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How To Reduce Transportation Costs In Logistics

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  • Post last modified:September 29, 2022
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Summary 

The cost of transportation and freight movement is always a significant line item in the operating costs of logistics and distribution companies.

While there are several tried and trusted solutions to mitigate this cost, it is important for the management of such companies to adopt a holistic and flexible approach with regard to the modes of transport chosen. That, ultimately, results in maximum efficiency at the lowest possible cost.

Reducing transportation costs for Logistics Companies: a perennial challenge.

For companies in the logistics and distribution business, the cost of freight and transportation will always remain a key challenge area. Several cost elements, such as fuel, vehicles, and transport-related logistics, to name a few, will always face inflationary pressure, as well as competitive ones.

In the effort to reduce transportation costs, improve supply-chain operations, and optimize the overall cost-efficiency ratio, several steps can be taken.

These range from collaborating with smart shipping partners that use the most modern methods of operation, improving planning and execution of inventory, adopting best-in-class processes, and syncing working relationships between the various stakeholders within the eco-system so that the general levels of efficiency improvements. 

Of course, the most important element – as always! – is to listen to what your customers want. Setting up the entire system so that they are happy is the first (and, last!) step to achieving a sustainable and profitable operation. 

Let us look at some leading ways to transportation costs in logistics.

Top 8 ways to reduce transportation costs in logistics

1. Use multiple modes of transport: It is important for logistics companies to be flexible in their approach to transportation. And, work closely with clients so that the commensurate mode of transport (or combinations thereof) can be used accordingly. This flexibility will reduce costs (and, offset losses) through options that you may not have considered earlier. 

For example, shipping by sea is cheaper than by air – but it takes more time. Rail transportation is cheaper than the road (trucking) but could take longer due to container bookings, scheduled departures (etc.). Another option would be intermodal transport.

Therefore, the most beneficial solution would be to use a combination of all of the above per the case-by-case requirement. 

2. Work closely with Suppliers: For a logistics and distribution company, dealing with numerous stakeholders along the supply chain is a critical aspect of its business operations. 

A significant portion of its time, money and resources are spent in dealing with its suppliers. Therefore, it is most important that it develops a well-planned working schedule with its suppliers – this goes a long way toward mitigating operating costs.

Best practices include creating a pool of buyers to purchase from a supplier (or, a bunch of suppliers) so that economies-of-scale kick in. By natural extension, this reduces transportation costs like fuel, driver wages, loading/ unloading costs (etc.) since the costs are spread over a greater number of clients. 

Another good strategy is to work closely with a consortium of suppliers that represent a cross-section of the industries. Your suppliers are experts in their eco-system and will provide invaluable cost-reduction ideas for you to implement.

3. Use a warehouse company with a wide network: Using a warehousing company with a wide network of suitably sized and located warehouses would mean goods have to travel the least possible distances to reach their ultimate destination. This is a key factor in reducing transportation costs in logistics. 

4. Optimize the shipment sizes: If you plan your demand-supply and supply-chain logistics properly, you could not only optimize your inventory management but also take advantage of favorable pricing based on shipment sizes. 

LTL (less-than-truckload) sizes of shipment are an economical option for smaller shipment sizes. Similarly, FTL (full truckload) for large shipments would help you benefit from bulk rates and discounts.

5. Use an automatic loading system: The use of technology to reduce labor costs and improve productivity has been a go-to strategy for decades now. And, with modern machinery and equipment, this has reached new heights.

Today, automatic container loading equipment is a critical part of a successful warehouse operation. Advanced high-tech machinery for loading/ unloading and movement of goods within a warehouse results in greatly improved efficiency and reduced costs. 

6. Optimize warehouse usage and maximize storage-density: Warehouses are large spaces with vast storage spaces. However, every single square inch of space is a cost element! Therefore, distribution centers and logistics companies that own and manage these warehouses must ensure that every spot is being utilized efficiently.

Identify and eliminate unused spaces. Improve vertical usage by using racks and bins—not only does this help forklifts load and unload goods, but it also reduces damage. Plan and implement your warehouse operations by factoring in related activities (and costs) such as labor, asset utilization, inventory management (etc.).

7. Use preventive maintenance: Very often, this gets overlooked. Unfortunately, logistics managers face the pressures of daily operations, including monthly P&L and cash flow. Therefore, something that isn’t “imperative in the present” tends to get pushed out.

However, the advantages of a solid preventive maintenance program are many. It keeps your fleet vehicles in top shape, extracts the best possible performance from your vehicles, and extends the life of your vehicles to the very maximum (and, often longer!).

A poorly maintained fleet will ultimately be more expensive in the long run – breakdowns during working hours affect company performance, undermine safety, cause (often fatal) accidents, and result in inflated operating costs.

Breakdown maintenance is just that – it comes into play when there is a breakdown. However, it mustn’t replace a well-planned preventive maintenance plan. 

8. Stay focused on customer requirements: Well, to state the obvious: the target of all businesses is to create and maintain happy customers!

With regard to the logistics industry, everyone is aiming to serve the customer at the lowest possible price. That means, unless your operations are optimized for efficiency and cost, you will not be the first choice for your customer. Working backward, you can only achieve the above if your operations are running at a high–preferably, maximum–level of efficiency.

Since Customer Satisfaction and overall cost-reduction are so closely linked, Logistics Managers must constantly track their CSAT (customer satisfaction) scores. If they aren’t satisfactory, it would indicate a lag in efficiency somewhere. 

Conclusion: As is evident, there are numerous best practices that could reduce transportation costs for today’s logistics companies. For example, using automation, such as best-in-class last mile delivery software, would figure at the top of this list.

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