Rising Transport Costs Push Shippers to Reshape Packaging
By Rip Watson, Senior Reporter
This story appears in the Aug. 25 print edition of Transport Topics.
Whether the product is laundry detergent or basketballs or almost anything else, changing the way things are packaged to make the most out of a trailer’s space is introducing a little-noticed structural change to the trucking industry.
Packaging experts estimate that changes in the way goods are configured on a pallet, revising the size or shape of packages themselves and using different packing materials may reduce shippers’ logistics costs by as much as 10%.
For example, Wal-Mart and Costco fit 9% more milk on a truck by redesigning the package.
“With transportation costs rising, there is more pressure than there was in the past to reduce costs in any way possible,” said Robert Webster, a professor of supply chain management at Syracuse University.
“There have always been transportation and marketing considerations in packaging. In the past, one reason for larger boxes was to give the perception there was more stuff inside. Now, there is growing pressure on the transportation side to reduce shipping and material costs and fit more boxes in a trailer,” Webster said.
“These changes have been happening and will continue to happen,” said Bob Costello, chief economist for American Trucking Associations, who said the new approach is a structural change for trucking.
“Think about how everything is getting smaller,” Costello said, citing the example of the Apple iPods, which replaced the unwieldy boom boxes. “If you bought laundry detergent recently, you’ve noticed that.”
Working with retailers, laundry product manufacturers are moving to sell only concentrated, or 2x, detergent that occupies about half the space on trucks and store shelves.
Another packaging change literally takes the air out of basketballs, said Satish Jindel, principal of SJ Consulting. Deflating the balls allows a 40-foot container to hold three times as many as it would if they were inflated.
“If you change the packaging and take the air out, you can more efficiently utilize transportation resources,” said Terry Harris, managing partner of Chicago Consulting. “That ought to be the objective of manufacturers and consumer products goods companies.”
Harris estimated the logistics savings from more efficient packaging at 10%, including the transportation costs themselves and efficiencies in the inventory and warehousing process.
Jack Ampuja, president of Supply Chain Optimizers and executive director of Niagara University’s Center for Supply Chain Excellence, agreed with Harris’ estimate, saying potential cost reductions could range from 5% to 15% for shippers.
“Our perspective, whether it is hauling freight or any other aspect of logistics and the supply chain, is to help our customers be as efficient as they can be,” said Rich Bourque, vice president of logistics for Carlisle Carrier Corp. of Mechanicsburg, Pa.
“If packaging optimization is going to make them more efficient that is a good thing. It may mean somewhat less volume for us,” Bourque said. “On the other hand, if freight is packaged better, that will reduce damage. The biggest impact of packaging optimization may not be on a carrier. It may be in the warehouse.”
“This is just the tip of the iceberg,” Bourque said. “Not many organizations have taken advantage of this [packaging optimization]. Now we will see people begin to pay attention to what packaging means to them because the supply chain itself is taking on more importance.”
While experts see some savings for shippers, the effect on trucking is a matter of wide-ranging opinion.
For truckload carriers, Ampuja said “what is moving today in 10 trucks may be moving some day in nine. If we could get 1,000 cases in a truckload before and now we get 1,100, that’s obviously a significant improvement.”
For small-package and less-than-truckload carriers, the effects are different, Ampuja said. He cited a maker of refurbished headlights that obtained a 40% rate reduction based on the freight classification system used by LTL carriers.
The savings from reducing the size and increasing the durability of packaging gave the carrier more revenue-generating space on the trailer and reduced damage to a very fragile product, Ampuja said.
Dahlman Rose analyst Jason Seidl said better packaging could lead to better asset utilization for fleets, as well as fewer injuries because drivers themselves often have to handle freight that is poorly packaged and loaded onto pallets.
Harris and Jindel also foresee wide-ranging effects as fundamental changes work their way through the type of freight that is carried and the way it is packaged.
“The trucking industry is being saved by the fact that not many people are doing this [packaging optimization],” said Harris. Logistics professionals don’t think about the effect on trucking when they seek out cost reductions, he said.
“If they [logistics professionals] can ship things more efficiently, they do. That’s a natural thing for them to do.”
Ampuja estimated that just 25% of the potential gains from packaging optimization have been achieved so far.
But possible gains for motor carriers may not be apparent yet.
“While ultimately this will be good for the environment, it hasn’t yet changed our business in any meaningful way,” said Con-way spokesman Gary Frantz.
“Customers generally still ship using the same pallet sizes, they just have more and smaller boxes on the pallets. Customers also are using less packaging with their shipments, are shipping less frequently and are consolidating products into heavier shipments, which is why our weight per shipment is up, particularly in LTL,” Frantz said.
“As the trend continues, we will have to adjust our pricing models and create equitable pricing that compensates us for the new dynamics of shipments and the service provided,” he added.
Carriers are missing the opportunity to raise rates, because the changes in products as well as packaging are resulting in freight that is more valuable, Jindel said.
Like Costello, Jindel cited the example of $250 iPods that have replaced boom boxes that cost 70% less and weighed 10 times as much.
From a different perspective, Costello said packaging changes could trigger a small reduction in freight volume, but not enough to reduce the number of trucks on the road.
Webster agreed.
Compressing the shipments through better packaging may raise their weight, he said, but even a 10% increase in the weight of a shipment is not a major concern for many carriers, who are focused on other characteristics of a shipment such as mileage and susceptibility to damage.
Whatever the effects will be, the process of changing packaging is complicated.
A key issue, Ampuja said, is to deal with the fact that different departments within a company have separate packaging goals. Marketing may want a large, eye-catching package, while the logistics department is aiming for cost-effective packages with the best achievable product density, and production managers want a minimum number of box designs that can withstand the manufacturing process and move through it quickly.
A better approach is to get all the departments together to create an integrated solution, Ampuja said.
Harris said four factors have to be assessed when trying to optimize packaging:
• The individual product packaging the consumer sees.
• How the product is arranged in each case.
• How it fits best on a pallet or slip sheet.
• How it fits into a trailer or container with the ideal combination of a volume to the area the package occupies.
For example, Harris said a soft drink could be redesigned to use 4% less aluminum by making it flatter and wider so that it fits better in cases on pallets. The result would save 220 million pounds of aluminum each year and about 5,000 truckloads a year. Or, a cereal package could be shrunk by 30% if the air was removed.
There is an environmental component to packaging as well, Harris said. More efficient distribution means fewer resources are used to make corrugated boxes or pallets and fewer petroleum resources are consumed to make products such as plastics, reducing emissions.
Lauren Thaman, a spokeswoman for Procter & Gamble, said the company’s decision to switch to more concentrated Tide detergent, known as 2x, was partly a response to retailer initiatives. In addition, the step reduced costs and improved sustainability.
She said advance estimates of the changes if the entire industry switched to more concentrated detergent estimated that 2 billion fewer plastic shopping bags would be needed to carry the detergent, 230 million fewer gallons of water would be needed, saving 5 million gallons of diesel fuel and 60,000 truck moves.
