Nations form them and so do airlines. Now distribution carriers have joined the trend. When nations form alliances, the usual result is a treaty. Alliances among airlines are called code-sharing agreements. That almost describes the asset-based carrier alliance recently formed among five lead carriers and almost 20 regional providers of distribution services.
Like a code-sharing arrangement among airlines that allows nominal competitors to sell tickets on one another's flights, Network Distribution Solutions allows shippers of LTL freight and truckloads for LTL distribution to purchase services from any member carrier. Actual delivery service may be performed by any one of the five lead carriers or by a network of other carriers allied with them.
Network Distribution Solutions is an alliance of regional distribution and LTL carriers that offers national reach to the shipping community while maintaining the regional touch that shippers are accustomed to when dealing with these carriers separately. It is governed by a board made up of executives from the five lead carriers and headed by a president from one of them. The president serves a two-year term, and the presidency rotates among the five members. President of the NDS board for the current term is Steve Lanter, CEO of Lanter Logistics.
Five lead carriers
The five lead carriers in the Alliance are Lanter Refrigerated Distributing Company, Madison, Illinois; KRC Logistics, Grand Rapids, Michigan; Escro Transport, Buffalo, New York; Diversified Transfer & Storage, Billings, Montana; and TaB Warehouse & Distribution Company, Fontana, California. Lanter provides 1,937,750 sq ft of refrigerated and dry storage and 175 tractors along with 600 trailers to NDS for distribution through the central and southeastern states. Diversified Transfer & Storage operates 45,000 sq ft of warehousing spread across locations in Billings and Denver and runs 75 trucks in a delivery network that stretches from the Canadian border with Montana, Idaho, and Washington to the southern border between New Mexico and Mexico. KRC Logistics serves the upper Midwest with 390,000 sq ft of warehousing in three locations and a fleet of 80 trucks. Escro Transport provides service in the Northeast with 100 trucks and 175,000 sq ft of storage divided among four locations. TaB serves California, Arizona, and Nevada with 1,250,000 sq ft of warehousing in seven buildings at four locations along with 160 trucks. In addition, the five lead carriers have arrangements with roughly 20 more carriers to provide delivery service in a timely manner.
NDS is the outgrowth of a series of discussions with candy shippers that took place at the National Confectionary Logistics Conference early in 2002, says Bill Shaffer, president of TaB. Those shippers were concerned about carrier capacity for delivering small lots of temperature-controlled products across a wide geographic area. These same shippers now express concerns about timely service as the new hours-of-service rules for truck drivers become effective in January 2004, Shaffer says.
Organizing national capacity
Capacity for local distribution remains relatively available, but organizing that capacity into a national distribution network presents a challenge, Steve Lanter says. The trucking industry has always had lots of little distribution carriers. Originally, these carriers distributed specialty products for food manufacturers before supermarket operators and wholesale grocers began to consolidate the full line of store inventory into single distribution centers. The addition of large frozen and refrigerated warehouses to grocery distribution centers diminished the need for specialized local LTL carriers, he says.
As truckload carriers began taking full loads with multiple drops, a practice made easier by load optimization software to help schedule the stops, distribution carriers felt the pinch even more, Lanter says. The primary challenge is utilization. Distribution carriers operate within a geographic network, unlike the point-to-point traffic lanes favored by truckload carriers, he says.
Truckload operators can abandon certain lanes if traffic density falls below expectations. Distribution carriers usually do not have that option, because their networks are built around providing regular service in small lots for a large number of customers. Their networks can be likened to a sponge — a large area comprised of many individual cells. In distribution, some of those cells are always filled with traffic from regular customers, traffic that must be handled on a regular basis as a condition of keeping the entire account. The more nearly full a distribution carrier can keep its network, the more successful the carrier is.
More deliveries, fewer origins
Pool distributors still have a place in the transportation market, Lanter says. Pool freight is a factor, but it now moves to fewer points as shippers look for broad coverage from fewer origins. In effect, shippers want the personal relationship they have nurtured with their regional distribution carriers, but they also want more service across a wider area. The liquidation of one of the two national LTL carriers early in 2003 left these shippers with only one national provider. “NDS would have formed anyway,” Lanter says, “but the loss of Alterman certainly pushed it forward more rapidly.”
The organizing principle behind NDS is to retain the character of regional distribution while giving shippers the national service that they seek. Shippers can tender freight to one of the five lead carriers in NDS and have it delivered in that region, or that freight can be handed on to one of the other lead carriers or to other carriers in the alliance. In either case, the shipper has a single point of contact for seamless distribution across the entire nation if desired. That contact includes customer service as well as shipment inquiries, tracing, settlement of claims, and electronic data interchange.
Not only does NDS expand the reach of shippers more accustomed to regional distribution, it provides a national sales network for carrier members. For instance, TaB, on the West Coast, may acquire an account that wants to expand distribution in the Midwest and Northeast. Obviously, TaB does not provide the transportation service, but other members of the alliance can. At the same time, TaB deals with the client as though it is handling the entire transportation function. TaB bills the client, provides proof of delivery, and collects for the service. The carrier that actually makes the delivery bills TaB for the service and is paid within 30 days, maintaining roughly the same rate of cash flow it would have if dealing directly with the shipper.
Simple organizational structure
NDS is organized as simply as possible, Lanter says. Members pay no fee to participate. “In addition to supplying a national service to our shippers, the idea behind this group is to put more freight on all of our trucks,” he says.
Expanding sales remains one of the group's major goals. The five lead carriers have agreed to pay for all marketing, but all member carriers are asked to participate in promoting sales. As the network matures, members say they can envision the need for sales agents working for the group as a whole rather than for individual carriers. Conversely, the number of carriers in the network is not likely to grow appreciably unless NDS faces a sudden demand for additional service.
NDS is poised to succeed, Lanter says, because it will increase fleet utilization for all members, and because the shipping public says it needs the service. In general, shippers have cut all the costs that can be cut from manufacturing. The next place to trim seems to be logistics. “Manufacturers are not cutting back on shipping; that would be suicidal,” he says. “However, they are lowering headcounts in their traffic departments, leaving fewer personnel to handle the same — and growing — volume of freight. With regional distribution carriers spread throughout the country, administering a national transportation effort becomes a daunting task. NDS gives these overworked traffic departments a way to move freight efficiently with just one phone call.”
Although officially launched only recently, NDS already is beginning to perform as envisioned. “We recently began to distribute Ghiradelli chocolate products in our northeastern region,” says Terry Esposito, president of Escro Transport. “This is precisely what we mean by national reach, regional touch. Without the network we would not have freight from Ghiradelli, because we are in Buffalo and they are based in San Francisco. The reality is that Ghiradelli could not get the freight to us and we could not offer service to them without access to services from our other partners.”
