How to effectively control your transport costs.

Introduction

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.

Bibliography:

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/