How To Reduce Transportation Cost In Logistics

How to reduce transportation costs in logistics

How reduce transportation costs is one of the biggest limiting factors in logistics. Unfortunately, they’re only going to go higher. Some of the factors, like the cost of fuel, insurance, taxes, and tolls, are entirely out of your control. You just have to deal with them as best as you can.

B​ut it simply isn’t true that these are the only reasons the cost of transportation in logistics is going up. There are plenty of ways for you to reduce transportation costs in logistics. It helps to understand the complex reasons for the rising costs in the first place. Since we’ve already mentioned the factors that are beyond your control, we’ll focus on those things you can control. If you want to know how to reduce transportation costs in logistics. First you need to understand what’s causing them to rise in the first place.

C​auses of Higher Transportation Costs

T​here are several key factors in the rise of transportation costs.

T​he Marketplace Is Now Global

O​nline sales are a beautiful thing. They allow businesses to expand their customer base far beyond anything that was possible before the Internet. As long as your product is good, you can realistically sell to customers anywhere in the world.

T​he only problem is, once you’ve sold something to someone on a different continent. You’ve got to figure out how to ship it there. Such a shipment is likely to cross multiple borders and at least one ocean and depending on where you’re located. You might have to ship it across half the country before it can even start to cross the ocean. That’s going to get expensive, fast.

O​ne of the biggest factors in the rise of transportation costs for many logistics companies is the sheer distance. That products are being shipped across, and the volume of the products being shipped internationally. As globalization increases, the volume of international shipping increases, and that brings with it. All kinds of massive logistical challenges to reducing transportation costs in logistics.

e​Commerce

C​losely related to the globalization of the marketplace, the rise of ecommerce has also contributed to the rise of transportation costs in logistics. The reason is simple: there’s more demand.

M​ore and more retailers are selling their products primarily online, which means there’s a lot more shipping going on. As demand for transportation goes up, so does the cost of transportation in logistics.

S​hipping Has To Be Faster

O​ne of the biggest challenges in logistics today is the expectation from customers for faster and faster shipping. Most customers just aren’t willing to wait more than a few days for their package to arrive. Faster shipping times require more drivers and more trucks, so that pickups and deliveries are happening more often.

I​t also requires more warehouses so that more product can be stored in strategic locations, and building those warehouses adds to the overall costs involved in transportation.

H​ow To Reduce Transportation Costs in Logistics

N​ow that we know a bit more about why transportation costs keep going up. We can start to look at ways how to reduce transportation costs in logistics.

B​e Creative With Transportation Modes

C​heaper shipping modes usually mean slower deliveries, so a lot of shippers are wary of them. Shipping by sea is easily the most affordable way to ship something, but it’s also one of the slowest. It can reduce your costs in logistics, but it can also cost you sales in the long run.

L​ikewise, shipping by rail is much cheaper than shipping by truck, but it isn’t as fast. As a result, many companies ship only by truck so they can get the product to the buyer as quickly as possible.

B​ut what if you didn’t rely only on one mode of transportation? It’s likely that your buyer doesn’t need all of their freight at once, and if there’s a rush, it’s probably only on some of the items they’ve ordered. You can ship the urgently needed product by truck, and put the rest of it on a train.

A​pplying intermodal transportation methods to all of your orders can help you dramatically reduce your transportation costs. It might take a little more work on your part to sort out which parts of each order should ship via truck or rail, but it really can pay dividends in the long run.

Y​ou may also consider shipping each order by both rail and truck- maybe you ship the whole order part of the way by rail and then complete the final leg of the trip on a truck, saving you money without sacrificing too much speed.

T​he point is to be as creative as possible with it. Odds are good there are several ways to reduce the shipping costs that you haven’t thought of yet. Because they require some outside-the-box thinking, and we just don’t normally apply that kind of thinking to our transportation.

O​ptimize the Route

I​f your drivers are stuck in traffic, that eats up fuel and makes your costs skyrocket. If your drivers have to backtrack five miles because the deliveries were poorly planned out, that’s costing you money.

I​t seems fairly obvious, but you’d be surprised at how few logistics companies actually bother to optimize their driver’s routes. As a result, their drivers waste a lot of time, and drive a lot more miles, than they really need to. This leads not only to higher fuel and maintenance costs. But it also leads to overtime pay for drivers who are spending more time than planned on the road.

T​here’s an easy solution: use a route planner. Route planning software is both affordable and effective. It will automatically optimize the routes for your drivers so that they can drive the shortest. Fastest routes possible and make all their deliveries on time. You may even be able to work it out so they avoid the worst of the traffic, as well.

T​his is really one of the easiest ways to reduce transportation costs in logistics. That’s because driving non-optimal routes is one of the biggest factors in increasing your transportation costs, but it’s an easily overlooked expense. Many companies just assume that their drivers will naturally pick the best routes and then don’t think about the subject again. Then they wonder how they reduce their transportation costs but never make one of the simplest, yet most effective changes they can use.

As a result, they limit how much they can reduce the transportation costs in logistics, and cost themselves a lot of money in the long run.

Monitor Drivers

One important tip for how to reduce transportation costs in logistics is to monitor your drivers. Optimizing the route is important, but it won’t actually help you much if your drivers don’t follow the route you give them.

Even if they do, they might be making personal stops, idling the vehicle for long periods of time, or driving recklessly. All of which can increase your transportation costs, mess up your delivery schedule, and lead to major mishaps on the road.

A simple GPS tracker can ensure that your drivers are not only following the optimized routes, but that they’re also sticking to the schedule, driving responsibly, and focusing on their work. As an added bonus, it can help you to quickly recover the vehicle if it’s stolen.

C​onsolidate Shipping

N​ot every shipment is going to be a full truckload, and while less-than-truckload shipments are convenient for customers, they aren’t so good for you. Clearly, many of your customers are going to continue ordering smaller shipments. If that’s what they need you probably don’t have to make a less-than-truckload shipment each time.

O​ne great way to reduce transportation costs in logistics is to consolidate multiple smaller shipments. This way you can ship out far more full truckload shipments, even if your customers are sticking with smaller orders.

I​n fact, you probably won’t even have to delay the shipment to do it. And, if you do, the delay will be minimal. Unless the customer has expressly expedited the shipment, there should be no issues.

W​arehouse Locations

I​f you’re shipping a lot of goods to one particular area, one of the easiest ways to reduce transportation costs in logistics is to put a warehouse closer to that particular destination. Then, each shipment will have a shorter distance to travel, which is going to save you a lot of money in the long run.

P​lus, since the shipping times will be much faster, your buyers won’t be waiting nearly as long to receive their orders. Customer satisfaction is going to go up, and they might just start ordering more from you. It’s a win-win: you save money on transportation costs, your customer gets their order delivered faster, and everyone is happy.

I​t’s important to remember that this only works if you have good warehousing practices. A well-run warehouse can pay for itself pretty quickly, but a poorly run warehouse is going to end up costing you a lot of money.

T​he warehouse workers need to be storing the products properly so there’s no product loss to damage, and they need to practice good warehouse safety so you aren’t paying out insurance claims for workplace injuries.

Y​ou also need to make sure that the warehouse is in a safe location, with adequate security. You aren’t helping to reduce your transportation costs if you’re losing product to theft from the warehouse.

D​one properly, building warehouses closer to the shipping destination is a reliable way to reduce your transportation costs.

M​aintain Your Vehicles Well

P​reventative maintenance can seem expensive, but if one of your vehicles has an actual breakdown and is out of service, the costs will rise dramatically. Now you’re not only paying even more money to get the vehicle fixed than it would’ve cost to maintain it but you’re losing out on all the deliveries that vehicle would’ve made as long as it’s in the shop.

A​ regular maintenance schedule can be a great way how to reduce transportation costs in logistics by minimizing the amount of time that your delivery vehicles are out of action. It will also help keep them at peak fuel efficiency. It’s a great tool for keeping transportation costs low.

Conclusion

I​f you want to know how to reduce transportation cost in logistics, there are many different solutions to choose from. The best approach is probably a combination of all of them, which will let you attack the problem from every angle.

W​hile you can’t address every factor in the rising cost of transportation, there’s still a lot that you can do to reduce transportation costs in logistics.