how to reduce your logistics costs on transportation

Transportation isn’t as straightforward as being a single cost for your business. The cost of transportation consists of several different costs. We’ve picked out the main ones:

When working out your shipping costs, the first step is to calculate your transportation cost per item, which will depend on the mode of transport you use to shift goods from A to B. If you transport your cargo by air, the cost will be considerably higher than if you were to send them across the sea.

The cost of your production site, staff, packaging, raw materials and infrastructure all tie in with your transportation costs. Identifying these so you can start cutting costs is much easier.

The transaction costs cover the management and organisation of your activities within the business. Transportation costs are part of these. There may even be hidden costs, which make the transaction costs harder to identify. Here are a few categories into which you could categorise your transaction costs:

• initiation costs: costs related to researching for information needed;
• agreement costs: costs related to negotiations and contracting;
• control costs: costs to make sure that the company meets standards of quality, prices, quantity and compliance;
• adjustment costs: costs relating to conflict resolution, adjustments to prices, etc.

This is another important transportation cost… one so important, in fact, that it deserves a small section of its own. The cost of capital can play a major role in your company, or a more minor one. There are two main cost-of-capital setups:

• transportation-intensive, which means you have high transportation costs but low storage ones;
• warehouse-intensive, which means you have low transportation costs but high storage ones.

Both setups can make sense for a business, but in the case of warehouse-intensive costs of capital, the costs are often underestimated. The costs of capital reflect the cost of the stored goods, and in this circumstance, there are opportunity costs because the capital is tied up and the business can’t invest it profitably.

Of course, transportation costs can fluctuate. Sometimes, a business might not know the cost until their carrier sends the invoice a few weeks later. Despite some of the uncertainty around transportation costs, these costs aren’t a complete mystery. Like many outgoings, transportation costs can vary, depending on economic circumstances. Here are some of the factors that can influence your transportation costs:

The cost of transport, whether road or maritime, is related to fuel prices. Falling fuel prices make cargo trucks and container ships cheaper to operate, and the cost of transportation goes down. The company then passes on the savings or losses to the consumers, which it does either indirectly or through a fuel cost element built into the pricing model of the carrier. Naturally, if fuel prices increase, carriers pass the extra cost on to the businesses who use them.

Increasing wages and competition can drive your transportation costs up. Older drivers are retiring, but businesses and carriers are having a tough time trying to replace them. Driving a truck is demanding and requires different classes of licence, but a course can take weeks or months to complete. Logistics companies tend to struggle, too, with companies that offer ‘in-house’ driving roles, which seem to pay better and place fewer demands on the driver.

Pricing demands on the volume of goods you’re transporting, just as much as it does on the underlying costs of transportation themselves. If a logistics operator has limited capacity, they may sell space at a premium to anyone who wants them to transport their goods. If, on the other hand, business is slow, the operator may give you a more competitive rate.

Government regulation can have a powerful impact on transportation costs and, as a result, on your bottom line. One such regulation could be that of the maximum number of hours a truck driver can operate, which may affect recruitment and how you operate.

Environmental regulations also have the potential to influence your costs, as you try to comply with them. Regulations on emissions, for instance, can have a severe impact because some vehicles may inflict higher costs than others when it comes to their emissions.

If you’re working with a carrier and are providing them with your business regularly, this is a good opportunity to secure a lower rate. If demand is low, it’s an even better opportunity.

Older trucking companies may operate an older, smaller fleet of vehicles, whereas newer vehicles are designed to offer the most capacity possible. If you’re working with a carrier, this carrier may be able to split the space even further.

Now that you have some insight into what the main transportation costs are and some of the factor that affect them, it’s time to look at how to actually reduce them. Here are a few suggestions:

If you’re transporting goods from A to B over long distances, you could reduce your costs considerably by storing your goods closer to your customers.

Above all, you must take into account aspects of security and safety, making your warehouse observe these two vital elements as much as possible. This means getting proactive and doing everything possible to prevent any accidents or incidents, and to avoid government fines.

If you have serious problems with safety or security, the authorities could close you down, which is, of course, the worst news possible for your business. Appoint a health and safety manager who will be accountable for safety and for organising health and safety training.

Often, businesses rely on only one form of transport to get their goods from location to location. Some shipments are more urgent than others, though, so you may find it better to send urgent ones by plane; then deliver the less urgent ones by sea, which is much cheaper. Even cheaper in several cases is to transport goods by rail.

The larger the shipment, the more money you can save. It’s often cheaper to send more in one journey than small amounts in several journeys. Encourage your customers to place larger orders. Create an incentive for them to do this if possible.

Another option is to optimise the packing and stacking of goods in containers, trailers, etc. Optimising your storage space will allow you to send more in one journey; not only this, however, but you’ll also keep to a minimum the chances of any goods suffering damage during transit. Try to decrease the gaps and increase your density of storage.

Preventive maintenance is a good way to cut costs on equipment in almost any area of logistics, not just transportation. Emergency maintenance and breakdown maintenance won’t work when it comes to cost cutting. They’ll cost you time in working hours and customer support.

Using automation technology to unload containers, trailers etc and to manage warehouses can shave a lot off your transportation costs. It can also minimise damage to products, boost productivity and drive down the overall costs of production.

You can digitise and automate some inbound and outbound logistics processes with a transport management system (TMS) and optimise transportation costs even further. Negotiating freight rates, reconciling invoicing and shipment tracking are all possible with a TMS. The TMS will enable you to streamline operations and maximise efficiency. Your team will also be able to focus on other tasks.

Working together with suppliers to reduce supply chain logistics costs is an excellent way to trim down your transportation costs because suppliers can cover some direct costs. Create a consortium of buyers and suppliers so that they can buy the necessary logistics supplies, such as fuel, at a lower price.

Devise a structured agenda, and then invite suppliers to your facility. You could set your goods and reducing the costs of your logistics as the topic. Your supplier is likely to be an expert in their field of expertise and should be able to suggest some good ideas on this.

Working with your suppliers is sure to help you develop a win-win cost-savings programme. Keep a part’s function, but reduce the component costs, and never put quality in any jeopardy. 

Overseeing and maintaining supply chain visibility can lower unexpected costs. You can counteract service disruptions and major delays quickly if you track products, parts and components in transit and keep control over them. You can follow alternative supply routes or distribution ones, which can translate into less expense.

Making sure you time operations well will diminish efficiencies and have the indirect impact of lowering costs. Implement scheduling software so that you can plan the production schedule, transit times and delivery from one location to another, and that all these operations move as smoothly as possible. This will minimise delays and missed deadlines, which damage your business’s reputation and can lead to clients going elsewhere for what they need (and in you losing money as a result of it).

You don’t have to struggle with heavy loads. Heavy duty systems of ours such as the Moving floor conveyor and the Slipchain can handle hefty loads without any issues and allow you to load or unload trailers swiftly. In fact, when you invest in our automated loading solutions, you can cut your loading times to as little as around five minutes for a considerable number of pallets in a lot of cases.

Safety is a major benefit of using our automated solutions: not only can you load or unload trailers or containers faster, but also more safely. Our systems reduce the need to use as many forklift trucks or drivers in your operations for loading and transporting goods.

Using one of our case studies as an example, a factory that produces 928 pallets a day and shuttles 32 pallets a time across 16 mile journey, we’d expect to require:

• 3 warehouse forklift drivers;
• 12 truck drivers, working across three x 8 hour shifts in a 24 hour period;
• 3 factory forklift truck drivers.

However, when you implement one of our automated solutions, this has a significant impact on requirements for the same number of pallets. You only need:

• 6 truck drivers, working three 8 hour shifts in a 24 hour period;
• zero forklift trucks in either the warehouse or the factory.

The fact that you’ll need to use fewer forklift trucks, if any at all, means you’ll reduce damage to machinery when you use our systems; in turn, you’ll spend less on repairs you could have avoided. Often, human error is to blame for damage during loading. One common mistake is to align pallets on either side of the forklift truck and damage the forks of the truck, the curtain-sided trailer or the box trailer. Worse still, the products themselves could end up on the receiving end of some damage.

Since forklift trucks don’t actually need to enter the trailers when you implement one of our automated solutions, forklift drivers only have to load the goods onto the system itself. This shortens the travelling distance necessary for the forklift and helps you save on energy or fuel for your forklifts. Using our solutions will spare drivers around 3 000 kilometres (approximately 1,864 miles) on average per year of forklift driving.

Often, drivers don’t get involved in the loading process. Instead, they must stand aside and let the rest of the logistics team conduct all the loading and unloading; then they climb back into the truck when it’s all loaded or unloaded and head on to the next destination with the cargo (or to collect new cargo).

How much money do you lose in productivity, though, while the drivers are waiting to continue the next stage of the journey? Investing in one of our automated solutions can cut your driver waiting times by approximately 4 000 hours or more on average per year. The shorter waiting times give your drivers the opportunity to get from A to B faster on your behalf so you can transport your materials quicker for manufacturing to start and to get your products out on the market sooner.

We offer three main solutions to support your loading and unloading operations, get things moving quicker and, by doing so, help you lower your transportation costs...

Running a logistics operation entails a wide variety of costs, of which transportation is a major one. If you’d like to invest in one of our solutions to improve the efficiency of your logistics and, at the same time, lower your costs, feel free to contact us. We’ll be able to advise you on the best system for your logistics outfit and install it for you.