of real-time data of the entire process including accurate ETAs and live-tracking, thereby providing greater visibility and allowing them to intervene and course-correct at-risk shipments.
Rising inefficiency and falling profits
The effect of all these challenges on Australian businesses is the painful reality of increased costs and decreased efficiency (and profits).
The Inquiry into National Freight and Supply Chain Priorities found that domestic freight costs are significantly high compared to global providers. For example, it costs a Brisbane-based advanced manufacturing company as much to move their products 35 kilometres to the Port of Brisbane as it costs to complete the 13,000 nautical mile journey to the UK[viii].
Add to this, unforeseen delays and disruptions and a business can suffer further in opportunity cost of lost sales. Inadequate road surfaces, rising fuel prices, road congestion and road accidents are just a few of the common challenges that make road transportation difficult and costly for shippers. Taking all this into account, it’s not that surprising that Australia has slipped from 23rd to 93rd place in the World Bank rankings for trade logistics, underperforming other first-world economies[ix].
With little elsewhere to turn, businesses pass on the high costs to their customers. Add to that the cost of penalties for not meeting delivery deadlines or the unexpected cost due to an unforeseen delay or disruption, and businesses may hurt due to the new customer demand, rather than thrive.
Solving the logistics challenge with a 4PL
But there is an opportunity in this complex challenge for businesses to create competitive advantage.
As we’ve seen, a transportation solution is not enough. Companies require a sophisticated logistics solution that can revolutionise a company’s operations and deliver real commercial value.
How? Through a unique combination of data, relationships and highly trained people who are poised to take action when things go wrong. Let’s take each in turn.
- Data: data is critical to understand where the pinch points, bottlenecks and breakdowns occur. Data across the supply chain will provide a business with the visibility to understand how much freight is being transported, where from, to where, and how often, providing the insights needed to maximise efficiency. So often large and multi-national companies have multiple facilities that do not talk to each other and spend hundreds of thousands of dollars a year in the missed opportunity of failing to consolidate shipments and optimise their supply chain.
- Relationships: gone are the delays of relying on a single carrier. Just as one cannot be all things to all people, a single carrier cannot service the needs of all recipients across Australia’s complex geographic footprint. Instead, curating a bespoke mix of carriers across all modes through a true fourth party logistics provider (4PL) like efm, enables a business to ensure the optimal choice of carrier for every single shipment. It also provides the agility to quickly change carriers in the event of an unforeseen event, like a technology outage or maxed capacity.
- Highly-trained people: Finally, businesses require real people to make sense of the data, tailor the optimal solution and implement it. When traffic congestion occurs on the Hume Highway or when a major weather event closes the road, you need an expert at the ready to rapidly implement a contingency plan.
Efficiency is key to competitiveness
Australia is no doubt a challenging landscape to operate in. But efficient logistics will enable better competition. To take advantage of the growing demand for freight in Australia, companies need to gain greater visibility of their supply chains and build greater capability and resilience to respond to emerging issues. A true 4PL like efm can help.
To speak with us about how we can add value to your logistics function and supply chain, contact us.
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