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Shipping costs are constantly increasing, and there is no tendency toward general costs decreasing anywhere soon. So if your business involves dealing with freights and considering reducing transportation logistics costs, you’re in the right place.
We’re about to explore the main transportation logistics costs companies and the most practical ways to decrease those costs. So let’s get the ball rolling!
What are the main transportation costs for logistics companies?
Different types of transportation expenses add up to the total bill of your logistics process. Below, we’ll list the main expenses that logistics companies worldwide incur regularly.
Shipping expenses
Transportation and distribution are the most significant logistics costs for all businesses. A few fees fall under the umbrella term of shipping expenses, including all the expenses from production costs to delivery of the package to the customer. On top of that, don’t forget that you have to calculate your transportation cost per item.
These costs include fluctuating fuel surcharges, handling fees varying from carrier to carrier, and customs duties. Depending on the arrangement, you may also have to pay for insurance. These costs are never a flat fee, so retailers must consider different area-to-area factors.
Storage & warehousing
The larger the inventory is, the more space is needed. Yet, the increasing popularity of e-commerce creates very few possibilities for finding or renting storage places and warehouses.
Total warehousing costs increased by an average of 8.4% globally in 2022 (Savills, 2022). In Europe, the United Kingdom is the most expensive country for the annual costs of industrial rent, reaching almost 290 EUR per square meter of industrial space in London (Statista, 2022).
Transactions
Transaction costs cover the management and organisation of the whole logistics process within your organisation. These unexpected costs are hard to predict since they include several operations.
Researching for relevant information, negotiating and contracting, and ensuring that the company meets quality and price standards and compliance requirements will consume much time before starting the transportation process. As a result, all these activities become part of transportation costs.
What factors affect transportation costs?
When you get a quote from a shipper, many factors impact the quoted price. Let’s analyse the most critical factors affecting transportation expenses.
Fuel
Transport – whether marine, air, or road – replies on fuel. Falling fuel prices mean the cost of transportation goes down. If fuel prices increase, expect higher transportation fees. Long-distance shipping is generally more expensive than sending an item to a neighbouring city.
Labour costs
Without people, there’d be no handling and shipping. Labour costs vary significantly depending on where the staff works and the average pay. For example, according to HRK News Bureau (2022), truck drivers in Sweden get an average yearly salary of 42,751 USD, while in Switzerland, they typically earn approximately 70,452 USD a year.
Demand
If a carrier has limited capacity, they’ll sell space at a higher price to anyone wishing to transport goods using their services. The carrier may offer a more competitive rate when the business isn’t doing well.
Jurisdiction
Local regulations play a significant role in determining transportation expenses. For example, the government defines the number of hours truck drivers are allowed to work. Additionally, environmental laws include regulations on emissions. These factors will undoubtedly affect the way you run operations and what vehicles you operate.
Loyalty
If you’ve been working with the same carrier for a while, asking for a lower rate might be a good idea.
Urgency
Rail or sea freight that can be delivered in three months is much cheaper than a rush item with a three-day deadline using the same route.
How to reduce transportation costs in logistics?
There are several ways to optimise transportation expenses and improve supply chain visibility. If you follow the recommendations below, you’ll save money and increase customer satisfaction, too! So, let’s dive right in.
Employ software and apps
Modern-day software and applications are designed to avoid human error. They also save you time, resources, and money as they can automate tasks that people used to do manually only a short time ago.
You’ll need a smaller legal team if your app lets customers sign contracts online. However, if you set your software to send invoices automatically, you can focus your accounting team on more essential tasks.
More than looking for the shortest route is required when planning a shipment. You must screen carriers, their transportation conditions, available routes, and entry requirements for different countries. If you do that on an app using appropriate filters, you’ll find the most efficient way much faster.
Take advantage of digital records
Digitising processes may look scary, especially if you’ve been doing fine with papers for a long time. Yet, the benefits of digitalisation and leaving paper behind will outweigh the costs. Besides, by doing so, you’ll also contribute to a greener planet.
Digital records are extensive. They give logistics managers a bigger picture of the supply chains and smoothen stakeholder communication. Digital documents are easy to scan, so finding and fixing inefficiencies won’t break so much sweat.
Use multiple modes of transport
Let’s start with the basics. Freight shipping by sea is cheaper than air. Likewise, rail transportation costs less than trucking. However, considering the time the ride would take is also crucial since extended deliveries could cost you sales.
If time permits, try to get your item delivered by combining different modes of transport. Why not use rail for longer distances and road transport for innercity locations? How about combining sea and air? These combinations will let you deliver on time and stay within the budget.
Work with many carriers and shippers
You most probably have heard that no man is an island. This saying is particularly true if you want to reduce overall costs in logistics.
Collaboration with various carriers and shippers opens an opportunity to compare different offers on the market. Doing so lets you select partners whose prices won’t break the bank.
Ask for transparency
Transparency is crucial from the very beginning. When looking for partners to work with, it’s essential to do some research about them. If suspicious details pop up when googling your potential partners, look for more reliable businesses. Plus, always find the correct prices by collaborating with your partners to avoid hidden costs later.
Finally, as transporting products from point A to B might be a long process, always ask your business partners to keep you in the loop about what’s happening with your items. Failure to react to incidents on the road might lead to a lot of unplanned expenses.
Insure your shipment
Cargo shipments are generally safe, but things sometimes go wrong. When choosing a transportation company, ask if they offer high-value cargo insurance.
Yes, insurance costs extra. However, you’ll be reimbursed if your goods get lost, stolen, or damaged in transit. It’s always better to invest a little bit more than pay a massive stash of money in case of an emergency.
Consolidate shipping
With so many merchants worldwide, getting FTL (full truckload) shipments can be challenging. If your items don’t take up the whole space in a truck, you don’t have to pay for an entire truck. Instead, consider LTL (less-than-truckload) loads.
LTL works straightforwardly. Consolidate your orders into a single unit or combine your items with products for clients of other businesses. This way, you’ll pay only for the space your goods occupy.
How can Spotos help you reduce logistics transportation costs?
Spotos is a fully digitalised logistics platform for carriers and shippers designed to make transportation operations more transparent and efficient. Let us briefly tell you how Spotos comes to the rescue when seeking ways to reduce transportation expenses.
- Automation technology helps avoid human error. Spotos lets users sign contracts online, collect and distribute payments, and automate invoicing. Free of mishaps.
- The Spotos platform uses artificial intelligence (AI) to create pricing algorithms that provide immediate price recommendations. This way, you’ll enjoy complete transparency in transportation costs.
- Spotos features real-time shipment tracking. It’ll let you know where your shipment is every step of the way.
- Spotos offers a vast network of carriers and shippers. You can select from over 20 thousand trucks and more than 3 thousand carriers.
- Spotos members are verified and pass various security checks. This process ensures a safe environment for doing business.
- Never worry about your shipment with Spotos additional insurance services. Be protected whenever your goods are lost, stolen, or damaged.
Key takeaways
Transportation costs for logistics companies consist of shipping, storage, warehousing, and transaction costs. Addition costs may occur, too.
The main factors affecting transportation costs are fuel, labour, demand, regulations, loyalty, and urgency.
Ways to reduce transportation costs: employ technology, use multiple modes of transport, work with different shippers and carriers, seek transparency regarding prices and potential partners, add insurance to your shipments, and consolidate shipping.
If you want to cut your transportation costs in logistics and get transparent quotes straight away, sign up for Spotos.
References
Average annual prime industrial rent price per square meter in Europe in 1st quarter 2022, by country. (2022, June 10). Statista Research Department.
Tostevin, P. (2022, July). Global warehousing costs. Savills World Research.
https://www.savills.com/impacts/market-trends/global-warehousing-costs.html
Which countries pay their truck drivers the most? (2022, December 21). HRK News Bureau.
https://www.hrkatha.com/news/which-countries-pay-their-truck-drivers-the-most/
Frequently Asked Questions
Waterways and railways are typically regarded as the cheapest modes of transport. Yet, they are slow compared to air and road transportation. Therefore, consider combining different modes of transport to reach maximum efficiency.
Short answer – yes, there is. If your order takes up an entire truck, you’ll be maximising the capacity of that truck and won’t overpay a cent. But don’t worry if your items don’t take up the whole space in a truck. Consider LTL (less-than-truckload) loads, so you won’t have to pay for an entire truck.
Definitely yes. Transportation managers all around the globe try to consolidate shipments of different products into one unit to make fewer trips and benefit from lower rates.
Absolutely. Strategic decision-making is critical, no matter which stage of arranging transportation in logistics you’re at – negotiating freight rates or looking for necessary logistics supplies. Consider fuel prices, employee pay, demand, government regulations, loyalty, and urgency when planning a shipment.
