LCL: Ocean Shipping for the smaller volume shipper
Shippers often believe that they have to choose between enduring the high price of air freight in order to trade in small lots, or scaling up to large volumes in order to drive down per unit transport costs through containerized or bulk shipping. There is however, a viable solution that allows companies to move product in small lots without paying the air freight premium. Known as “LCL” or “Less than Container Load”, this mode of ocean shipping offers companies of all sizes substantial benefits and can help optimize their supply chains and international business processes.
What is LCL?
Quite simply, LCL is consolidated ocean freight. Instead of consolidating sufficient orders to fill one’s own container, a shipper can tender their smaller lots to a freight forwarder or ocean freight consolidator who will in turn load a container with cargo booked by their other customers. There are several advantages to having LCL as a shipping option in your firm’s logistics process including the following:
- Shippers who do not wait to ship product until they have enough orders to fill their own container are able to supply or receive their goods much more quickly. The benefits of this alone are significant as it can have a favorable impact on sales, profitability, order to cash realization, warehousing costs and customer satisfaction through expedited delivery.
- Shippers who do not need the speed of air freight can realize tremendous cost savings by routing cargo through LCL ocean freight. While the unit transport cost of LCL will not be as low as that of a full container (FCL), it can be substantially lower than that of air cargo.
- Using LCL as a mode of transport allows shippers to engage in test marketing or perhaps even embark on a gradual market expansion. LCL does not require a company to ship entire container loads of merchandise when such demand has yet to be established, thereby eliminating risks of overstocked merchandise, warehousing costs in the destination market, and other such carrying costs.
- LCL is more expensive on a per unit basis than FCL shipping. This is rather straightforward since buying part of a container will not yield the cost benefit of buying an entire one.
Small and midsized shippers are the most direct beneficiaries of the LCL mode of transport. The logic here is straightforward, as companies lacking larger volumes will simply take longer to realize enough demand/sales to fill a full container.
Large shippers also have the ability to benefit from LCL cargo in several ways. By using LCL to reach markets that have demand, but are so small as to not justify entire container loads of volume, large companies can continue to meet their customers’ needs. Also, large shippers may have a tremendous amount of cargo from various suppliers or going to various domestic distribution centers. This effectively enables them to build their own consolidations across a region. As an example, imagine a retailer with outlets throughout the United States East Coast region who sources product from 5 different suppliers in China. The opportunity exists to consolidate cargo from all the suppliers and build one’s own container. Upon arrival in the U.S. the container can be delivered directly to the retailers’ regional distribution center for onward distribution. The retailer hence realizes a considerable saving by not using air freight from 5 different suppliers and by building their own consolidation. They would have also likely realized similar savings (though somewhat less) by booking their shipments with an ocean consolidator from each of the 5 origins in China.
There are some pitfalls associated with LCL cargo, and the most notable of these is a lack of transparency. While a full container is easily tracked, as is an air freight shipment, LCL cargo may sometimes appear to be in a “black hole” once it is loaded at origin. This is because cargo may change hands between a few consolidators, or containers may transship through multiple ports en route to final destination which may not be apparent at time of booking.
There is also some difficulty in understanding total costs of shipment. Due to charges incurred at destination, such as port charges, warehousing and unloading costs it can be difficult to arrive at a an accurate, consistent landed cost.
Fortunately, both of these problems can be minimized by a freight forwarder. Freight forwarders maintain strong buying relationships with ocean freight consolidators which enables them to make pricing and routing decisions based on best practices in the marketplace. Shippers/importers don’t have to feel like they’re taking a leap of faith with a consolidator so long as they have an experienced freight forwarder assisting with booking, documentation formalities, route optimization and tracking capabilities.
As ships sail faster, and countries develop better inland infrastructure in the form of railways and highways, LCL cargo will continue to become a more viable transport option for shippers of all sizes. By working with a freight forwarder, shippers and importers can develop and implement a plan to ensure timely and cost effective supply of merchandise without having to incur the expense of air freight and without being forced to commit to the volumes needed to maximize utilization of a dedicated ocean container.
Some Interesting LCL facts:
As a general guideline, 10-15 cubic meters of cargo is considered the upper limit for LCL freight. If a company is shipping more than this quantity, it is likely that they would benefit from using their own 20’ container even if the containers capacity is underutilized.
The main unit of measure for LCL cargo is the cubic meter (cbm). To determine the # of cubic meters you are shipping use the following calculation:
Length x Width x Height / 1728 = cubic feet
# of cubic feet / 35.31 = # of cubic meters
Length x Width x Height = # of cubic meters
By Gross Weight:
Gross weight in kilograms/1000
LCL charges will be based on the higher of the cubic meters or gross weight (kgs.) per 1000.