Running a logistics operation involves a plethora of operational costs, such as taxes, wages, rent, utility and so on, that are due either monthly or annually. These operating costs deeply influence how a business sets its unit price, while at the same time, freight costs go unaccounted for.
But ignoring freight costs has some long-term effects. High freight costs could force businesses to raise the unit price of their goods or services. Pricing surges on goods or services sold to customers will reduce any competitive advantage your business has among other companies when it comes to providing the most favourable offers.
Of course, lowering freight costs are easier said than done, as businesses are struggling to reduce their freight costs due to global trade volatility. Fortunately, there are still a few ways your business can leverage a few gaps and opportunities amid the logistics challenges, which we’ll tell you about in just a bit.
First Things First: Upgrade Your Freight’s Status Quo
Both internal and external factors contribute to these soaring freight costs. Regrettably, businesses can hardly control external factors such as port congestion, cargo shortages, and border restrictions.
Although these external factors are unavoidable, businesses should still attempt to mitigate their negative effects as much as possible. If they want to reduce freight costs, they must look for alternative approaches they can use, particularly within their internal departments.
For instance, they can apply innovative approaches to freight management to avoid the high costs associated with fragmented traditional freight processing. The moment businesses upgrade their status quo by implementing and integrating the right technology to cut costs in manual work and reduce errors, they can work towards cost-efficient strategies and higher profitability despite uncontrollable external pressures.
According to McKinsey, Q3 2022 marks the beginning of logistics recovery to the 2019 levels (i.e., pre-pandemic conditions). That means fewer external challenges associated with Covid-19 are expected, allowing businesses to seize control over the cost-effective freight movements as long as they make the required improvements.
Common Factors That Drive Up Freight Costs
We’ve already talked about how streamlining the internal departments is the first step to lowering freight costs. However, despite the unpredictability and pressure of external factors, some internal reasons can also lead to high freight charges. For example:
Inefficient Freight Shipping
One of the factors driving up freight costs is inefficient freight shipping. The more times a business has to ship goods separately to an area, the more resources and money it costs.
Collecting shipments for specific customers or addresses can solve this issue. Therefore, instead of sending freights more frequently, businesses can ship all the goods simultaneously and efficiently spend the associated logistics costs.
However, to do so, the company must be transparent with its customers. Customers who want to receive their goods sooner should be able to do so with an option for instant or quick deliveries. As an extra service demands more speed, they might even pay additional delivery fees, resulting in a win-win situation for both the shipper and the buyer.
Unnecessary Fuel Usage
Fuel prices have reached an all-time high in 2022 and are hurting businesses across all sectors. According to CNBC, skyrocketing fuel prices, particularly diesel, negatively affect anything transported by truck, train, and ship.
These high prices mean businesses that deliver goods to their customers using these methods must tackle this issue by avoiding unnecessary fuel usage. Neglecting common yet critical issues like the long idling time of vehicle drivers or ineffective route selection continues to be detrimental to their freight costs.
Longer idle time keeps the engines running and consuming fuel without progressing closer to the destination. Ineffective route selection, on the other hand, increases travel miles and causes vehicles to consume more fuel than needed. Therefore, optimising the routes, reducing idle time, monitoring progress for immediate/real-time updates for any issues, and similar strategies will help reduce unnecessary fuel usage, bringing down overall freight costs.
Poorly Loaded Fleet / Packed Goods
LTL Less-than-truckload shipping is often chosen by companies that do not ship in large, bulk quantities, sharing space with other cargo, and it requires stopping at several locations along the way to deliver the shipment. While it is slower and less safe than a full truckload FTL shipment, most companies choose LTL as their ideal method of shipping because of its lower cost and flexibility.
Furthermore, carriers are now using dimensional weight pricing methods, so the more compact the shipment is, the less space it takes up on a truck or container—and the lower the freight charges. If goods are packed and stacked without space optimisation in mind, businesses will have to pay for more space than required. Pack goods tightly and use every available space within the shipping container.
Ill-advised Transportation Mode Choices
Some businesses might fall into miscalculations when choosing the types of transportation modes suitable for moving up freights. For example, they might cluelessly choose to send out their international freight using aircraft, when ocean shipping costs are cheaper.
Furthermore, inexperienced enterprises may rely solely on trucking for long-haul in-land transportation. While transporting freight exclusively by truck offers more flexibility, it costs higher than combining it with rail transportation, which they can do to reduce freight costs.
10 Tips to Reduce Freight Costs
Some businesses make freight transportation mistakes like the ones mentioned above, leading to increased costs. Knowing these common mistakes should be your starting point. Now, let’s look at ten clear and actionable tips for your business that could help reduce freight costs:
- Choose The Right Transportation Modes
Sometimes, a low freight budget requires businesses to choose transportation modes that support this financial condition. In addition, low freight tariffs typically imply that they must put aside other concerns, such as quick, flexible, and other delivery conveniences, to focus on non-time-critical options.
If businesses need to transport international cargo, they may want to rely on ocean shipping rather than air shipping. Though it takes longer, ocean freight costs 12–16 times lower than air freight.
- Know your FTL and LTL rates
When you’re looking to save money on FTL and LTL shipments, it helps to understand how the freight quote is calculated. One important factor that affects pricing is supply and demand. One way you can potentially save on FTL shipping rates is by increasing the lead time.
On the other hand, for LTL shipping, carriers charge accessorial fees for services that go beyond what is typically expected, such as fuel surcharges, remote locations and liftgate service. A standard shipping procedure can help you identify these fees early on so you can avoid them in the future.
- Ship Goods During Off-Peak Days
Shipping demand can be higher on certain days of the year, so carriers charge a higher freight cost. Enterprises seeking to lower their freight costs should keep in mind that affordable shipping should not be time-sensitive. If possible, such businesses can shift deliveries to off-peak times. Off-peak time has lower shipping demand and shipping costs, resulting in significant savings.
- Foster Relationships With Carriers
Using freights for shipping means businesses need to choose carriers that offer the most affordable pricing to transport their products. That means they must foster relationships with carriers in specific areas and determine how much different carriers charge for their services.
Once they have determined each carrier’s fees, they can partner up with those who offer the most affordable rates. Long-term collaboration with certain carriers can also reduce freight costs as carriers frequently offer discounts for high volume and regular shipments.
On the other hand, businesses can easily switch to other carriers if the chosen carriers no longer provide the best value deals. To evaluate carrier performance, look into implementing a multi-carrier management platform to gain insights and make strategic decisions on your carrier selection.
- Be mindful of dimensional weight pricing
Another reason for high freight costs is packaging dunnage. If businesses continue to wrap and package their items incorrectly (e.g., small products in a large box), they risk wasting space with a low-density shipment.
Investing in proper product packaging will solve this problem. The items, which vary in size, would fit neatly into different sizes of packaging material. While small and seemingly inconsequential, this improvement eventually allows businesses to fully utilise their fleet space and avoid any unnecessary frequent deliveries.
- Leverage Backhaul Loads
Backhauls are loads transported by trucking companies on their return trips. They usually do this to cover their empty miles, so instead of driving back with empty loads, they offer free space to shippers at certain rates.
Enterprises looking to reduce freight costs should take advantage of such backhaul loads. The costs of transporting goods using this trucking service are generally cheaper since the demand for these shipments is low, and trucking companies need to cover their empty miles.
- Boost Order Fulfilment Lead Times
Slow fleet vehicle movement, whether due to long idling times, inefficient route selection, unpredictable loading and unloading times, or other factors, will result in higher freight costs. These issues will lead to increased fuel consumption and overtime wages, which require additional spending.
Rather than dealing with expensive freight for a prolonged time, businesses may want to secure their operations and aim for faster order fulfilment. Innovative logistics solutions help shorten lead times, allowing for more efficient utilisation of fuel and labour wages.
- Use Multiple Carriers
Whether you are shipping FTL or LTL, the carrier you choose is key to keeping your costs low. Utilise multiple carriers to fit your business needs and evaluate them periodically to ensure that you get the best value out of the partnership.
- Monitor Freight Movements
Any strategies to reduce logistics costs will be useless without visibility into the freight movements. Real-time information on freight movements holds every party involved in the land freight accountable. Freight movement visibility empowers businesses to take corrective actions in real-time, avoiding unnecessary delays.
How Do These Shippers Benefit From Lower Freight Costs?
The logistics industry includes a wide range of businesses. Despite the fact that their operations differ, all of these businesses will benefit from lower freight costs. Here are some examples below:
Manufacturers turn raw materials into finished goods. Most of the time, they are the source of finished goods that circulate in the market through retailers.
Supplying raw materials and shipping finished goods, on the other hand, entails using logistics services. Lower freight rates mean they can tighten their budget as there are other expenses to consider, such as labour, electricity, taxes, and so on.
The better manufacturers can control their costs, the more likely it is that they will offer the best value price per unit for their products. As a result, more customers will eventually come in to buy their finished goods, allowing them to earn higher profits.
Retailers are companies that sell finished goods they purchase in bulk from manufacturers to end customers. Some retailers may sell similar products in the market, forcing them to compete on price.
In such a situation, they must effectively manage their overhead costs, which include shipping goods from the manufacturers to their warehouses. As a result, lower freight rates allow them to stay ahead in the price competition while still earning remarkable profits that sustain them in the long run.
Trucking companies serve as vital support in freight movements. Any kind of shippers, whether it’s manufacturers, retailers, or 3PLs, would need their services.
Despite their significant position, it would be meaningless if they were unable to reduce their freight rates. Shippers will always be able to find other options that most benefit them financially, which trucking companies are usually aware of.
That’s why, any actions taken to reduce operational costs would enable trucking companies to gain more customers. They can, for instance, optimise their fuel usage, seek backhaul loads, and reduce idling time to keep their service fee low while still generating income.
Third-party logistics (3PLs) are the type of services large businesses use to outsource their order fulfilment. Not only will 3PLs handle goods transportation, but they will also handle items warehousing, packaging, and finally shipping on behalf of their clients.
Due to the heavy ties between 3PLs and freight handlings, logistics costs directly benefit their operations. The lower their freight costs, the cheaper the rates they can offer their clients, which means more clients will come in, eventually boosting their revenue.
Advanced Tools To Lower Freight Costs
We have discussed how lower logistics costs benefit various business sectors, along with the strategies that businesses can employ. Yet, neither the benefits nor the strategies would be feasible or applicable without the support of the following tools:
Fleet tracking is a feature that every leading logistics solution should offer. It allows businesses to track their delivery fleets in real-time, receive live updates on fleet driver locations, and generate ETAs for customers to know when to expect their orders to arrive.
In terms of freight cost reduction, ETAs reduce customer queries. This way, they can shift their time and resources to other areas while still being capable of resolving queries and improving the customer experience.
Additionally, tracking delivery fleets and receiving updates on fleet driver locations enables enterprises to detect when movements are not going as planned. Then, they can take corrective actions to prevent similar problems from recurring, ultimately saving them money from increased fleet operations efficiency.
In addition to any existing resources, route optimisation helps businesses get the most out of their workforce and make more deliveries.
Route optimisation assists businesses in planning their drivers’ scheduling by taking into account loading and unloading times. Drivers will no longer have to complain about delays caused by long loading or unloading times, and dispatchers will be able to better streamline delivery orders to drivers.
Second, smart algorithms can guide businesses in dividing loads for single-leg and multi-leg deliveries. As a result, they can fully utilise their fleet capacity and make more deliveries while using the same resources.
Third, it makes it easier for businesses to find replacement drivers in the middle of a delivery run. The system will automatically match orders to available drivers bound for the desired destination, saving them time and phone credits from manually calling several drivers.
Finally, it matches the non-standard-sized goods to the vehicles that each business has in its system. Ultimately, they can proceed to faster order fulfilment because there will be no time wasted trying to load the goods only to discover that the items are unfit for the vehicles.
Order management consolidates orders from multiple sources (e.g., physical forms, phone calls, emails, and text messages) into a single place. Eventually, businesses can keep track of the incoming orders and gain the resources to handle them all in one platform, reducing any order discrepancies that could disrupt the delivery process.
Order management eventually leads to faster fulfilment by automatically assigning orders to the internal drivers or delivery partners. In addition, it can be a cost-saving relief as businesses can hold off on hiring extra personnel while remaining competent in shipping out their goods.
Businesses that outsource their transportation to external carriers will benefit from the multi-carrier management feature. This feature enables them to communicate with their carriers in real-time and reduces the need for phone calls, which can be costly and time-consuming.
This feature also empowers businesses to increase their delivery capacity with ease. They can automatically transfer delivery orders to their carriers while remaining in control of the whole goods movements.
Finally, carrier management gives businesses real-time visibility into their carriers’ performance, capacity, and costs. They can then choose which carrier to work with based on affordable freight costs and optimal performance.
End-to-end analytics provide businesses with continuous information about their delivery performance to ensure that it runs smoothly and cost-effectively.
The feature itself gathers all important data in a single digitised network. The centralisation then allows businesses to review their performance and make informed decisions that can lower freight costs based on data-driven analytics.
Digitised Supply Chain Network
A digitised supply chain network integrates all important data into a single platform. It improves visibility throughout the supply chain and allows businesses to manage their supply chain cost-effectively, enhancing their cash flow sustainability.
Additionally, a digitised supply chain network empowers businesses to meet the high expectations of how supply chains should operate. Eventually, the centralised information will enhance their supply chain capabilities and lead them to reach a greater market share.
So, How can You Lower Your Business’ Freight Costs?
Regardless of external unpredictability, it’s of utmost importance that you understand how to keep your freight delivery budgets to a minimal level. This is a critical aspect of running a successful business.
If you need further support on lowering your freight costs, book a demo with us on Yojee. We provide some of the unique but necessary features we’ve mentioned above. We’ll be more than happy to come on board, analyse the room for improvement within your business, and how you could keep costs low and profits high.
Helping businesses overcome their complex supply chain challenges has always been Yojee’s core value. We connect land freight players through our proprietary platform, providing supply chain visibility and enabling seamless communication between shippers and their customers.
Since our founding in 2016, we have worked alongside the world’s largest 3PLs, global freight forwarders, transportation companies, and brand owners to develop logistics solutions that meet their first-mile and last-mile delivery needs.
How Yojee stands out from other logistics providers is our multi-carrier management feature, which allows collaboration between land freight players to meet demands. Coupled with our last mile delivery app for drivers, logistics providers can now efficiently move freight from point A to point B with optimal resource usage. We do all this with one goal in mind: fewer carbon emissions and sustainability.