Logistics is a huge industry and the rising transportation costs are impacting businesses profoundly. The global logistics market in 2020 was worth almost $8.6 trillion. Understanding the logistics costs and factors affecting them will help you get a birds-eye view. This way, you can save huge logistics costs and generate more revenue and grow your business multifold.
Whether you are an eCommerce company or a delivery service business, you must have all the equipment and execute strategies that can help you reduce costs. Along with meeting customer expectations and cost reduction strategies, you must be up-to-date with the latest technological advancement.
So if you are wondering how to reduce transportation costs in logistics, we have jotted down the ways and methods in this blog.
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What are the Types of Logistics Costs?
The process of handling, managing, and transporting products comes under shipping logistics. And the total logistics costs include all the processes mentioned above, from buying raw materials to third-party logistics payments. Whether these are inventory costs or direct logistics costs, you can see a reduction if you understand them in detail.
Due to a lot of components in the logistics and supply chain, the costs are widely distributed in logistics management. You can group these costs into 5 primary segments:
1. Inventory management and warehousing
Whether you manufacture your products or buy them from a third party, you need a place to stock your inventory. So, you’ll need a larger space to store larger inventory. However, warehousing costs are rising. It is also difficult to find a rental space due to limited availability.
The increasing number of eCommerce businesses has led to an elevation in rental renewals. As a result, there’s a scarcity of available warehouse space. Purchasing your own warehouse space may be a better option, but it will cost you more. Additionally, you may have to spend on things like:
2. Transportation costs
Almost all businesses spend the most on transport and distribution whether they use in-house teams or a third-party logistics provider (3PL). These transportation costs include operations such as:
- Getting raw materials to the manufacturing unit
- Transporting products from the manufacturing unit to the warehouse
- Delivering parcels to the customers
Transporting goods from the manufacturer to the warehouse is cost-effective as it takes shipments to only one destination. But, outbound logistics like last-mile delivery need a huge budget.
3. Last mile delivery
Last-mile delivery is the final step of distribution, wherein the products reach the customers. These deliveries are said to account for the most resources and time as drivers need to stop at multiple addresses to complete their tasks.
There are various processes like reception desks or security gates that delivery drivers need to pass. This slows down the last-mile delivery process and increases supply chain costs. It bears almost half of the total shipping costs.
4. Supplies and equipment
The supplies and equipment you need to carry out operations make up for the cost of an array of items in the supply chain. For businesses manufacturing their own products, the total cost will encapsulate all the tools used in the process.
If you have an in-house delivery process, it will be covered under the equipment costs. These may include route planning software, maps, delivery vehicles, and driver uniforms.
5. Labor costs
The professionals and staff members that are a part of the production, management, and transport are also included when calculating logistics costs. The expenditure may vary depending on the staff member’s location and payment terms in their location.
You’ll also need to pay them salaries based on their job profiles and experience. Depending on your industry and business, you may need:
- Warehouse staff to manage inventory and package products for delivery
- Drivers to deliver packages
- Managers to monitor daily logistics operations and employees
- Admins to process payrolls, manage human resources and hire new employees
5 Beneficial Ways You can Reduce Logistics Cost
That indeed seems a lot! With proper management of logistics costs, you can see growth in your business and expand it in the future. So, how to reduce total logistics cost? Here are the 6 excellent ways to reduce it and make your logistics system profitable:
1. Optimize your inventory
Keeping your inventory optimized deems to be a beneficial option when planning for cost savings. This way you can be assured that you don’t run out of stock. To optimize your inventory, here are some techniques:
- Demand forecast: Using advanced technology and tools that help you analyze customer demand is a great way to make informed supply decisions. Sales trends can help you calculate the total sales and revenue for a particular time.
- Inventory audits: You must ensure that your team conducts inventory audits to know how much stock you have. A track of inventory shrinkage, holding costs, and depreciation costs will help you avoid discrepancies.
- Safety Stock: Keeping an extra stock is known as a safety stock. It will help you keep stock in times like last-minute increases in orders and late shipments from the manufacturer.
You can also use inventory management software to automatically record all the information. A proper system will help you assess how much stock you need to refill.
2. Automate logistics and warehouse processes
Automating the warehouse and logistics will help you have a smooth workflow and make the delivery process faster. When you have automated systems, you need fewer human workers, which will help you reduce costs on payroll.
You can use technological systems like modular shelving systems, warehouse robotics, automated storage and retrieval systems, and automated shipping. These are beneficial in achieving significant results with less time, resources, and effort.
3. Optimize last-mile delivery
Last-mile delivery is the most expensive component of the supply chain, which incurs huge costs. Based on a report, the last-mile delivery market in 2018 was worth USD 31.25 billion in North America. It was expected to rise to around $51 billion in 2022. So, you need to optimize last-mile delivery to reduce logistics costs.
You can find the best fuel-efficient routes and assign them to drivers in minutes using multi-stop route optimization software. With such an automated system, you can optimize routes as per driving preferences like avoiding highways, ferries, and tolls. This helps save a lot of time and fuel as drivers do not need to spend another minute finding routes manually.
4. Assemble in-house delivery teams
Although you may wish to tie up with a third-party logistics provider, you may lose control over delivery processes. To overcome this challenge, you can have in-house delivery teams to control the entire process.
An in-house delivery process may incur fixed and variable costs for things like:
- Vehicles and their maintenance
- Other resources
However, keeping everything in-house is better than paying huge commissions to third-party companies that may not be reliable.
5. Improve customer satisfaction
One of the most important aspects of reducing logistics costs is to ensure your customers are happy. When you have a high shipping cost, your customers are likely to abandon carts. To reduce this, you can offer free shipping if an order value exceeds a certain threshold amount. You can increase the average order value to cover the shipping cost and reduce the chances of loss.
You can also outperform your competitors’ retail prices through a better supply chain, thereby increasing profit margins. Improving your team’s performance, such as training delivery drivers, will help you exceed customer expectations. The resulting increase in customer satisfaction will help you generate more revenue and reduce logistics costs.
Make Your Delivery Process Cost-Effective Using Upper Route Planner
If you wish to reduce logistics costs, you need an intelligent solution on top of the above strategies. A route optimization software is an excellent buddy to cut down the expenses on logistics transportation. With Upper Route Planner, you can assign routes with multiple stops to delivery drivers and save a lot of time on manual work.
Here’s how Upper can help you save fuel and make transportation efficient:
1. Optimized routes
You need a smart way so you can cut down the fuel usage and stay ahead of rising fuel costs! Upper has got that covered! By providing the best-optimized routes, it ensures that your drivers spend minimum time on the road. As a result, you can save the logistics costs on transportation.
2. Faster delivery
If you are running a logistics company, it’s important that your packages reach their relevant destination on time. Knowing the most optimal routes in advance can save you time and increase delivery speed. The more packages you deliver in a day, the more revenue you generate.
3. One-click dispatch
With one-click dispatch, your dispatch manager can instantly send optimized routes to your drivers. Upper helps you streamline delivery operations and send routes to multiple drivers. All they need to do is get going on their job without having to visit the depot to get their daily routes.
Explore the features of Upper by signing up for a 7-day free trial now!
Cut Down Your Fuel Costs with Upper Route Planner
Still spending time and money over transportation costs in logistics? Upper has your back. Plan the best routes in less time and save a lot of fuel cost.
There are several factors that impact logistics costs based on your business market and supply chain. Here are a few of them:
- Fuel costs in the market
- Commercial drivers in the market
- Delayed port shipments
- Global regulations and tariffs in trade
You can measure your logistics costs once a month to keep a track of your expenses. Here is how you can do it:
- List the line items for every category (warehousing, labor, transportation, and equipment)
- Take the exact cost for each expense in all the categories
- This will show you the exact expenses in each category.
- Then, you can add the line items in each category along with adding the expenses to get the overall costs.
The last-mile delivery process has become easier with the advancement in technology and latest software. But business owners are still under the dark about these, which leads to a delivery system that is not properly optimized. As a result, delivery hassles, spending more time on the road, delivery failures, and other factors make it a costly process.
Upper has a feature wherein drivers or service professionals can record the proof of order delivery upo task completion. They can take photos, add notes and take e-signatures, which can be submitted to keep dispatch managers in loop. This way, the customer can be assured about their packages.
Although it may take time before you see a cost reduction, the above methods are sure to be beneficial in the long term. A route optimization software will help you reduce logistics costs, manage delivery processes, and ensure customer satisfaction. Upper Route Planner is known to aid small and big businesses with finding optimal routes and reducing logistics costs in delivery processes.
You can now focus more on business plans and growth strategies to generate more revenue. Leave the hassle of route planning to a trustworthy software like Upper! You can schedule and assign routes within a few minutes, take proof of delivery, have an API integration, and enjoy many other benefits. So, start reducing transportation costs in your logistics and supply chain by taking the 7-day free trial today.