How to effectively control your transport costs.
It is no secret that transport costs have been rising across all different modalities. Carriers must enforce measures such as peak surcharges, and records are being broken in terms of transport costs throughput. Inflation puts immense pressure on many businesses and forces them to reevaluate their current transport operations. The reasoning for the increase in costs is multivariate and can be accounted to phenomena such as the increase in fuel prices, the increase in demand for transport services, or the uprise of COVID-19. Another contributing factor is the online share of retail trade in Europe, continuing to rise across most countries (Statista, 2020).
Whether you are an Small to Medium Enterprise (SME) or a large multinational corporation, any company would do well to keep a firm grip on their transport activities. Depending on the type of business, not managing your transport activities effectively could lead to unwanted consequences such as overpaying, decreased customer satisfaction, and inventory management problems.
Inflation amongst transport costs is not expected to become less prevalent anytime soon (Bloomberg, 2021). As you can see in Figure 1, ground transportation prices alone have and are predicted to outpace the Producer Price Index for the foreseeable future (TransportationInsight, 2021).
Figure 1. PPI v Parcel, LTL and Truckload Price Indices June 2016 – May 2021
Underestimating the importance of strongly maintaining your transport activates can lead to an array of quickly accumulating negative effects as mentioned above. Now how do you tackle this? Let’s start with Supply Chain visibility.
Supply Chain visibility
According to Hofman et al. (2019), lacking information and awareness on your current Supply Chain stakeholders and activities causes unnecessary delays and disruption amongst your business activities. If you are an SME that is growing, you understand the struggle of scaling effectively with your growth. Acquiring and allocating the right resources to the right business activities can be a challenge. Reducing transport costs starts with Supply Chain Visibility.
The concept of Supply Chain Visibility essentially means awareness of and control over end-to-end supply chain information. As often said, knowledge is power. Zooming in on the transport/logistics area of the Supply Chain, it is vital for a business to first understand its Shipping profile and current transport activities before aiming to enforce measures that lead to reducing transport costs. This can be done by applying the 2 key steps below.
- Request and analyse your current shipping profile.
Do you currently hold a one-carrier approach, or are you using multiple carriers? Which modalities are you making use of? How much are you shipping, and where to? Are your transport carriers the same for import and export? What is your average weight per shipment? These are all questions to be asked when analysing your shipment profile. A business must first know the exact ins and outs of its Shipping profile before attempting to reduce transport costs. Request the corresponding data/documents from the purchase department or transport stakeholders.
- Maintain a structured and detailed overview of currently incurred costs
Once the Shipping profile has been analysed and the transport activities are clear, you must strive to create a clear overview of all incurred transport costs. This optimizes your awareness of currently spent resources and allows a business to evaluate their current activity by reviewing the performance/resources spent ratio.
Reducing transport costs, utilize third party competence.
Now that your current Shipping profile and costs are clear, you can start to implement measures to reduce transport costs. There are many ways to do achieve transport cost reduction. One important strategic decision concerns the choice of whether to insource or outsource your transport activities.
Insourcing your transport has many benefits such as reducing third-party liability, clear transport activity overview, and eliminating unwanted waste processes. However, keep in mind that transport tariffs are rising and are expected to continue to rise. This essentially minimizes and complicates the benefits gained from insourcing nowadays. Companies that are unsure of their current transport activities do well by considering outsourcing to a professional and competent third party.
Transport tariffs are often more expensive the lower your shipment profile. The more shipments you send, the cheaper the price per shipment as tariffs are usually being charged depending on the amount of KG’s or volume shipped. This means that third-party companies which are proficient in handling transport activities maintain and combine high usage shipping profiles to get surprisingly low rates and in turn, reduce transport costs for many participating parties.
Expert companies such as Moduslink allow businesses to reduce transport costs effectively by providing businesses the opportunity to outsource their end-to-end Supply Chain and transport activities. Get a personalized offer, contact Moduslink today.
Bloomberg. (2021, April). Higher Shipping Costs Are Here to Stay, Sparking Price Increases. https://www.bloomberg.com/news/articles/2021-04-12/higher-shipping-costs-are-here-to-stay-sparking-price-increases
Campbell, S., Phillips, D., & Campbell-phillips, S. (2020, July). Lack of Communication between Management and Employees. Researchgate. https://www.researchgate.net/publication/342796387_Lack_of_Communication_between_Management_and_Employees
Hofman, W., Dalmolen, S., & TNO, The Hague, The Netherlands. (2019, August). Supply Chain visibility ledger. Researchgate. https://www.researchgate.net/publication/334883753_Supply_Chain_Visibility_Ledger
Statista. (2021, July 7). Online share of retail trade in selected countries 2014–2021. https://www.statista.com/statistics/281241/online-share-of-retail-trade-in-european-countries/
The effects of outsourcing your Supply Chain after Brexit
A little over a year has passed and Brexit is still causing many disruptions amongst industries. Virtually any company that must maintain a streamlined Supply Chain cannot deny the strong effects Brexit has had within the industry. Companies must deal with rising issues such as changing Import/Export regulations, restrictions concerning the free movement of people and managing supplier relations. One of the most predominant effects faced by companies concerns the increase in complexity in cross border customs/tax regulation. This is especially relevant in the Transport and Logistics sector.
The new customs/tax regulations force companies that conduct trade between the UK/EU to reassess their strategic decision-making regarding the clearance of goods and paying VAT (this includes any additional tariffs when selling to EU customers). Doing so is necessary, but will result in increased transport costs, extensive paperwork, and prolonged delivery times. Companies can also choose to regain control by acquiring warehouse space within the EU to function as a fulfillment center and vice versa. This decision will, however, implicate high opportunity costs (Williams, 2021).
In addition to the increase in complexity concerning customs/tax regulations, UK regulatory compliance now exists separate from EU regulatory compliance. The most essential requirements in terms of environmental issues, safety, and health will not change substantially. However, there are most certainly some major changes applicable to UK/EU product compliance regime (Grist & Erasmus, 2021). Two of the most significantly changing instances are:
- The introduction of a UKCA mark and a UK Declaration of conformity for market entering products.
- A shift in obligations and duties between ‘manufacturers’, ‘importers’, and ‘distributors’
Brexit has caused many Supply Chains to have their weaknesses exposed as a result from the above stated effects. This does not mean, however, that there are no opportunities for the sector. Experienced businesses know that problems create opportunities for improvements. Organizations are adapting by reassessing their current Supply Chain operational processes. This is vital for improving post Brexit. Companies must reevaluate their current transport activities and adjust their strategies in accordance with the Brexit effects and regulations. One of the ways of doing so is Outsourcing.
According to Investopedia (2021), the definition of outsourcing is defined as: ‘the business practice of hiring a party outside a company to perform services and create goods that traditionally were performed in-house by the company’s own employees and staff.’.
In essence, companies that outsource elements of their Supply Chain can achieve benefits such as:
- Reducing Operational Costs
- Increasing Flexibility
- Mitigating risks
- Creating opportunity for innovation
- Streamlining operational processess
Working with experienced professionals that deal with outsourcing daily is an effective way to quickly increase your company’s efficiency. Some organizations outsource their entire Supply Chain to expert companies that are up to date with the latest knowledge. This allows them to tackle the complex issues concerning customs/tax changes resulting from Brexit. Others merely outsource elements of their Supply Chain to increase their proficiency in that specific area. For both cases, Moduslink is your partner of choice and can provide you with customized solutions that fit to your needs, increasing your needs and allowing you to anticipate growth, streamlining your costs, increasing your revenue, and building brand loyalty.
If you are a company that is struggling to effectively resume your business between the UK and EU, allow Moduslink to relieve you of your worry by offering a wide variety of outsourcing solutions backed by industry experts. Our solutions allow you to improve your Supply Chain by implementing:
- Packaging, Kitting & Assembly
- B2B and B2C Fulfillment
- Reverse Logistics
- Warehousing and Distribution
- Delivery and Logistics
- Location optimization
Gain control over your Supply Chain and experience the benefits from Outsourcing through Industry experts.
KPMG International. (2017, February). Brexit: The impact on sectors. https://assets.kpmg/content/dam/kpmg/uk/pdf/2017/03/brexit-the-sector-impact.pdf
Investopedia. (2021, May 2). Why Companies Use Outsourcing. https://www.investopedia.com/terms/o/outsourcing.asp
SchoenHerr, T. S. (2010, January). Outsourcing Decisions in Global Supply Chains: An Exploratory Multi-Country Survey. International Journal of Production Research. https://www.researchgate.net/publication/247162714_Outsourcing_Decisions_in_Global_Supply_Chains_An_Exploratory_Multi-Country_Survey
Williams, C. W. (2021, March 26). How is cross-border e-commerce and distribution adapting to Brexit? KnightFrank. https://www.knightfrank.com/research/article/2021-03-26-how-is-crossborder-ecommerce-and-distribution-adapting-to-brexit
Grist, E. G., & Erasmus, P. E. (2021, January 1). Brexit: Product Compliance and Liability implications. Bird & Bird. https://www.twobirds.com/en/news/articles/2016/uk/brexit-product-compliance-and-liability-implications