Buyer’s Consolidation or Segregation: The Most Effective way of Shipping Cargo
Buyer’s consolidation is a method of shipping freight from a point of origin to an end destination by grouping your shipments together into one larger shipment. By consolidating a number of shipments, you may be able to save on shipping costs and reduce the risk of damage to your freight.
If you’re looking to understand what buyer’s consolidation is, as well as its benefits and its pitfalls, you are in the right place. Below we explain how this method of shipping works, as well as a list of the advantages and disadvantages of adopting this process.
Buyer’s consolidation (also simply known as freight consolidation) is a method of shipping cargo you may consider when shipping two or more shipments from different suppliers in the same country.
It essentially means combining a number of smaller shipments into larger shipments, with the aim to reduce costs in the overall supply chain. It’s the opposite of so-called ‘segregation’, which involves delivering each shipment individually. To use shipping terminology, it will involve consolidating two or more LCL (Less than Container Load) shipments into one FCL (Full Container Load) shipment. Organising LCL shipments is relatively easy but sending multiple LCL shipments to the same destination can be unnecessarily costly.
What are the benefits of Buyer’s Consolidation?
Below we’ve listed several benefits you can take advantage of by consolidating smaller shipments into one larger one.
#1 Cost savings
Consolidating numerous LCL shipments into one FCL shipment generally means you only have to pay the below shipment charges once:
- Export Handling Fee: also called the ‘freight forwarder handling fee’, the export handling fee is charged by a freight forwarder for preparing all the documents (including the bill of lading) to export your shipment. Rather than pay this fee multiple times with several LCL shipments, you can pay it only once with one larger FCL shipment.
- Doc Fees: officially known as a ‘freight documentation fee’, these are also separate fees associated with preparing documentation for a shipment.
- Delivery and Collection Fee: also known as a ‘cartage fee’, fees for delivery and collection are the fees associated with collecting your cargo and delivering it to the final destination.
You can save a great deal by consolidating cargo into an FCL shipment so you are not paying these fees numerous times. For further details, be sure to read our blog on the hidden costs of shipping so you don’t get caught out paying fees you don’t expect.
Although, note that depending on the location of your suppliers you might not be able to save on everything. You should therefore ask your forwarder for a comparison quote between LCL and Buyer’s Consolidation.
Case study #1: Target
An added bonus of consolidating your cargo is to pass those benefits onto your customers. In early 2019, Business Insider reported the case of Target creating an option for customers to consolidate their online orders into fewer packages. They did this by offering their customers discounts if they chose to ship their items in a fewer number of boxes. For instance, a customer could be purchasing four items in their cart but select ‘consolidated’ shipping, which meant Target would reduce the number of boxes to two (rather than three or four).
By Target allowing their customers to consolidate their cargo, Target themselves benefited from reduced time constraints when delivering to their customers. They also got the benefit of offsetting expenses connected to other e-commerce ventures and have been able to develop other innovations such as their ‘Target Circle’ free loyalty program.
Case study #2: Amazon
In February 2019, Amazon introduced their ‘Amazon Day’ program which further highlights the advantages of consolidated shipping. This gave Amazon customers a choice to pick a day when all Amazon orders would be delivered (so people with a regular set of days off work could be at home when their orders arrived).
This allowed Amazon to reduce the amount of packaging they needed as they could consolidate all orders into one single shipment. It therefore allowed customers more choice and allowed Amazon to save costs in their business model.
#2 Track one shipment
Rather than dealing with the hassle of tracking dozens of shipments at once, a buyer’s consolidation will require you to only track one shipment as it travels from the point of origin to your location.
#3 Reduced risk of damage
Consolidating your cargo into one shipment can mean reduced handling. As a result, your shipments may travel in fewer trucks and/or ships because there will be fewer transfers (or, as some call it, ‘touch points’). This ultimately reduces the risk of your cargo becoming damaged.
#4 More reliable shipments
Generally, if your supplier is reliable and if the planning is meticulous, consolidating cargo will assist your goods arriving at the final destination with minimal disruptions. By combining your cargo into a Buyer’s Consolidation, you will have one arrival date for all freight, rather than multiple arrival days and risk of delays at multiple transhipment points. This will allow for more specific planning when delivering to your end user.
Case Study #3: Eagle Foods
In America, Eagle Foods is a company that supplies milk and snack foods to its customer, Walmart (one of America’s largest market chains). Walmart introduced a program called “on time, in full” (OTIF) in July 2017 which outlined a set of new rules requiring its suppliers to deliver all of what was ordered by the delivery date 75 per cent of the time. Late or early shipments would trigger a fine.
Eagle Foods struggled to keep up with this as they were relying on Less than Truckload (LTL) carriers to ship their goods to Walmart (a similar concept to LCL). The company decided to consolidate their freight by combining their orders with those of other Walmart suppliers. The result has been regular compliance with Walmart’s rules (keeping Walmart happy with a reliable supplier) and an overall streamlining of their whole shipping process.
#5 Reduced impact on the environment
If you’re running a green business, or just want to take further measures in your business to care for our natural environment, consolidating your shipping is a great way to reduce the amount of emissions used shipping your cargo. This could be from a reduction in truck movements handling your cargo or reduction in container usage.
What are the disadvantages of Buyer’s Consolidation?
Buyer’s consolidation is not for everybody and may not be used on every single shipment that involves shipping multiple pieces of cargo.
Below we’ve listed some disadvantages of consolidation that might mean another method is more appropriate for your supply chain.
#1 Not suitable for time sensitive cargo
Whilst consolidated shipments are effective at saving costs, they generally take longer to arrive. Consolidating (and the associated de-consolidating) adds further work to the whole shipping process and failure to take this into consideration may cause inconvenient delays. It might leave you missing critical stock at your peak customer period.
We therefore generally advise against consolidation if your cargo needs to be delivered sooner rather than later.
#2 Not suitable for certain goods
Dangerous goods (like certain chemicals or explosives), perishable goods (like food or milk) and fragile goods do not suit the consolidation model. In fact, many dangerous goods cannot be consolidated due to their product type and perishable cargo often needs to travel with similar types of product only.
Inconvenience may also be caused if the goods (especially dangerous goods and foodstuffs) are subject to inspection or review by customs.
#3 Extra costly planning
Consolidation sounds simple enough but there is a lot of planning involved. Factors like pricing, timing and the size of each piece of cargo all need to be taken into account to ensure that the shipment arrives on time and in its original condition.
This means you will need to find a carrier that can actually perform the consolidation at an appropriate price. It is always worth reviewing LCL and Buyer’s Consolidation costing before organising your shipment.
#4 Collaboration not always possible
Consolidation involves the careful handling of documents by multiple suppliers, and therefore close collaboration. This might not always be possible, especially if the two suppliers are in direct competition with each other (or, simply, they just have a negative relationship with the other supplier). Some suppliers are also inexperienced in consolidating cargo and therefore might have no idea what they are doing, leading to a poor outcome.
#5 Incoterm usage
To ensure your risk exposure is more or less at the same across your whole supply chain, it’s always a good idea to operate under the same ‘incoterm’ (to understand what this means, see our Beginner’s Guide to Incoterms).
This may be problematic if you are considering consolidating, as the different agreements you have (using the same incoterm) with multiple suppliers might restrict your ability to consolidate.
How do I organise a buyer’s consolidation (BCN)?
Consolidating a BCN will first involve understanding how consolidation will affect your shipment and determining whether or not it’s the best option for you, considering the factors we’ve outlined above. It is a cost-efficient and organised way to move cargo around, but it does not work for every type of shipment.
Have a clear idea of how much you want to order from each supplier and know where each supplier is located. We then strongly recommend engaging a specialist freight forwarder and providing them with all the information about your orders so they can provide you with a cost-based solution specifically tailored to your needs.
One Last Tip: the Australian ‘Trusted Trader’
If you’re a business in Australia relying on international suppliers, you can benefit from consolidation by becoming a ‘Trusted Trader’ with the Australian Border Force. Achieving a ‘Trusted Trader’ accreditation means that you’ve been assessed by the Australian Border Force as a trustworthy business owner in accordance with standards developed by the World Customs Organisation.
As a Trusted Trader, you can benefit from consolidating cargo as your consolidated shipment will be cleared on a single import declaration. This means you only need to pay one Import Processing Charge rather than several.
Numerous suppliers will be listed on one import declaration when there’s more than one container as long as:
- The bill of lading number is the same; and
- You are a Trusted Trader.
Should you require any assistance in determining whether consolidation is right for your business, feel free to comment below or contact one of our experienced specialists at ICE Cargo.