Case Study. Cargo Domizil - Intermodal less than truckload transport. European Commission

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1 Case Study Cargo Domizil - Intermodal less than truckload transport European Commission 1

2 THE PLATFORM If transport continues to grow at the same rate as the economy, this will become both an economic and an environmental problem. lncreasingly congested roads are as much a disadvantage to European business as they are to society at large. The bestlog project, initiated by the European Commission, will establish an exchange platform for the improvement of supply chain management practice across Europe. OBJECTIVES To improve logistics practice and logistics education To raise the overall standards of practice across Europe To set high standards for logistics education and practice To create economic growth and job opportunities as a result Achieve a better match between EC policy and business decisions SOLUTIONS & ACTIVITIES European platform for sharing logistics best practice Online directory of logistics best practice case studies Online directory of European logistics education opportunities Benchmarking on line for European companies European conferences to share logistics best practice Web forum, award directory, media directory, and more lndustry workshops 2

3 Cargo Domizil - Intermodal less than truckload transport PROBLEM DESCRIPTION Cargo Domizil was launched in 1981 as a division of SBB (the Swiss railways) to execute unit load rail shipments. As the aim of the Swiss government and of the state-owned SBB was to shift freight traffic from road to rail, SBB developed long-haul rail freight services with collection/ distribution by truck. The business model initially failed due to organizational and operational inefficiencies, and the operation was unprofitable. Meanwhile, private sector transportation companies in Switzerland were affected by a change in the government s transport policy - specifically by a national ban on night-time trucking (10 pm-5 am) and by relatively high per-kilometer tolls for trucks on all Swiss roads. After its partial privatization in 1992, SBB sold Cargo Domizil to a consortium of three large and medium-sized road haulage contractors. This consortium is called Transvision and comprises Camion Transport AG, Galliker Transport AG and, Planzer Transport AG. These co-owners needed to restructure Cargo Domizil s operations to make its combined mode service competitive with road haulage services, capitalizing on the advantages of overnight rail movements and the negative image of road transport, especially in Switzerland. Cargo Domizil uses trains for long haul transport within Switzerland partly to avoid the night-time trucking ban. The Swiss logistics service provider Cargo Domizil offers unit load shipments by combined road and rail transport. Long haul transports, usually executed via road transport, are performed by rail, offering a better level of service and cleaner transport than road-only services. The major challenge for Cargo Domizil s management was to turn this formerly state-owned loss-making business into a profitable private company, and this required major restructuring. Since the shareholders of Cargo Domizil are competitors in other business sectors, coordination between the enterprises associated with the company was a major issue for the management - especially since they were working together without any complex contractual arrangements. COMPANY FACTS Company name: Cargo Domizil Location: Berne, Switzerland Industry/sector: Logistics Services Company size: Medium Employees: 1,000 Turnover: over CHF 200 millions Services/products offered: Unit load/part truckload shipments via combined transport modes (rail/road) Further case related logistics figures: Daily despatches: 10,000 Rail-side logistics depots: 11 Substituted kilometres (rail ofroad): 13 million 3

4 THE SOLUTION Cargo Domizil offers less-than-full-truckload (LTL) shipments via combined rail/road facilities. This system is seen as unique in Europe, where LTL shipments are generally moved solely by road. Daily 24-hour deliveries of unit loads to locations across Switzerland are guaranteed by the road/rail network. The three partner companies manage 11 Cargo Domizil logistics depots between them, and all depots are at rail trackside locations. Cargo Domizil trucks collect consignments during the afternoon and take them to these rail-side depots, where they are loaded on trains, forwarded to Olten near Zurich, sorted by the SBB and sent to their destination depot overnight. (Cargo Domizil normally uses around 250 rail cars per night). In the morning, trains arrive at the destination logistics depots, where the freight is transferred back to a truck and delivered to the customer in the morning. Besides avoiding the night-time trucking ban and expensive road tolls, the use of rail offers significant advantages in Switzerland s mountainous regions, which are sometimes difficult to reach by truck. (Switzerland built tunnels exclusively for trains). Thanks to the hub-and-spoke structure of Cargo Domizil s logistics depots, the company s drivers always operate in the same region and are familiar both with routes and individual customers an advantage in providing courteous and friendly service, especially in Switzerland, which has three official languages and where customers expect to be addressed in their own mother tongue. 4

5 In order to cut fixed costs and make Cargo Domizil profitable, the number of logistics depots had to be significantly reduced without affecting 24-hour delivery services throughout the network. This was achieved after the Transvision consortium reorganised some of its collection/delivery routes and negotiated an agreement with the SBB Cargo division of the Swiss railways that ensures adherence to delivery times and competitive rail transport rates. Structural changes were accompanied by a training program, as Cargo Domizil considered that its employees were the key factor in efficient processes and on-time-deliveries. Since the three consortium partners were also competitors and had to manage their own logistics depots, effective communication was of major importance and common IT systems needed to be implemented. The consortium partners also needed to find practical ways to avoid inequalities in the allocation of Cargo Domizil s profits. Transport volumes vary within Switzerland; some regions send more goods outwards than others, while others receive more shipments than they send, resulting in different financial flows in different areas. Adequate definitions of value had to be agreed upon in order to ensure equal allocation of revenues. CHALLENGES Challenge 1: Turning around an unprofitable state-owned entity to become a profitable less-thantruckload service provider Challenge 2: Implementation of a business model exploiting the advantages of rail Challenge 3: Reducing the handling time for unit load transfers between trucks and rail wagons Challenge 4: Designing an optimum, future-proof structure for a rationalized logistics center network proved complex Challenge 5: Implementing collaborative behavior within a consortium of competitors Challenge 6: Cooperating without a complex contractual arrangement, keeping formal rules to a minimum 5

6 CASE STUDY LESSONS LEARNED AND SUCCESS FACTORS The success of the restructuring of a formerly state-owned company was underpinned by the collaboration-based relstionship between the consortium partners. Only their strong commitment could have ensured Cargo Domizil s continuing success. The partners are still working together without any detailed contractual arrangement, other than the articles of association of Cargo Domizil AG itself. The consortium realized early on that logistics customers preferred green transport to conventional road haulage, but only when offered at the same price, so it wanted to offer rail transport services for unit loads. The consortium wanted to gain a competitive advantage over other logistics providers by moving goods at night when competitors could not use their trucks. After more than 20 years of Cargo Domizil an impressive idea has prevailed against many adversities and is now more successful than ever. Hans Ruedi Mast, CEO, Cargo Domizil Switzerland s extensive rail network and the partners local distribution operations enabled them to cover the whole of the country while reducing the number of own distribution depots. New operating structures were particularly important in enabling the success of the now privately-owned Cargo Domizil. Personnel training was particularly important, given the management and coordination challenges created by reducing the number of logistics depots. Last but not least, the political environment in Switzerland had a major influence on the success of the concept of LTL rail shipments. The night-time trucking ban and high road tolls in combination with Switzerland s highly developed rail network contributed significantly to the project s success. 6

7 THE BENEFITS Economic As each shipment is delivered by the same person, customers across Switzerland enjoy friendly service from an individual sharing their own cultural background. Increased capacity utilization through consolidation of loads at depots: competitive advantage as the concept bypasses the Swiss ban on night-time trucking Competitive advantage of green labeling SUSTAINABILITY Environmental Rail is considered less CO2 emission-intensive than road freight transport Fewer fine particulates are emitted by electrified rail transport, as energy can be produced with less pollution in power generation plants than in truck engines Electricity used by trains can be generated from alternative energy sources Less energy per ton-kilometer is used by trains than by trucks Social Lower transport emissions due to use of rail Rail freight is generally safer than road haulage; a single train handles more cargo than a single truck, thereby reducing the risk of accidents in proportion to the tonnage carried Specialist training programs are available for intermodal unit cargo handling A sustainable CHALLENGES business model secures jobs in the Swiss rail freight industry A source of noise was removed from the roads (but shifted to the railway) TRANSFERABILITY Transferables Country The Cargo Domizil solution is transferable to a company of any size. In particular, larger companies with their own logistics infrastructure networks could easily adopt the concept of transporting unit loads by train overnight. The concept could easily be adopted, and possibly enhanced, in other countries offering similar logistics environments beyond Switzerland. 0 Sector + Company Size ++ Limitations The particular political environment in Switzerland played a major role in the success of the Cargo Domizil concept. It would therefore not be easily transferable to other countries with significantly different transport policies or infrastructures. A further limitation is that the concept is feasible only for logistics service providers supplying less than full truck unit load services. ++: very high, +: high, o: neutral, -: low, --: very low 7

8 Contact Resources Network Design Procurement Warehousing People Best Practice Topics in bestlog Customer Product Tactical Planning Transport Production Information & Communication System Markets & Strategies Reverse Distribution Structures & Planning Infrastructure Processes & Operations Enablers & Support PROJECT SECRETARIAT Berlin Institute of Technology H90 - bestlog Strasse des 17. Juni Berlin - Germany Phone: Fax: Web: European Commission Thorsten, Klaas-Wissing. University of St. Gallen; Christoph, Tyssen. University of St. Gallen (2009): BestLog Good Practice Cases. Cargo Domizil - Intermodal Less than truckload transport. Published by BestLog Project.. This document, including but not limited to text and photographs, is protected under copyright. The copyright owners admit the use for informatory and training purposes. Any commercial use of the document or parts thereof is prohibited. 8

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