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The Pros and Cons of Freight Consolidation

Posted by Mihlfeld & Associates on Dec 27, 2018 7:45:00 AM

“I want to put in a new order.”

These are some of the best words a shipper can hear from a buyer. But what about if the buyer has only put in an order for half their normal amount? Or a quarter the amount?

You know you aren’t losing them as a customer but the small amounts being shipped are cutting into your budget due to the lack of volume. Everyone knows, the higher the volume, the lower the cost per unit. So instead of shipping 100 units for 25 cents per unit you are shipping 50 units for 35 cents per unit. Not the most economical tradeoff.

As demand has risen for both brick-and-mortar and e-commerce retail, shippers are facing new difficulties in fulfilling orders. Consumers expect the exact product to be available exactly when they need it and retailers move a mile-a-minute to satisfy the consumer. Consequently, shippers are seeing increasingly frequent orders with shorter lead times and smaller volumes.

The question becomes, how can shippers combat this market trend and keep costs low while shipping the same volumes to the same consumers at the same cost?

The answer to this question is Freight Consolidation.


What is Freight Consolidation?

Freight consolidation is the practice of shipping multiple smaller shipments, likely headed to a similar destination, as one cohesive shipment for the purpose of reducing the economic and ecological impact of the shipment.

Consolidation has become standard practice for many shippers worldwide and presents many opportunities for company-wide collaboration. This further allows shippers to keep the customers happy while dealing with the reactive retailers who regularly order small amounts of product.

More often than not freight consolidation occurs intracompany, moving product or resources from one warehouse to another or one plant to another, etc.

The variable rates of LTL and LCL allow the shipper to make the most of higher volumes of product by 1) batching similar intracompany freight or 2) scheduling with other shippers who have freight headed in the same direction.

By increasing the volume you decrease the cost per unit allowing yourself and every other shipper involved in the process to save time and money moving freight from origin to destination.

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Why Consolidate?

As the economy progresses and technology advances, the reasons to seek consolidation processes are always growing. With advances in containerization and increasingly calculated supply chains stretching the globe, it makes more sense than ever that shippers collaborate with one another to consolidate shipments saving both parties time, money, and hassle.

But time and money just scratch the surface of the ways freight consolidation can benefit shippers and consumers alike. Below is a list of 6 benefits of freight consolidation to get you started.


  1. Reduced Shipping Costs

The first and most readily obvious benefit to freight consolidation is cost reduction. Rates for LTL and LCL shipments vary depending on the size of the shipments; however, if your shipment only fills up 1/6 of a truck, you still have to pay for the full truck at the current static rate customary for that sort of shipment. The fuel surcharge, driver wage, and scheduling costs have to be covered and if your shipment is the only one being shipped, the rest of the costs fall on your shoulders.

On the other hand, if, through collaborative scheduling, you plan multiple shipments on one truck you reduce the required amount you have to contribute to the shipment.

Imagine a truck is split into 6 sections. Use of the truck carries a flat rate of $300, a pick up/drop off fee of $50, and each of the 6 sections of the truck costs an additional $300. If you are the sole user of the truck for your load you would end up paying $650 for one load. However, if 5 other loads fill up the remaining sections, the flat rate is distributed between each load and you pay only $400 for your section of the truck and your pick up/drop off.

Nothing quite like saving money with some smart scheduling.


  1. Reduce Damage to Freight

Which package will be jostled around more enroute to its final destination – the one that sits alone in a truck, or the one that is packed together with other freight? The answer seems obvious. If your piece of palletized freight is packed together with other pieces of palletized freight the likelihood of your freight becoming damaged is reduced significantly.

A truckload of LTL freight on a traditional hub and spoke route will be moved around a lot due to frequent loading and unloading stops. However, if a shipment is consolidated with other shipments with the same or similar destination, the only moving around the shipment will do will involve its own loading and unloading. Nothing in between.

Nothing is worse than having to file a damaged freight claim due to negligence and an over-complicated shipping schedule. Keep it simple by consolidating.


  1. Lower Fuel Emissions and Expenditure

Along with reducing costs by saving on fuel, using fewer trucks ultimately results in less fuel emissions. Rather than shipping three small shipments in three trucks, a shipper who uses one truck for all three shipments further helps to reduce the effects fuel consumption has on the environment.


  1. Streamlined Transit

The nature of the retail in today’s economy demands short transit times and even shorter lead times. Luckily, with freight consolidation, shippers are able to streamline the speed of transit times.

Since the majority of freight being shipped using freight consolidation is headed in the same direction, the time required for shipping is drastically reduced. In this way, consolidated freight acts increasingly like a TL shipment which goes straight from shipper to receiver with no stops in-between.


  1. Avoid Overcrowded Docks

Consolidating multiple shipments into one truck naturally means that less trucks will be used.

Having a dock that is overcrowded with trucks creates major problems for shippers ranging from late shipments to unintended detention times. Additionally, the drivers will also appreciate this streamlined approach because they will have less of a wait time eating into their hours of service.

More often than not, the number of trucks arriving to your dock could be cut in half if some freight consolidation processes were put in place. An added benefit to this would be fewer required carrier relationships and fewer hands handling individual pieces of freight.

Freight Consolidation = Less Trucks = More Efficiency.


  1. Take Advantage of New Technology

Freight consolidation has never been more necessary for shippers than it is now. Luckily, it has also never been easier to execute freight consolidation processes than it is now thanks to incredible advances in TMS technology.

Many organizations now use inventory software and have triggers in places that automatically notify a system of when to order more of a product using automated inventory counting systems. Additionally, the best TMS systems will often review scheduled loads and, within the parameters inputted, will suggest consolidation when it is triggered.

Much of the difficulty of scheduling shipments is mitigated with smart software leaving the shipper more time to spend on other areas of the operation. We cover TMS software here.

Challenges to Consolidation

All good things come at a price and freight consolidation is no different. We would be remiss not to include the challenges associated with consolidation.

  1. Complicated Scheduling

Scheduling a consolidated freight shipment can pose a large inconvenience for shippers and carriers alike. A lot of communication is required for scheduling multiple shipments at one time and getting carriers and shippers on the same page will potentially cause some confusion. However, once a system is set in place, scheduling is much simpler.

The more planning and refining of parameters for when to use consolidation in the beginning will increase the success of your consolidating initiative. If you begin by trying to wing it – you will waste a large amount of time making calls, rescheduling shipments, and chasing down freight.


  1. Customer Driven Reverse Logistics

Because of advances in e-commerce fulfillment technology, more products are being purchased online now than ever before. Consequently more products are being returned now than ever before. In fact, 2018 has seen the highest rate of e-commerce returns ever.

Companies fulfilling or wanting to break into e-commerce fulfillment must have a reverse logistics program in place. With consumers becoming increasingly accustomed with returning unwanted products by mail, retailers are facing the challenge of how to handle return policies both logistically and economically.

Many retailers are finding it next to impossible to compete with retail giants like Amazon and Walmart in this area, but that hasn’t stopped most retailers from trying. As the trend continues, carriers and shippers must stay prepared for the continuous wave of returns. this trend is a challenge, but also an opportunity for any business who wants to set themselves apart from others in this booming area of retail.


  1. Short lead times

Among the most difficult challenges for shippers with freight consolidation is the increasingly short lead times on shipments. Consumer demand is high and unless the product is on the shelf, the customer is more apt to just move on to the next product and that is a valuable customer lost. Immediate fulfillment is a retailer’s highest priority and that immediacy has created a huge challenge for shippers.

Implementing systems and processes for quick freight consolidation needs to be a shipper’s top priority in a consumer driven market. Communicate within your own company to consolidate shipments and work with other shippers to help reduce costs and time for every party involved, carrier and shipper.


Making Consolidation Work For You

Freight Consolidation is an incredibly useful tool for shippers, consumers, wholesalers, carriers, etc. The initial resources required to create a cohesive consolidation program are far worth the long-term benefit and will keep the consumer and the company happy with both speed and cost.

Topics: Logistics Management

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Mihlfeld & Associates is a Logistics & Technology Co. 

We specialize in custom solutions for transportation management, software, cost reduction, invoice processing, and much more. In short, we exist to save your company money on transportation and logistics. We hope this blog helps you in your journey toward better transportation practices.

Welcome to the Mihlfeld Mile.

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