Smart Consolidation: Freight Consolidation in the Covid Supply Chain. (Part 1 - Current State)

I can remember to this day my first lesson in Freight Consolidation. It came as I ‘tiptoed’ into that arena of International Logistics with the newly formed ISC Group. It came from an old friend and one of the real masters of the black art, Bill Aldridge, when Bill’s company USC merged into Exel. Effectively Bill believed that there were ‘no limits’ to what a good Consolidation Operation could achieve. We went on to prove that together with all of our brilliant colleagues at DHL ISC!

Origin Freight Consolidation – a key part of a Managed Service offering - and all of the wondrous things it can deliver for end- to-end supply chains, is in my blood. So it is natural for me to ask the question ‘what can Freight Consolidation offer’ as supply chains evolve and new demands on it materialise.

The biggest thing that has happened within supply chains for many a year is the impact and the implications of Covid 19. So I wanted to understand the relevance of Freight Consolidation in the new Covid era (notice I didn't say post-Covid - that's a Jinx).

Naturally I sat down with the Big Brains at #Zencargo to look at how we could make Freight Consolidation relevant for the modern, Covid-rich and newly agile supply chain world that we have been thrust into over the past 12 months. 

Before Christmas I was lucky to be asked to host a webinar on this very subject - ‘The Role of Freight Consolidation in the Post Covid Supply Chain’ (oh no Jinxed again!) with Scott Irvine - VP Air and Ocean in Zencargo - and James Fry - Supply Chain Development Manager at Zencargo.

This piece is a summary of that conversation.

I have separated the article into 2 parts for ease of consumption (those of you that have read my articles previously or heard me present will currently be muttering 'thank goodness').

Part 1 will look at the concept of Freight Consolidation and what has offered to partners historically, including some of the more complex value add opportunities. I apologise if - using an old English saying - I am 'teaching Grandmother to suck eggs' (bizarre saying - non-UK people look up the source of that quote!). It will cover 2 areas:

1. What Freight Consolidation is and where and how it adds value to the network
2. How it can be used to create more innovative and intricate value when treated as part of an end-to-end solution

Part 2 will expand on the current offering and look at where it sits and the new value that it offers in modern supply chains and post 2020, covering 2 more areas:

1. Where it sits and the new value that it offers in the Covid-soaked Supply Chains that we are currently operating
2. Finally, a look at the updated concept of Smart Consolidation and how that can be used to deliver value along the chain.

1.  What is Freight Consolidation?

The concept has many, many names, and it has been reinvented more times than Madonna: CFS, Shippers Consolidation, Buyers Consolidation, Cargo Consolidation, Origin Services, Vendor Consolidation, Origin Value Add, Assembly Services...

Freight consolidation is a service offered by supply chain partners to lower the total shipping cost, to improve shipping security and increase network control. It streamlines the shipping process by having the carrier take multiple separate shipments and put them in one shipping container. 

The consolidation service in general includes the cargo transportation to the CFS (Container Freight Station) or other filling point, filling and arranging the cargo in the container, checking the shipping documents via custom process and finally the of re-packing the shipment for delivery.

These combined shipments can come from one or multiple suppliers and can travel by air, sea or ground. In any case, they'll be heading in the same direction to a specific node in the destination country or region.

What are the Key Benefits of freight Consolidation?

There are 3 key benefits to a Shipper/importer: 

1. Importers don’t have to delay stock to fill a container, thus missing sales or hold additional inventory in warehouse by filling a container with stock they don’t need at that time

2. The efficiency of volume fill in a container directly drives the your Landed Cost per Unit of the product that is moving: higher fill / larger containers equals lower cost per unit. Reducing the usage of shipping via LCL (Less than Container Load) services, maximising the use of larger volume containers, and reducing freight spend.

3. Reducing the number of containers being shipped is a key positive climate change reducing the C02 footprint of your products.

For the Vendor / Supplier the benefits are not as great, but the issuance of an FCR (Freight Container Receipt) in the right circumstances at the point of handover, means that payment terms are quicker and responsibility for product downstream reduced.

So we can see the main piece of operational value has always been around fewer containers, lower Ocean Freight (or Road or Air) spend, lower documentation costs, lower carbon footprint, and lower Clearance Fees.  

2. Moving beyond Simple Freight Consolidation.

Origin Services

Over the past 30 years I have worked in and around supply chains where the value delivered by Freight Consolidation goes far beyond this: there are more innovative areas of value that this type of operation can bring to a network or a supply chain when it is elevated to an Origin Services approach.

Origin Services describes the situation where the chain at this point is treated as interconnected with the end-to-end workflow, and the value delivered by the upstream operations is expanded way beyond simply adding volumes together. I have worked in organisations around the World - shippers and service providers - that have developed and operated incredibly innovative and complex solutions using Origin Services as a value adding part of the entire end to end chain. 

Let’s define these additional value services as 5 different types of Programmes with specific areas of focus – the list is only exhausted by your imagination!

1. Volume Consolidation Programmes: the management of fill of containers
2. Product Programmes: QA, inventory, testing and diagnostics
3. Value Add Programmes: pick & pack, re-label / re-box, conversion.
4. Manufacturing Programmes: kitting, sub-assembly, customisation & co-packing
5. Downstream Programmes: DC bypass, pick to store, DC specific loads  

  During the Webinar James and Scott gave a number of key examples where they had delivered this innovative value end to end for customers. Here are four of those examples:

• Two large UK retailers moved their Quality Control operations for own branded apparel from the U.K to China to be located inside the CFS. This resulted in an operating cost reduction from moving the activity upstream to a lower cost location, but it also drove other measurable and immediate benefits, from an immediate 5% failure rate reduction with the additional benefit of being able to return rejected goods directly to suppliers quickly for resolution or rework.
• UK high street retailer utilised the Origin CFS to build Christmas Gift Packs - creating a new SKU from multiple supplier SKUs, receiving individual SKU’s and assembling into their final retail packaging.
• For a European DIY retailer, the CFS was used to build direct to store level containers of promotional / seasonal products where there are large volumes/sku mixes and known pre-allocations to each store.
• A UK supermarket ran seasonal origin pick programmes through the CFS. Goods from multiple suppliers were received into the China CFS and store level pallets built based on the product allocations. Containers were shipped directly into the regional DC network, bypassing any De-consolidation centre and National DC, resulting in lower handling and distribution costs. This project had over 150 different suppliers, over 500 SKUs and hundreds of thousands of Units and hundreds of containers - all required to be received/picked and shipped in a 14 day window - very complex - but very do-able with the right planning approach, tech and tools.

Multi-Country Consolidation

For international retailers or where volumes are predominantly LCL from a large supplier base across a number of origin countries, a Multi Country Consolidation facility can drive real value. The MCC facility essentially uses the same CFS concept but for suppliers across multiple origin countries: their inbound volume is shipped into the CFS (typically these have been based in Free Ports like Singapore/Hong Kong with less complications driven by customs/duty & that are close to Far East sourcing countries and benefit from lower inbound freight rates).

Products are held, picked and consolidated to each destination market, avoiding moving the product into the home market and then back out to international stores.

Managing the end-to-end ecosystem: Design-for-Supply Chain

OK, so Freight Consolidation can be looked at as a simple mathematical / transactional process of integrating small loads from multiple origins, with small fill %'s, into full container loads with high fill % …. BUT we have discussed that it can also be seen as a key part of the end-to-end workflow and the entire integrated eco-system …. this series of inter-linked actions that happen as a product and the purchase order moves along the network from Manufacturing to Customer. 

Treating the end-to-end network as a type of organic ecosystem, enables Freight Consolidation to create an opportunity to develop product transition along the network, to add value early on in the process and at lower cost, or create value for further downstream. Working within Tech and Automotive in the last 20 years, we added the product design process to the mix (some of you will have heard the phrase 'D for X' - in this case ‘Design for Supply Chain’) which allowed us to create a product that lends itself to being transformed as it moves through each node of the network. That process enhances opportunities to add value on the move dramatically and suddenly you have a product that is built as it moves through the chain and is finalised at the last possible minute. That creates major innovation opportunities in the end to end chain.

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So that teaches you what you already knew!!! - but stick with me, there is logic in the approach! Freight Consolidation - more importantly Origin Services and Value Add Operations - can offer major cost and value benefits to a supply chain. Often under-estimated. Frequently under-utilised. especially in the bizarre supply chain circumstances that we find ourselves in currently. But more about that next time.

In the next part I will bring Freight Consolidation and all of the clever things that it can do - and all the clever things that Scott and James from Zencargo have done in the past into the ‘now’ - the new normal of the post-Covid supply chain, and discuss the concept of Smart Consolidation as it can be rolled out across businesses.

Cheers.

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Who are Zencargo? Zencargo are a VC -backed Supply chain technology scale-up founded in 2017, offering digital solutions and a managed service approach to end to end value chain problems by focusing on visibility, collaboration, control, data and predictive / prescriptive analytics. They were the winner of a BIFA award for Freight Excellence and appeared on the Sunday Times ‘One to Watch’ list. The company has seen rapid growth since its inception - and it is now serving 30% of the fastest growing e-commerce businesses. Zen’s unique end to end platform gives visibility, delivers actionable insights and can co-ordinate movements along the chain from PO to Consumer at PO, Shipment, Container and SKU level.