Cargo Consolidation: Competition Increases in the Global Market

Cargo consolidation consists of integrating two or more shipments with the purpose of reducing transport costs. It is a process that is part of the supply chain and focuses on streamlining and optimizing merchandise distribution. Its importance lies in the fact that by gathering in a transport unit loads of different suppliers, which follow the same route, the costs are reduced and the best use of logistics resources is facilitated.

In this way, cargo consolidation results in the transport service provider having to schedule its deliveries more frequently, which translates into better and cheaper service for manufacturers, points of sale and final consumers. While for companies that use the consolidation, it increases the scope of their deliveries, minimizes costs and provides a delivery service with a high level of service that transfers a clear differentiation.

The Challenges

According to the study developed by the Social Development Division of ECLAC (Economic Commission for Latin America and the Caribbean, UN agency), entitled Financing for Microenterprises and SMEs in Mexico (2000-2009), Although in the Mexican market there is a wide and wide range of options to market and take advantage of business opportunities, few are used.

Of the 200,000 companies that start operations, only 35,000 manage to survive during the next two years, where 25% of them have little chance of development. The investigation concludes that only 10% have some opportunity to grow in the formal economy.

From a macro logistic approach, it is important to note that the level of efficiency of national logistics systems has relevant impacts. For example, the quality and quantity of transport infrastructure support or limit the design of logistics solutions.

From a micro-logistics perspective, another challenge is to reach the target market, complying with two basic logistic performance indicators: deliveries on time and lower total cost. Two indicators without which it is impossible today to compete against leading national and international companies operating within the same sector. Gartner, in his recent study The Gartner Supply Chain Top 25 for 2011, highlights these indicators as part of the operational excellence that companies must develop.

6 Basic Modes of Transport in Operational Cargo Management

However, although the importance of the indicator delivered on time is recognized within the companies, the vast majority fail to achieve high performance. This is what the study Evaluation of the Performance of Supply Chains in Mexico, developed in 2009 by the Ministry of Economy, reports. It establishes a gap between 3.3 and 8.2% against best practices but does not analyze the complementary indicator of operational excellence that is the lower total cost and that is still unknown to many companies operating in emerging markets such as Mexico.

Cargo consolidation, a tool for operational excellence

Cargo consolidation still has little diffusion among SMEs, however, it is still an option that improves the competitiveness of logistics operations in Transportation holistically. Especially since it affects both the number of deliveries on time and a lower total cost.

Thus, by gathering loads of different suppliers in a transport unit that go to a common destination or share a route, the production company obtains significant total savings. This without counting that companies have the possibility of increasing frequencies to a destination, and with that, provide a better service to their end customer.

It should be noted that the level of logistics knowledge required within companies to achieve these benefits is high. It is here that the support of a logistics services integrating company reaches all its strategic value within the value chain of the producing companies.

Leaders from both companies and academia are spreading logistical knowledge in two ways. First, by informing business, government and academic organizations that operate in emerging markets, about the benefits and implications in the knowledge of such approaches, especially to small producers, who frequently do not have logistics specialists within their planning sign up areas and that, consequently, refuse to give strategic and business value to these services.

Secondly, working specifically within companies to establish the relevance of the logistics Store. It is a fact that the success of consolidation processes is directly related to the possibilities to optimize their material and human resources, value flow, App technology, among others.

While the consolidation approach is familiar today in the field of messaging – a concept developed since 1973 (the hub & spoke) – there is still an important area of ​​opportunity to make extensions to cargo services.

Hub & spoke is the design of the distribution center as a key tool in modern logistics. This consolidation approach is known in Spanish as a star-type configuration, which has revolutionized the concept of logistics by allowing economies of scale to be achieved in the use of transport equipment and support systems, maximizing assets by improving the competitiveness of Companies around the world. In fact, airports such as Mexico City serve in many ways as a node for consolidation, as do other large and medium-sized airports in Latin America.
Consolidation can be considered as a key tool when seeking a competitive unit cost with reduced transit times, increasing their reliability and maintaining the integrity of the goods. Of course, this depends largely on the knowledge, experience, infrastructure and systems available to the logistics service provider.

By strengthening the cargo, the cost of transported goods is reduced, although of course, this reduction depends on each case. Our recent analyses have detected cases of savings ranging from 30% to 60%, with a significant impact on the unit sales price of the products to the final consumer.

Until today the companies that consolidate the most are the big ones. However, our analysis has detected an important area of ​​opportunity within the logistics operations of SMEs. ECLAC analyzes have shown that 75% of these have their main clients less than 20 kilometers away and 90% of their clients are within national borders. This behavior is presented prominently by the manufacturing and commerce sectors that supply 55% of its demand at the local level.

Actually, boosting cargo consolidation among small and medium enterprises is as important for national commerce as it is for world trade. Today, thanks to the consolidation developed by large companies, there are already distribution networks at competitive times and costs that can be used by SMEs.

Cargo, board but not scrambled

A company that makes the decision to include the cargo consolidation process as part of its operations, has to do it hand in hand with its logistics strategy, which in turn must be clearly aligned with its model of business. It is possible to identify three stages of development in the evolution of the logistic services of the companies: introduction, consolidation and diversification.
Thus, depending on the level of development, cargo consolidation brings advantages that are transmitted to the final customer wherever he is. Especially since the distribution of merchandise that is traditionally shipped locally, can be exported to global markets thanks to lower cost and greater reliability; a local-global logistics approach that several small businesses are already taking advantage of.

It is here that the infrastructure already deployed by logistics service providers offers the convenience of a single point of contact for corporations that need to cover both local and global markets. It is a reality that consolidation for the distribution of goods not only facilitates trade between regions but also, by improving the efficiency of processes, strengthens the competitiveness of companies and therefore of countries, by boosting domestic consumption and export.

In conclusion, cargo consolidation is a logistic model that over the years of use in the courier has given excellent results, expediting deliveries, lowering costs, improving the use of transport fleets and increasing the level of service to the manufacturers, points of sale and final consumers.

A win-win approach is needed in which, at the same time, the companies that provide this service optimize their resources, allowing them to offer better and better solutions, while the production companies, when leaving their distribution to a third party, can devote themselves fully to your core activities.

Today it is clear that cargo consolidation is not exclusively used by large companies and that it is not an element to consider only for export operations. In a global world where it is foreseeable that emerging markets will be the lever of future growth, it is important that companies develop competitive advantage within the market itself, but also considering the global expansion of their business.