With oil prices soaring and no sign of relief in sight, retailers may need to take drastic action to keep transportation costs under control. Mark Faithfull looks at the Government’s proposal for collaboration to cut travel miles

The year was just two days old when oil hit the landmark US$100 (£50.15)-a-barrel rate. But the spot purchase by a New York buyer – quickly ridiculed as a stunt by analysts, who dubbed him an opportunist creating a yarn to tell his grandchildren – looks like a good bit of business, now that prices are more than a third higher.

Those higher energy prices have fed into almost every aspect of the UK economy, most obviously fuel prices. At the start of the decade, the average forecourt price of a litre of diesel was less than 80p, a figure that hardly deviated for the next four years. But by June this year, it smashed the 120p mark. All at a time when the need to bring transportation costs down has never been greater for retailers.

Asda distribution director Ian Stansfield describes the situation as an “interesting moment in time for the retail sector”, as customers become, he says, loyal to their “pockets as well as their brands”. He believes that, in a price-sensitive market, supply chain efficiency needs to be at the core of retail businesses.

Asda chaired a working group that produced a report in April last year on behalf of the Department for Environment, Food and Rural Affairs (Defra), looking for opportunities to reduce domestic food transportation costs by 20 per cent. The research, undertaken by consultancy Faber Maunsell, came up with six recommendations (see box), four of which require government intervention in the form of new legislation or tax incentives.

To implement the other two, which focus on collaboration on trucking and warehousing, supply chain organisation Efficient Consumer Response UK (ECR), managed by grocery research group IGD, was charged with heading up a retail industry-led initiative.

Since then, IGD has been helping to implement new methods of colloboration. Last month, it announced a world first, with 37 participating companies signing up to a transport collaboration, including a raft of FMCG brands and retailers such as Asda, Boots, Iceland, Marks & Spencer, Morrisons, Sainsbury’s, Somerfield, Tesco and Waitrose.

Through sharing vehicles and more efficient warehousing, the programme could save 48 million miles of travel by the end of this year alone – equivalent to removing 800 lorries from UK roads – and conserve 23 million litres of diesel a year.

IGD head of supply chain Tarun Patel says: “The headline figure is a potential saving of£30 million. I think everyone can see the logic in it, but it certainly requires open minds. Also, quite a lot of persistence is needed. For example, we found that we and the participants had to work with insurance companies in regard to one transporting the other’s products.”

Eye on the road
IGD will monitor progress on distance travelled, fuel usage and weight of products moved. It will also record the miles saved through partnership projects and the results will be shared to encourage improvements from companies of all sizes.

“We’re about a year down the line with this work and we’ve tried a number of things,” says Patel. “We’ve brought retailers and manufacturers together to share vehicles and we’ve also run some speed-dating sessions, where retailers and manufacturers have met to see what they have in common – for example, what routes, vehicles and infrastructure they share – that could be used to make savings.”

There are also alternatives to trucks. Eddie Stobart operates a rail service between Daventry and Grangemouth, near Falkirk, for Tesco. This service moves consumer goods from the Midlands to the supermarket chain’s distribution centre in Livingston. David Grant, professor of logistics at University of Hull Business School, says that retailers have been experimenting with these solutions for some time, in particular when delivering to more remote areas. “Distributing to the Highlands in Scotland is a good example,” he says. “That tends to be one-way traffic – companies like Boots have done a lot of work partnering with other businesses. But it’s not always easy to take these pilots and roll them out.”

Grant also believes that reducing energy usage in warehouses is vital to reducing oil usage. “Many of the older buildings have no natural light, high ceilings, heaters above open doorways and no insulation,” he points out. “It’s an issue for the retail industry.”

Faber Maunsell regional director John Hix adds that, in future, retailers need to consider multi-modal forms of freight transport and take advantage of potential grants for adopting rail or coastal water carriage.

“But, above all, it’s about keeping it simple,” says Patel. “That’s one of the reasons why we set a definite target for the initiative – because it gives us all something to aim towards.”