Time and Money
Advantages of
Logistics Clusters
BY YOSSI SHEFFI, DIRECTOR OF THE MIT CENTER FOR TRANSPORTATION AND LOGISTICS
These clusters are agglomerations of logistics activities in a region or logistics park, and
there can be huge cost-saving advantages to locating in them.
irect operations transportation
is typically preferred by shippers because it offers shorter
travel times, less chance of mis-routing, and a lower chance of
handling damage to the shipment. The
challenge for shippers is to accumulate
enough freight to fill a conveyance to
make direct operations economical.
It should be noted that because of the
circuitous routing and extra handling
involved in consolidated operations (CO)
services, a conveyance does not need to
be full in order to be cost effective in comparison to a CO service. For example,
even shipments as small as 12,000 or
15,000 pounds sent in a truck that can
hold 40,000 pounds may be less expensive to send using a truckload carrier,
compared to using LTL. Such under-uti-
The Conveyance Cycle
Freight flows are not balanced, in the sense
that some regions generate more outgoing
flows by certain modes of transportation
(e.g., mines and factories) while others
absorb more incoming flows (e.g., major con-
sumer population centers). Similarly, the
trade imbalance between China and the
United States means that cargo vessels laden
with full containers move from Chinese ports
to U.S. ports while little freight moves from
the United States to China. However, carriers
must somehow get both vessels and contain-
ers back in order to reload them. The same
phenomenon exists in every mode of trans-
portation. For example, while there is freight
that moves on trucks
from the U.S. Midwest
into Florida, very little
moves back on trucks,
creating a flow imbal-
ance. Yet the trucks have
to get back to regions
where they can be loaded
again—thus after dropping
one load, they travel empty to
pick up the next load. As a
result, trucks, rail cars, ships, air-
planes and containers keep moving
in an endless sequence of loaded-
empty-loaded-empty trips, as con-
veyances are repositioned for the next
loaded move following each delivery.
Carriers naturally try to minimize the
empty movements because those movements do not earn any revenue. Rather than
D
The following is an excerpt from Logistics Clusters: Delivering Value and Driving Growth, Sheffi's book to be published in October by the MIT Press. The book delves into the reasons industrial clusters in general and logistics clusters in particular form and develop, their contribution to jobs creation, capital formation, and their efforts of environmental sustainability. This portion of the book looks at full conveyance-load and the availability of multiple carriers. The book is based on hundreds of interviews, case studies and data collected by Sheffi around the world. The excerpt is published with the permission of MIT Press.
lization creates opportunities for collaboration between shippers in a cluster, sharing conveyances to reduce costs.
