Despite the negative consequences on society and environment, urban freight transport is critical for the prosperity of cities. Decision makers have considered the horizontal collaboration between carriers as a solution to reduce the total transportation cost and the related negative impacts. In literature, the collaborative freight delivery is modelled as a Multi-Depot Vehicle Routing Problem (MDVRP) that can be solved by being decomposed into two sub-problems, i.e. assignment problem and a set of vehicle routing problems. The assignment problem allocates customers to the nearest depots while vehicle routing problem determines the optimal routes to serve customers assigned to each depot. However, most of existing approaches did not consider the interrelation between these two sub-problems, which in turn impairs the solution quality of the overall problem. This paper presents an improved two-level mathematical modelling approach to evaluate and optimize the implementation of the collaborative freight distribution in urban areas. Unlike existing studies, the proposed approach considers the interrelation among the two-sub problems. A real-life case is used to illustrate the savings obtained from the collaborative distribution. In addition, the significance of the proposed approach is demonstrated by a comparison against a similar approach found in literature.