5 factors affecting transportation costs and pricing
Transportation is a big part of the logistics picture. Freight can represent 50% of your logistics cost and up to 10-20% of your retail price. In a world of “free shipping” every importer knows that freight is not free.
Here are 5 factors affecting your transportation costs and how you can manage your freight expenditures.
1. Market characteristics
Features of your market that affect transportation costs include:
- amount or degree of competition in your market: can you beat Acme’s price?
- distance to market: how far your product needs to travel
- government regulations: such as dangerous goods requirements, over-dimensional restrictions, or weight limitations
- traffic imbalance: can you prevent backflow or combine some supplier shipments/locations?
- seasonality of product movement: differences in shipping costs across the four seasons
- domestic or international transportation
Not many of the market conditions are in importers’ control—and so, they don’t provide much flexibility on your transportation costs.
Your product itself impacts your freight costs in a number of ways.
Low-density products tend to cost more to transport per pound. These are bulky items, like furniture, that may not weight a lot, but their weight to volume ratio is high.
How well can your product fill the available space in a transport vehicle. In other words, are you “maximizing your cube”? For example grain will fill every bit of available space in a container, but a car leaves lots of empty space around it.
Ease of handling
Are your products uniform in size? Are they secured to the pallet so it’s easy for forklift operators and drivers to work with them? Are your pallets well wrapped and stacked?
Look into whether you need cargo insurance on top of the basic legal liability of your carrier (in general $2 per lb for trucks). Remember that ocean and air carriers have different liabilities—consult your freight forwarder for guidance to make sure you know your options.
3. Volume and frequency
Volume and frequency of shipments can impact your freight costs.
- Rate leverage
- Lower pick up and drop off costs
- Higher carrier revenue
- Volume commitments/guarantees
- Rate leverage
- Better planning and improved performance
- Improved labour and equipment usage
4. Consolidation and cross docking
These are two strategies that can help reduce your freight rates, with one major caveat:
Consolidation and cross docking are done really well by carriers, but importers don’t tend to do it well.
So, in order to see real gains, work closely with your carrier or logistics partner (especially if they have warehousing capacity to create a distribution center). You’ll likely pay for the service of destruction, but it’s a value-add as well.
Read more about consolidation and cross docking here.
It may seem very appealing to have appointments with your truckers, ie. the driver will get there at 9 am. However, appointments mean a lot of waiting time without revenue for carriers and you may end up paying extra for them.
If you can give drivers more flexibility, it can save you appointment fees or surcharges.
The best strategy for impacting your transportation cost is open, honest communication with your logistics partner or carrier. Transparency and flexibility are essential during these uncertain market conditions.
With more than half a century of international shipping and freight experience, we are your full-service logistics partner. Contact us today to learn how we can streamline your shipping operations.
Information provided by: Freight Dept. - Cole International
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