Consolidation in Logistics: Definitions, Types, and Terms

What is consolidation in logistics?

Consolidation in logistics refers to combining multiple small shipments into a singular large shipment for international transportation. It is challenging for shippers to transport small shipments without incurring a high cost, and not all logistics service providers take responsibility for small shipments. To overcome such shipping challenges, cargo consolidation offers a reliable, secure, cost-effective and sustainable solution for small and medium-sized businesses. Manufacturers, suppliers and distributors from different industries prefer freight consolidation for shipping smaller shipments across the globe. Let us learn more about consolidation in logistics. 

What is the concept of consolidation in logistics? 

In the shipping industry, various shipments are delivered to their location with the help of the logistics and transportation sector. Depending on the importer’s requirements, these shipments can be big or small. In case of large orders, shippers can directly book a shipping container to load and transport all the goods. However, in certain cases, when the shipment is small and not enough to occupy the entire space of the container, cargo consolidation is done. It is a process where multiple small shipments are combined into one large shipment and transported together. Freight consolidation helps reduce shipping costs, increase operational efficiency, and enhance supply chain management. 

For example, If you send small shipments to some international importer, booking an entire container and paying for its shipping will require significant investments. Instead of doing this, cargo consolidation is a sustainable, cost-effective and agile method of delivering multiple goods to their location. 

Standard terms used in logistics consolidation 

Consolidation of goods in shipping makes use of these terms that are commonly used between various shipping parties. 

  1. LCLLess-than-container-load (LCL) shipments are small orders that cannot occupy the complete container space. Shippers with LCL shipments prefer cargo consolidation, which means your cargo will share a container with other small orders. This is an economical method of shipping goods. 
  2. FCL – Full container load (FCL) shipments are large orders that occupy the entire container space and are sent out as a single shipment. They are not shared among multiple shippers and usually offer faster transportation compared to LCL shipments. 
  3. 3PL service providerFreight forwarders are 3PL service providers responsible for arranging cargo consolidation on behalf of the shipper. They act as an intermediary between the shipper and shipping carrier to assist logistics operations.  
  4. Bill of lading – Every shipment meant for international transportation needs a bill of lading, which acts as a shipping contract between the shipping carrier and the shipper. A bill of lading in cargo consolidation helps identify the shipping container your cargo is loaded in along with other shipments. 

Benefits of consolidation in logistics  

Many exporters worldwide prefer freight consolidation as a suitable option for shipping goods across borders. Let’s learn more about the advantages of cargo consolidation in logistics. 

  1. Cost-savings – Shippers can transport goods over long distances cost-effectively by maximizing container space. Since the cost of shipping in a single container is divided between multiple shippers sharing the container space, the cost is evenly distributed, thereby minimizing shipping costs. 
  2. Promotes sustainable shipping – When small shipments are shipped in different containers or trips, they utilize more space on their transport mode. Trucks, trains, ships, and planes contribute to carbon emissions in shipping. Cargo consolidation allows shipping carriers to minimize their carbon footprints by utilizing all resources responsibly and cutting down on unnecessary trips. 
  3. Flexibility – It is easier for large organizations to ensure large-scale shipping of their goods, but it becomes challenging for small-scale businesses. Cargo consolidation benefits small- and medium-sized business owners by allowing them to ship small orders based on their shipping needs. 
  4. Improved customer service – To offer supply chain visibility, shipping carriers allow shippers to track their goods while in transit, even in the case of logistics consolidation. This allows shippers to transport their goods more reliably and securely. 
  5. Optimizes supply chain operations – Cargo consolidation allows shippers and shipping companies to share and utilize resources and helps build better supply chain relationships. The resources can be allocated strategically to get a better ROI from handling multiple shipments in one go rather than allocating resources for separate small shipments.  

Types of consolidation in logistics 

There are two types of cargo consolidation in logistics. 

  1. Inbound logistics – Goods consolidated in an inbound shipment move towards a central destination, such as a warehouse or distribution center. They are consolidated from different suppliers, grouped, and then transported to a single location. For example, a distributor buys raw materials or goods from various suppliers and gets them into their own warehouse or distribution center. 
  2. Outbound logistics – Unlike inbound consolidation, goods in outbound logistics leave a central destination, such as a warehouse, for distribution to various locations. For example- The raw material or goods then move to different end customers from the distribution center by getting consolidated with other shipments destined for a similar location. 

Process of cargo consolidation  

Cargo consolidation goes through a series of steps to transmit small shipments across the globe safely. Let us go through the steps of cargo consolidation. 

  1. Shipping carriers get orders from multiple suppliers with all the required documents. 
  2. The goods are temporarily stored before the carrier gets more small shipments that can be consolidated and dispatched. 
  3. Once all the shipments are consolidated, they are sent for packaging to initiate containerization. 
  4. All shipments with the same destination are grouped in a single order. After this, shipping documents such as a bill of lading are prepared to avoid customs clearance delays. 

The goods are then shipped into various types of shipping containers depending on the requirements of the cargo. 

Tips for consolidation in logistics  

Cargo consolidation is a strategic process that requires effective management from shipping carriers to reap the multiple benefits of consolidation in logistics. 

Utilizing technology – With digitization in shipping, the logistics and transportation industry is integrating technology to increase the efficiency of supply chain operations. EDI in shipping allows shipping carriers to send bills of lading electronically to multiple shippers. Transport management systems (TMS) and warehouse management systems (WMS) help optimise cargo consolidation. 

Transparency in communication – Shippers with small shipments often face the challenge of tracking their consolidated orders. By using container tracking technology, shipping carriers can assist shippers in tracking the movement of their goods. 

  1. Container packing – Shipping carriers must ensure that the goods are systematically placed inside the container by using effective container packing methods. The container to be offloaded at a nearby location must be loaded near the container door, followed by other small shipments to allow easy and timely unloading. 
  2. Consolidation centers – To optimize cargo consolidation and do it more strategically, consolidation centers help centralize inventory and streamline the outbound logistics process. This way, shipping carriers can ensure effective consolidation. 
  3. Time sensitivity- It is essential to assess if the shipments are time-sensitive, fragile or hazardous. Shipments must be consolidated with other shipments belonging to the same category or class so that they do not damage other shipments or get damaged. 

These are a few tips using which shippers and shipping carriers can reap the benefits of consolidation in logistics.

LOTUS Containers is the global container solution provider across a wide spectrum of shipping needs. The company also delivers other variations of such containers, including standard, specialized, and customized ones, to suit different logistic requirements.

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