Flashback to 2013, just three short years ago, and you will be reminded of an unstable shipping market with high freight demand and capacity issues for shippers. Today, the slowing global growth of the economy and success of the omni-channel world have shifted those challenges. Multi-channel retailers are working to keep up with consumer expectations created by eCommerce companies. And with the increased demand from consumers, shippers are now faced with even more pressures from big box retailers. They are expected to get their product to a retailer at the lowest cost and also when the retailer wants it, or pay the price – literally. Sound familiar? If you’ve shipped into a retailer over the past year or so, you’ve likely felt these pressures. Resolving these pain points has become more challenging when using traditional less-than-truckload (LTL), truckload (TL), or parcel solutions. When it comes to shipping into retailers, these market changes are driving logistics to a more creative solution rather than simply re-bidding the business each year for lower freight rates. Enter the realm of Freight Consolidation Services. While freight consolidation has been around for a while, many shippers have not fully embraced these programs. Given the impact retailers are having on profitability, they may no longer have a choice.
What is freight consolidation?
A freight consolidation program, also known as multi-customer consolidation or retailer consolidation, involves the consolidation of more than one shipper’s freight; think multiple LTLs or parcels into truckloads. Building more volume destined for the same retailer distribution center lowers costs, reduces the miles traveled, and improves transit time compared to traditional LTL or parcel services.
How can Freight Consolidation address market challenges?
A freight consolidation program, while simple in concept but difficult to execute, can be a major game changer in the profitability of a retail distribution channel. While there are many challenges in the shipping industry, there are common pain points that shippers are facing today driven by retailers competing with online shopping. No matter what product is being distributed to a retailer, shippers are likely feeling at least one of the following pain points:
1. Retailers are becoming more stringent and order sizes are getting smaller – Online shopping has completely changed consumer demands. Tack on the effects of social media and you begin to notice the pressure retailers are faced with as they compete in multi-channel distribution. Consumers today have high expectations, both in-store and online, when it comes to convenience, instant gratification, and availability of a product. Retailers are ordering smaller shipments and suppliers are seeing an increase in their cost per pound on top of these stringent requirements.
How does freight consolidation play a role?
In a freight consolidation program, freight is not limited to full pallet consolidation. When participating in a freight consolidation program, parcel shipments can easily be combined saving time and money. In 2015, many parcel carriers began charging dimensional weight for ground packages resulting in a significant increase in costs. Adding these packages to a truck already headed to a retailers DC can help shippers reduce these costs.
2. Lead times are shorter – Prior to the boom of online shopping and eCommerce, shippers had longer lead times, allowing them time to build up pallets and consolidate into one shipment into a retailer. Today, lead times are much shorter as retailers are now more reactive to changes in product demand.
How does freight consolidation play a role?
Shorter lead times limit the ability of a shipper to consolidate their own freight. But with a freight consolidation service, consolidation occurs across multiple shippers going into a retailer. In this instance, volumes build up quicker and shippers are still compliant with must-arrive-by dates all while securing a lower cost. Since the freight is traveling direct to the retailer DC instead of through multiple LTL or parcel sort stations, the transit times are also reduced.
3. Compressed margins – eCommerce companies are feeling the pressure on their margins from consumer demands of free shipping. Meanwhile, retailers are looking to improve their profit margins by putting the pressure on shippers to reduce their freight costs. Many shippers do not have the regular volumes to ship full truckload shipments on a regular basis which puts them in a constant battle with reducing less-than-truckload rates.
How does freight consolidation play a role?
This again goes back to the rates. When a shipper participates in a freight consolidation program, they are securing a rate that is below traditional LTL rates. They are paying for a portion of the truckload rate based on the amount of space occupied by their freight.
The impact of Freight Consolidation Services
A freight consolidation program can alleviate a lot of the pressure shippers are facing today when it comes to shipping into big box retailers. Not only can this creative solution reduce costs and improve compliance with must-arrive-by dates, a freight consolidation program involves less touches on a shipment. This is good news for any shipper, as the result is a reduction in damages to a product. On top of that, a shipper can significantly reduce their carbon footprint, as a freight consolidation program typically means fewer miles traveled as shippers are sharing a single full truckload trip direct to a retailer’s distribution center.
Jeff is the Senior Vice President of Transportation Management at OHL, leading teams that design and execute complex transportation solutions for fortune 500 clients across several industries. He has been with the company since 2009. Prior to OHL, Jeff worked for YRC Worldwide for 10 years, where he held various leadership positions in the Logistics business unit, and also spent 7 years working for the truckload carrier Heartland Express. He holds a B.S. in Economics from the University of Iowa.
Great article Jeff! OHL has really been a leader in this space for a long time. I hope to continue to see your success as a global 3PL.