Transportation and shipping are by far the most expensive aspects of logistics. Transportation alone costs US firms over $1.04 trillion, according to the 2019 Annual State of Logistics report (or 10.4 percent of total revenue).
What is it about transportation, though, that makes it such a large cost center? What can you do to help with this problem?
We’ll go over transportation expenses in further depth in this tutorial, including why they’re so costly and how to lower them.
In this post, we’ll look at the following topics:
- What Are the Transportation Costs?
- What Are Some Transportation Costs Examples?
- What Factors Influence the Costs of Transportation?
- Routing, Planning, and Dispatching: Invisible Transportation Costs
- What can I do to save money on transportation?
Table of Contents
What are Transportation Costs?
All costs related with the transportation of raw materials, completed items, and employees are included in transportation costs. It’s the money you put into making sure all of the moving components are in place and that your consumers get their product or service on time.
The most expensive part of your business differs by industry. As a distribution company, it will take up the majority of your revenue. A software corporation may only travel a few field sales personnel.
Let’s look at some transportation cost examples for different types of businesses.
Examples of Transportation Costs
There are a variety of modes of transportation that can cost up to a tenth of your monthly income or more.
When most people think of transportation, freight is usually the first thing that comes to mind. Cargo ships, freight trains, and FTL trucks convey large containers containing your company’s merchandise.
In the case of freight, the following are the fundamental fees you’ll be charged:
- Hauling lines
- Delivery and pick-up
- Handling at the terminal
- Invoicing and payment
Depending on the terms of the agreement, you may also be obliged to pay for your own insurance.
To receive long-term special deals, it is necessary to carefully select your carriers and establish connections. Your logistics costs will account for a large portion of company operational expenses and have an impact on your profitability.
Last mile delivery refers to the process of delivering an order to a customer’s doorstep. As more consumers shop online, this is becoming an increasingly significant cost centre for businesses. The average cost of delivering a single order is $10.1, according to Statista. To compete with Amazon and other major shops, you need to spend at least $10.2 every order to get free shipping.
It’s exceedingly tough to scale up, which is why it’s often the most expensive portion of the supply chain.
Funded carriers like the USPS usually have better pricing if you outsource it to a third-party provider.
House Calls and Field Service
Is your company interested in making house calls or providing field service? Getting your technicians to the consumer might be an expensive proposition.
Mileage and fuel use, as well as local fuel pricing and tolls, will influence these expenditures.
The state, county, and country all have their own set of rules. Gas costs in the United States, according to AAA, range from $1.82 to $3.32 per gallon, depending on the state. As a result, the timing of re-fueling is crucial.
If you encourage commuting workers, it will make a great difference whether or not they take public transportation.
Fleet Maintenance and Depreciation
If your organization has a privately owned fleet, this is the final area of transportation costs.
It isn’t just a problem for trucking companies. Contractors who utilize branded vans, such as plumbers, are also affected. Repairing automobiles that have broken down and performing routine maintenance are both expensive.
Furthermore, regardless of how well your automobiles are maintained, their worth will deteriorate.
The state of your transportation infrastructure determines the entire cost of transportation.
Let’s look at some of the elements that influence prices at a more detailed level.
The average business trip costs $1,293. Even if you only have a small sales team, these costs can soon pile up.
Because these are all economies of scale, a smaller organization will almost certainly pay substantially more. As a result, a greater amount of your revenue and profits will be consumed.
In industries where field sales is widespread, this might cost your firm tens of thousands of dollars per year per person.
Factors that Influence Transportation Costs
When a shipper gives you a quote, many factors determine the ultimate pricing. Do you ship things by water, for example, or do you fly freight?
Certain means of transportation cost more, while others cost less.
What is the distance that the package will be transported? Shipping a package across a long distance is clearly more expensive than sending a package to a neighboring city.
Dimensions and Weight
You can learn more about how to optimize this area in our guide on minimizing packaging expenses.
The price is also heavily influenced by the urgency of the problem.
Sea freight with a 6 month or longer deadline, for example, is significantly less expensive than a rush work on the same route.
Your delivery drivers must go out of their way to make a second delivery after a failed delivery.
That is why shipment accuracy is so important.
Are you transporting perishable items that require extra care and attention? There will be an extra charge for this.
Tariffs and levies in international trade and shipping add significant fixed costs. In most cases, VAT is only included in domestic shipping for transportation services.
Invisible Transportation Costs: Routing, Planning, and Dispatching
When you’re just starting out, manually handling deliveries for your business isn’t a problem.
When you just get a few calls per day, it’s simple to open Google maps and give your drivers orders.
This will, however, change as your firm expands.
At scale, doing tasks by hand or with an inefficient system can have the following consequences:
- You’ll need to recruit more dispatchers and operations managers to plan and manage your fleet of drivers.
- Designing inefficient routes and schedules that increase fuel and driver costs.
- Timelines for delivery are being stretched (costing you customer loyalty and future purchases).
Scaling good decision-making is impossible without the correct system in place.
What can I do to save on transportation costs?
Find the best carrier offers for freight and staff transit
Do you utilize a third-party transportation service? Using a transportation management system to locate the best freight carrier offers in real time for each shipment. It’s a minor change that might save you tens of thousands of dollars each year. Concentrate on one or a few personnel carriers and work out a special arrangement for all of your staff. The potential savings can be tremendous.
Routes should be optimized to save money on gas and driver expenses
If you manage shipments in-house, the most effective thing you can do is improve your pathways. Spending less time in the lane will save you a lot of money on petrol and cut driver and overtime costs.
For example, EasyRoutes is a delivery management app that will make your life much easier. What sets EasyRoutes distinct is its ability to easily build complex routes at scale while accounting for all real-world variables and altering routes on the fly.
Make the most of your fleet
If you increase your fleet utilization, you may be able to lower the size of your fleet while still making all deliveries on schedule.
Make use of technology and software
Reduce human error by learning on technology and software to do the hard thinking for you!
If you’re attempting to save money on transportation, the EasyRoutes delivery management app is your new best friend.
Our EasyRoutes Delivery Driver app not only lets you share optimized delivery routes with your drivers, but it also helps you avoid unsuccessful deliveries by reducing human error. By integrating directly with your Shopify orders, you also remove a lot of time-consuming manual labour and dramatically speed up the delivery process.
Sign up for a 14-day free trial of EasyRoutes to explore how it can help you save money on transportation.