By far the most expensive aspect of logistics is transportation and shipping.
According to the 2019 Annual State of Logistics report, transportation alone costs US businesses over $1.04 trillion (or 10.4% of total revenue).
But what is it about transportation that makes it such a significant cost centre? What can you do to address this issue?
In this guide, we’ll look at transportation costs in greater detail, including why they’re so high and how to cut them.
We’ll look at the following topics in this article:
- What Are the Costs of Transportation?
- What Are Examples of Transportation Costs?
- What Factors Influence Transportation Costs?
- Invisible Transportation Costs: Routing, Planning, and Dispatching
- What can I do to cut my transportation costs?
What Are the Costs of Transportation?
Transportation costs include all costs associated with the transportation of raw materials, finished goods, and employees. It’s the money invested in ensuring that all moving parts are in place and that your customers receive their product or service on time.
Which area of your business is the most expensive varies by industry. It will eat up the majority of your revenue as a distribution company. Only a few field sales reps may be transported by a software company.
Let’s take a closer look at some transportation cost examples for various businesses.
What Are Examples of Transportation Costs?
There are numerous modes of transportation that can cost up to a tenth of your revenue or more.
Freight is the broad transportation of goods and products on a large scale
When most people think of transportation, the first thing that comes to mind is freight. Large containers containing your company’s products are transported by cargo ships, freight trains, or FTL trucks.
In the case of freight, the basic costs you’ll be charged for are as follows:
- Line hauling
- Pickup and delivery
- Terminal handling
- Invoicing and collection
You may also be required to pay for your own insurance, depending on the terms of the agreement.
It is critical to carefully select your carriers and cultivate relationships in order to obtain long-term special deals.
Your logistics costs will be a significant part of your operating costs and will have an impact on your profitability.
Last mile delivery is the process of delivering an order to the customer’s door
The process of delivering an order to the customer’s door is known as last mile delivery. As more and more people shop online, this is becoming a larger and larger cost centre for businesses.
According to Statista, the average cost of delivering a single order is $10.1. To compete with Amazon and other major retailers, you must make at least $10.2 per order in order to offer free delivery.
It is extremely difficult to implement at scale, which is why it is frequently the most expensive part of the supply chain.
If you outsource it to a third-party service, funded shippers such as USPS usually have lower prices.
Business trips include transportation for employees to sales meetings
According to Runzheimer, the average business trip costs $1,293. Even with a small sales staff, these expenses can quickly add up.
These are all economies of scale, so if you’re a smaller business, you’re probably going to be paying significantly more. That means a larger portion of your revenue and profits will be devoured.
This can cost your company tens of thousands of dollars per year per employee in industries where field sales is common practise.
House calls or field service
Is your company willing to make house calls or provide field service? Getting your technicians to the customer can be a significant financial outlay.
These costs will be affected by mileage and fuel usage, as well as local fuel prices and tolls.
These differ according to the state, county, or country. According to AAA, gas prices in the United States range from $1.82 to $3.32 per gallon, depending on the state. As a result, proper refuelling timing is critical.
Whether or not commuting workers use public transportation will make a big difference if you support them.
Fleet asset maintenance and depreciation
This is the final category of transportation costs if your company has a privately owned fleet.
It is not limited to trucking companies. Plumbers and other contractors who use branded vans are also affected. Repairing broken down vehicles and performing routine maintenance are both costly.
Furthermore, no matter how well you maintain your vehicles, their value will depreciate.
The overall cost of transportation is determined by the state of your transportation infrastructure.
Let’s take a closer look at some of the factors influencing prices at a more granular level.
What Factors Influence Transportation Costs?
Many factors influence the final price when a shipper provides you with a quote. Are you transporting goods by sea, for example, or are you transporting freight by air?
Certain modes of transportation are more expensive, while others are less so.
How far will the package be transported? Long-distance shipping is clearly more expensive than sending a package to a nearby city.
Dimensions of the package
In our guide to lowering packaging costs, you can learn more about how to optimize this area.
The urgency of the situation also has a significant impact on the price.
For example, sea freight with a 6 month or longer deadline is much less expensive than a rush job on the same path.
Failed deliveries necessitate your delivery drivers going out of their way to make a second delivery.
That is why shipping precision is so crucial.
Are you shipping sensitive goods that need to be handled with special care and attention? That will be an additional cost.
International trade and shipping include extra fixed costs in tariffs and taxes. VAT is usually only included in domestic shipping for the actual transportation services.
Invisible Transportation Costs: Routing, Planning, and Dispatching
Manually handling deliveries for your business isn’t a problem when you’re first starting out.
It’s simple to open Google maps and give your drivers orders when you only get a few calls per day.
However, as your company grows, this will change.
Doing things manually or with an inefficient system at scale can have the following effects:
- To plan and manage your fleet of drivers, you’ll need to hire more dispatchers and operations managers.
- Creating inefficient routes and schedules that result in higher fuel and driver costs.
- Delivery times are being extended (costing you customer loyalty and future purchases).
Without the right system in place, scaling good decision-making is impossible.
What can I do to cut my transportation costs?
For freight and staff transportation, find the best carrier offers
Do you use a third-party service for transportation? Using a transportation management system to find the best carrier offers for each shipment in real time for freight. It’s a small adjustment that can save you tens of thousands of dollars per year.
Focus on one or a few carriers for personnel and negotiate a special deal for all of your employees.
The possible savings are enormous once again.
Plan more convenient routes to save money on gas and driver expenses
The most impactful thing you can do if you handle shipments in-house is to boost your paths. You’ll save a lot of money on gas and reduce driver and overtime costs if you spend less time on the lane.
EasyRoutes, for example, is a route optimization app that will make your life a lot easier. The capacity of EasyRoutes to easily design complex routes at scale while accounting for all real-world variables and adjusting the routes on the fly is what sets it apart.
Maximize fleet efficiency and vehicle utilization
You may be able to reduce the size of your fleet while still completing all deliveries on time if you improve utilisation.
Technology can help to reduce human errors
A single typo (which is easy to make even on computers) can result in hours of wasted driving time, extra miles driven, and shattered schedules.
The EasyRoutes delivery management app is your new best friend if you’re trying to cut your transportation costs.
Our mobile-friendly delivery view not only helps you optimize routes for your drivers, but it also reduces human error and helps you avoid failed deliveries.
You also eliminate a lot of time-consuming manual labour and significantly speed up the delivery process by integrating directly with your Shopify orders.
To see how EasyRoutes can help you save money on transportation, sign up for a 14-day free trial today.