Consolidation is defined as 'the combination of a number of things into a single more effective or coherent whole'.
In city logistics consolidation refers in general to the consolidation of freights. For example freight of different retailers can be consolidated to reduce the traffic in city centers. The consolidation of freights can be done at urban consolidation centers.
Waiting policies play an important role in consolidation. Delaying delivery while accumulating incoming goods may result in more efficient planning, but increases the risk of late deliveries. Consolidation therefore generally comprises a tradeoff between efficiency and lateness. Governmental regulation, such as banning large trucks from the city center, limited road access, and time windows for entering the city, has an impact on consolidation as well. In particular, such regulation may enforce transshipments at consolidation centers.
When multiple parties are involved in consolidation practices, a certain degree of cooperation is required. Amongst others, this entails sharing information and possibly deciding on gain-sharing as well. The different objectives of the involved parties introduce complexities when aligning actions to facilitate consolidation, particularly when parties are direct competitors of each other.
Consolidation can be viewed from multiple perspectives, some key perspectives are briefly outlined below.
Consolidation at the shipper’s level
A shipper is able to facilitate consolidation by bundling goods destined for the same cluster, or which at least may be transported together for part of the route. This practice may require the shipper to wait until sufficient goods are in demand by the recipients. When the shipper consolidates goods into a single order, the carrier may offer a lower transportation price than when the order would be broken down in multiple smaller shipments. Also, bundling requires less trucks at the shipper’s dock and less handling operations. For the carrier, transporting larger orders can be advantageous as it requires less planning and may result in higher utilization of its vehicles.
Consolidation at an urban consolidation center
At an urban consolidation center, orders from different shippers and/or carriers arrive. These orders are subsequently re-assigned to smaller vehicles suitable for delivery in the city. The consolidation center may have its own fleet for urban distribution available, but may also rent vehicles from third parties. As goods from different shippers can be bundled, transshipments at the consolidation center allows for better allocation of goods to vehicles. As such, delivery in the city can be performed with higher efficiency. In a similar fashion, consolidation can take place at the center for outbound orders. In that case, goods are efficiently collected within the city, transshipped at the consolidation center, and subsequently transported to another area via a larger vehicle.
Consolidation at carrier level
Through planning, a carrier seeks to efficiently allocate orders over its fleet. When planning objectives such as minimizing the number of vehicles required or minimizing the total costs are adopted, this generally results in solutions that strive for a high fill rate. Carriers therefore have a natural incentive to consolidate. However, without vertical and/or horizontal cooperation, the opportunities for consolidation may be more restricted.
Consolidation at horizontal cooperation level
Instead of a single carrier attempting to increase its efficiency, multiple carriers may work together to reduce the total number of vehicles required. This approach has the highest potential if the fleets of all carriers are considered as one, allowing to make a central planning. However, such a planning may cause imbalances, such that certain carriers may be better off than others. Carriers that do not obtain such benefits may than be unwilling to participate in such a cooperation structure. Weaker forms of cooperation, aimed at better balancing the gains of consolidation between participants, therefore has more potential for carriers to willingly get involved. Consolidation at a horizontal level always requires a certain degree of cooperation and information sharing; the gains that can be made are dependent on how the cooperation between the actors is structured.
Consolidation at supply chain level
When viewing consolidation from a supply chain perspective, the entire transportation process from the origin to the destination is considered. Such a process may involve one or multiple shippers, carriers, consolidation centers, and recipients. Actions taken by other parties in the chain affect the degree of efficiency that can be achieved in city distribution. For example, a line-haul operator may find it preferable to offer less frequent shipments in order to increase efficiency, in turn limiting the slack allowed to city freighters. This is the most complex form of consolidation, as it requires aligning the goals of the different parties involved. To let such a system function properly, advanced cooperation structures are required.