LCL, FCL, and the FOB Trap
A mid-size importer buys 12 SKUs from eight Vietnamese suppliers. Monthly volume is 18 CBM, currently shipped as three LCL consignments under EXW terms. The forwarder charges $95/CBM ocean freight, $450 documentation per shipment, and $1,200 destination charges per shipment. A 40-foot container holds 58 CBM and costs $2,850 port-to-port plus $1,100 destination charges. A Ho Chi Minh 3PL will consolidate supplier pickups and palletize for $180 per pallet; the monthly volume is 12 pallets. Procurement wants to switch to FOB to control freight and reduce total landed cost. Operations worries about inventory if shipments are consolidated. The annual carrying cost is 18%, and average inventory value is $2,500 per CBM. Suppliers currently quote EXW and are reluctant to handle export clearance. What should the logistics manager recommend?
1. Calculate the monthly landed cost of the current LCL pattern and of a consolidated FCL every two months. Include the carrying-cost trade-off and state your recommendation.
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Current LCL per month: ocean 18 x $95 = $1,710; documentation 3 x $450 = $1,350; destination 3 x $1,200 = $3,600; total = $6,660/month.
FCL every two months: volume 36 CBM; ocean plus destination = $2,850 + $1,100 = $3,950; consolidation 24 pallets x $180 = $4,320; total = $8,270 per two months, or $4,135/month. Savings = $2,525/month, or $30,300/year.
The extra inventory is roughly one 36 CBM shipment held for two months instead of two 18 CBM shipments. A simple estimate of extra average inventory is 18 CBM. Carrying cost = 18 x $2,500 x 18% = $8,100/year. Net savings are about $22,200/year. Recommend FCL every two months if demand is stable, but only after checking warehouse space and SKU shelf life. FCL utilization is 36/58 = 62%, so adding SKUs or negotiating a 20-foot container rate could improve the case.
2. Procurement wants FOB. Compare EXW, FOB, and FCA for these containerized shipments and recommend the Incoterm.
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EXW leaves the buyer bearing loading, export clearance, and origin risk; that is poor control and often hides cost. FOB requires the seller to clear export and deliver on board; risk transfers when the goods are on board. For containerized cargo, the container is usually handed to the carrier at a terminal before loading, so FOB creates a risk gap between gate-in and on-board. FCA at a named place, such as the Ho Chi Minh 3PL, requires the seller to clear export and deliver to the carrier; risk transfers at that point, which fits container consolidation.
Recommend FCA at the 3PL, not FOB, unless suppliers cannot clear export. FCA gives the importer freight control while closing the origin risk gap. If suppliers insist on EXW, price the export clearance and loading cost into the landed cost and arrange a forwarder to handle it. Do not accept FOB merely because it is familiar.
3. How should the manager implement supplier consolidation without creating stockouts or losing supplier cooperation?
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Use a phased milk run. Start with four suppliers representing most pallets, set a fixed weekly pickup day, and issue a rolled-up purchase order with a 3PL delivery window. Keep two weeks of safety stock on A items during the transition. Publish a simple supplier scorecard for pickup readiness, labeling accuracy, and documentation. Hold a joint kickoff so suppliers understand the change is not a price attack.
Run the first two FCL cycles as a pilot. Measure CBM utilization, pallet count, damage, and days of inventory. If utilization is below 50%, add SKUs or move to a 20-foot container rather than forcing inventory upward. After the pilot, lock a quarterly volume plan and a monthly exception process. This protects service while capturing the consolidation savings.