Less Than Containerload, More Than Worth It

Tags: Ocean

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Improved service plus new technology and customized solutions equal new incentive to take advantage of LCL's benefits.

Few shippers get excited about using less-than-containerload (LCL) shipping. Historically, they considered LCL a slow, costly, risky way to move freight across the ocean, but necessary when orders were too small to make a full containerload (FCL), or generated more cargo than could fit in a container.

But consolidators and freight forwarders have a message for shippers: Get excited. Today's LCL is much improved, with end-to-end pricing; direct routes and frequent sailings; increased visibility and control; streamlined processes; and packaged solutions that provide security, clarity, speed, and certainty. Freight forwarders continue to introduce new LCL services in previously under-served markets, and to customize solutions to meet ocean shippers' specific needs.

These enhancements are driving some shippers to reconsider LCL as a viable option among the modes they incorporate in daily and long-term transportation planning.

LCL can help shippers better balance orders with market demand, with less concern about stockpiling until they achieve full containerload quantities.

"Shippers are selecting the mode to move products from Point A to Point B based on actual need, not historical practice," says Clas Thorell, senior vice president and global head of Ocean Freight LCL for Panalpina, a global third-party logistics (3PL) provider. "Rather than holding inventory to fill containers, companies are ordering what they need to feed production lines, and stock stores or warehouses."

Better Service, Increasing Usage

A trend toward shifting air cargo shipments to LCL—as well as an uptick in smaller, more frequent orders during the recession—drove increases in LCL activity during the past few years. Opinions are mixed whether those patterns are continuing as the economy recovers.

But another supply chain development is contributing to the growing use of LCL: recent ocean carrier rate increases, which are changing the breakpoints at which shippers decide between moving goods via LCL or waiting for a full containerload.

"As full load prices increase, the break-even volume changes," notes Greg Scott, global LCL director at CEVA Logistics, a Jacksonville, Fla.-based 3PL. "While no direct ratio is available to calculate cost increases between LCL and FCL, LCL tends to be less expensive because of the larger volumes."

Also driving the increased use of LCL are service improvements that fill a critical market need. "In addition to keeping a close eye on costs, shippers have a tighter focus on their required transit times," says Jens Rehder, vice president of ocean freight and head of LCL management Americas, DHL Global Forwarding, Plantation, Fla.

"LCL has become a time-defined and schedule-driven product, with guaranteed departures and transit times," he adds.

The continued growth in LCL usage enables many of these service enhancements. "Our LCL volume has increased over the past few years, allowing us to more consistently deliver," says Jason Totah, executive vice president of sales and operations at Jacobson Companies, a Des Moines, Iowa-based 3PL.

To sidestep the bottlenecks and obstacles that used to drive up LCL transit time and cost, freight forwarders and consolidators have been applying multiple strategies—from investing in infrastructure, to tapping lower-demand ports, to bypassing distribution centers.

"The new providers offering LCL service have greatly improved their services," notes Charlie McGee, vice president of international solutions for Cookeville, Tenn.-based transportation and logistics service provider Averitt Express.

Here are six ways forwarders and consolidators are working to improve LCL shipping:

1. Investing in infrastructure. Some forwarders are establishing their own consolidation facilities near Asian sourcing locations to bring more of the LCL process in-house. Jacobson, for example, recently opened a terminal in Hong Kong to manage consolidations on behalf of its customers, as well as handle vendor pickups and deliveries.

2. Increasing service frequency. LCL providers are adding more frequent sailings on established routes, and getting cargo on the water faster.

3. Going direct. Freight forwarders are steadily introducing new services that bypass major ports in favor of smaller ports and Container Freight Station (CFS) facilities closer to the shipment destination. In some cases, these services bypass the shipper or end customer distribution center.

For example, New York City-based 3PL Laufer Group International runs LCL consolidations through West Coast ports, then by rail into its CFS facility in Kansas City. There, shipments are broken down and moved out to customer DCs, avoiding the delays and risks associated with public CFS facilities in the busiest ports. By using this approach, one New York-based shipper began receiving its Asian goods in 21 days, versus 38 to 48 days via traditional LCL.

This approach can be less expensive than delivering a full container to a DC, then moving shipments to their destinations. "The ocean leg costs more, but handling at the DC, and transportation to final destination, are eliminated," says McGee.

For example, an LCL container might move cargo into Averitt's Memphis CFS. Then, individual shipments are mingled with other domestic cargo for delivery, omitting any use of congested Los Angeles ports.

Shipco Transport, a neutral non-vessel-operating common carrier (NVOCC) headquartered in Hoboken, N.J., has been aggressively adding new direct LCL services into smaller ports, and has plans for many more.

"Free trade agreement growth is among the drivers," says Niels Nielsen, Shipco's vice president of LCL export. "And, with more direct services, we are able to cut operational costs and transit times, so LCL becomes more attractive than FCL."

Direct services make delivery faster and more predictable. "Because service providers have improved LCL consistency and transit time, it is not as risky as it used to be," says McGee.

4. Speeding it up. Several forwarders have added expedited LCL services to their portfolios. In addition to strategies such as bypassing busy ports, these services typically shift LCL cargo to expedited ground networks for delivery. Guaranteed delivery dates are a key benefit.

Shippers often use expedited LCL as an alternative to air freight. CEVA, for example, is developing an expedited service that costs half the price of air freight, but delivers 10 days faster than standard LCL.

UPS is also seeing growth in expedited LCL as an alternative to air. "A shipper might move 30 percent of its cargo via air to get the pump primed, and the rest via a preferred LCL service because of the time-definite delivery," says Thomas Bacon, global director of UPS' LCL product.

5. Moving outbound. As Chinese sourcing migrates north and west, as well as to other emerging markets, moving any freight, including LCL, is growing more complex. Adding to the difficulty, particularly in China, is growing demand for goods from other countries.

"The industry's dynamics are changing rapidly," says Michael Van Hagen, Laufer's vice president of sales. "Opportunities are increasing to receive LCL freight from all over the world, break it down, and distribute it through China."

Some providers are also seeing increased LCL traffic out of the United States and Europe, in part due to the globalization of businesses seeking new customers outside their traditional markets.

McGee, however, cautions against using LCL in less-developed new sourcing or delivery locations. Relatively low volumes usually mean transportation infrastructure is not mature enough to safely and securely move loose cargo, he warns.

6. Upgrading to FCL. Despite all the new LCL options, simple math still drives many shippers toward FCL. Some forwarders, such as DHL and Laufer, offer services that help shippers amass FCL shipments through multi-vendor consolidation, and multi-port consolidation services in Asia.

At DHL, for example, shipments from multiple origin countries can be bundled via DHL's feeder network and multi-national gateways (consolidation hubs). DHL can load dedicated buyers' consolidation containers, which travel as FCL directly to consignee distribution centers.

Communication is an essential ingredient to this type of service. At Laufer, for example, a proprietary booking tool allows the 3PL and its partners to provide shippers with visibility into upcoming shipments, and options for how they can move.

"Laufer Group proactively works with a shipper's vendors to see which shipments will be ready in the next several days," says Van Hagen. This provides the shipper with full visibility, and affords opportunities to build full containers. For instance, Laufer worked with the vendors to one large auto parts customer to convert five to seven weekly LCL shipments from several hubs in Asia to full containerloads, saving time and money in paperwork, drayage, handling, and customs clearance.

Despite these service upgrades and improvements, some shippers still harbor intrinsic misunderstandings about LCL and how it has changed.

LCL's legacy lies in multi-party services, where each segment bills separately. That meant it was often difficult to predict total cost—new, unexpected bills would appear long after the shipment. Even today, with more steps packaged by a single freight forwarder, shippers must ensure that they are quoted end-to-end rates.

"Most misunderstanding centers on pricing and total landed cost," says Carlos Martinez-Tomatis, division vice president at ABF Global Supply Chain Services, Fort Smith, Ark. "NVOCCs usually offer a rate from a foreign container freight station to a CFS in the United States. These rates, however, usually do not include delivery charges and destination CFS fees. Importers and/or exporters often think they are getting a good deal, but later realize that the quoted rate is not the final door-to-door delivery cost."

UPS is striving to simplify pricing by challenging traditional LCL metrics. Instead of pricing by cubic meter plus surcharges, UPS' Bacon would like to see pricing by the kilo, with just two or three additional line items, such as fuel and delivery charges. "We're considering whether that model can drive value and help shippers move their freight, because the pricing is simple and predictable," he notes.

Shippers can make a similar error with total transit time. They may mistake the elapsed time for travel between container freight stations for the total transit time—failing to include the time required to prepare the cargo for pickup, and the transit time to its ultimate destination.

Freight forwarders are also working to dispel another long-held belief about LCL: that it is time- and labor-intensive for shippers. In the past, "it was a real challenge to determine the total and final cost of each shipment, because each of the many parties would invoice for their segments of the service," says Martinez-Tomatis. "Freight forwarders would invoice for the ocean freight; the CFS location would invoice for stripping and loading fees; the customs broker would invoice for duties and customs entry fees; and the trucking company would invoice for the LTL portion of the service."

Today, however, many freight forwarders manage fees and transactions in-house, helping to make LCL as smooth as FCL for shippers.

Customs risks have also been a weak point for LCL. Not only is each container only as customs-ready as its least-well-documented shipment, but flat customs fees per shipment drive up the incremental cost per product. McGee contends that these additional costs are negated by the savings reaped through bypassing large ports and delivering to CFS facilities closer to shipment destination. Freight forwarders also tout their strong relationships with customs, as well as their ability to consolidate in compliance with customs regulations.

Ensuring a smooth trip through customs requires strong subcontractor management. "If shippers are compliant, with documentation and filings in order, the risk of delays is minimal," says Panalpina's Thorell.

Technology a Key Enabler

Today's providers are replacing LCL's former reputation as a black hole for shipments with visibility and control tools—from EDI and Web services to software solutions that make it easier to request quotes and track shipment status. Particularly when an LCL move occurs entirely within a provider's network, shippers are often able to track shipments through every node of the supply chain.

Improved data exchange between consolidator and freight forwarder means shipment information is more accurate, timely, and complete. Increased visibility tools also enable shippers to manage LCL shipments as never before.

"Purchase order management and vendor consolidation have improved significantly," says Totah.

In fact, data exchange has become a competitive differentiator among LCL providers. "Moving goods from Shanghai to Los Angeles is easy," says Laufer's Van Hagen. "What distinguishes an LCL provider is how it manages data in a way that's useful and actionable for the importer."

Another advancement is the ability to provide shipment data in the shipper's preferred formats. In retail, for example, shippers are not interested in bills of lading and containers; they want to track cargo by purchase order and SKU, and be able to allocate loads by carton.

The need to trim costs across the supply chain, as well as the granular data available to facilitate tracking LCL shipments, mean more shippers are taking an active role in managing this portion of their transportation spend. Large shippers who used to focus primarily on the 90 percent of shipments they move via FCL "are now paying more attention to the 10 percent," says Scott. "If shippers put more time and energy into that 10 percent of spend, they'll be able to buy transportation more efficiently and see cost savings in the long run."

The new wave of LCL services combines well-established networks, improved reporting, more certain delivery times, and end-to-end pricing. If you haven't recently explored the benefits of LCL shipping, now may be the time.

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