What are transport costs?
Transport costs are what you pay to move stuff or people from A to B. For a delivery business, which is all about moving stuff, these costs are a crucial consideration. They directly affect profit margins and the price of goods and services. They also influence decisions about production locations, distribution networks, and inventory levels.
Read on to find out more about what drives transport costs and how you can improve your delivery efficiency.
Examples of transport costs
1. Freight costs
Freight transport costs are associated with moving goods over long distances. This includes international trade between different economies, as well as longer domestic routes.
The components of freight costs include fuel prices, tolls, and tariffs. They can also include the cost of transportation infrastructure such as ports, railways, and roads.
Freight costs are influenced by the modes of transportation used. Road, rail, air and maritime transport involve different shipper fees and insurance costs.
2. Last mile cost
The "last mile" or “final mile” is the final leg of a product's journey from a warehouse, hub or depot to its ultimate destination. This could be a retail store or the customer's home.
This step of the delivery process can be expensive, especially when individual deliveries are involved, because there are no economies of scale as there are with long-distance freight. Factors that affect the cost per delivery include the distance to the delivery point and the time it takes to complete each delivery.
3. Travel costs
Travel costs refer to the expenses incurred when people move from one place to another, for example in commuting. These costs can include public transportation fares, and fuel expenditures for private vehicles.
4. Field service costs
Field service costs are associated with sending employees (usually engineers or technicians) out into the field to provide services or make repairs. These costs can include travel expenses, wages, and the cost of equipment and supplies.
5. Fleet maintenance and depreciation costs
Maintaining a fleet of vehicles can be a significant expense for businesses. These fixed costs can include routine maintenance, repairs, and the replacement of vehicles as they age and depreciate. Fuel costs are also a large factor.
What affects transport costs?
1. Distance
The distance between the point of origin and the destination is one of the most significant factors affecting delivery costs. Longer distances generally lead to higher costs due to increased fuel use and the time it takes to complete the journey.
For example, FedEx Ground contractor Vikram Sekhon noticed that his delivery routes were extremely inefficient, leading to high transportation costs. He used Routific’s route optimization software to streamline his delivery zones, allowing him to serve the same number of stops with fewer trucks.
2. Vehicle type
The type of delivery vehicle used also affects costs. Larger vehicles typically have higher operating costs — but they can also carry more goods, potentially reducing the cost per unit.
3. Route planning
Planning efficient delivery routes is a difficult task, with a big impact on delivery costs. Inefficient routing leads to drivers covering longer distances and spending more time on the road. This can lead to higher fuel costs as well as more wear and tear on the vehicle, increasing maintenance costs. It can also result in overtime pay for drivers.
Route optimization ensures that drivers take the shortest and most efficient path, saving both time and fuel. For example: Autoshred, a paper shredding company based in New York and New Jersey, managed to slash their delivery costs by using Routific. With optimized routes, owner Peter Levitt found that his drivers were spent less time on the road, reducing overtime payments and saving fuel. As a result, the business grew by 11% while fuel costs actually went down by 30%.
4. Package size
The size and weight of the packages being transported can influence shipping costs. Larger, heavier packages may require specialized vehicles or equipment to transport. Naturally, this leads to higher costs.
5. Urgency
The urgency of a delivery can significantly impact delivery costs. Expedited deliveries often come with a premium price. This could be due to the need for faster or more direct routes, or because a whole vehicle must be used for just one delivery.
6. Delivery mode
The mode of transportation used — air, sea, rail, or road — can also affect costs. Each mode has its own cost structure, with air freight typically being the most expensive but also the fastest.
7. Back office costs
Back office costs related to transportation are typically administrative. They include delivery management tasks like scheduling, route planning, and customer service. Route optimization and technologies like route planning software help to improve decision-making and enable cost reduction.
8. Failed and delayed deliveries
Failed and delayed deliveries can be very expensive. Re-delivery doubles the cost of the original delivery, and there may also be penalties or surcharges for late delivery. Such costs can be minimized by improving delivery efficiency and reliability.
Top ways to lower transportation costs
1. Reduce distance from warehouse to delivery
Distance is a major contributor to transport costs, so anything that results in less total distance covered through the supply chain is a win. Locating warehouses and distribution centers close to delivery points is one effective strategy used by companies like Amazon and transport sector giants like Fedex and UPS. On a smaller scale, networks of local delivery hubs can achieve similar results.
2. Find the best deals
Actively seeking the best deals for transport services can result in significant cost savings. For international trade, this could involve negotiating rates with transport providers or using freight exchanges to get the lowest shipping rates. You could also try working with an experienced freight forwarder — their expertise can make it much easier to ensure smooth international shipments and secure competitive rates.
For local delivery companies, negotiating with vehicle suppliers and gas stations could yield valuable savings.
3. Use delivery time windows
In the last mile, delivery time windows can improve efficiency and reduce logistics costs. You may want to schedule deliveries for times when traffic is lighter, or when customers are more likely to be available to receive their orders.
4. Plan efficient routes
Efficient route planning can significantly reduce delivery costs by minimizing travel distances and avoiding traffic congestion. This saves on fuel costs, as well as wear and tear on vehicles.
Tools like Routific's route planning software can help businesses optimize their transport systems. For example, Connecticut-based Terra Firma Farm was able to cut their fuel costs by 35%, while increasing their deliveries.
5. Cut back-office planning time
Reducing the time spent on back-office planning tasks can also help lower transport costs. This can be achieved by automating tasks such as route planning and delivery scheduling. You can use software to manage these tasks more efficiently.
6. Optimize vehicle utilization
Optimizing vehicle utilization can help reduce delivery costs. This involves ensuring that vehicles are fully loaded whenever possible. This can be achieved through careful planning and the use of technology to track vehicle usage and capacity. You can find hidden gems in your vehicle usage datasets.
7. Manage and track delivery performance
Managing and tracking delivery performance can help you identify areas where you can reduce delivery costs. Track key metrics like delivery times, failed deliveries, and customer satisfaction levels. You can use this information to improve delivery processes and efficiency.
By understanding and effectively managing transport costs, you can make more informed decisions. You can improve efficiency, and ultimately, reduce your overall operating costs.
Conclusion
Transport costs are important to your delivery business. Ensure your deliveries are efficient and routed well. Want to optimize your delivery routes and reduce your total transport costs? Sign up for a free trial of Routific's route planning software today.
Frequently Asked Questions
How can transport costs be reduced?
You can lower transport costs in several ways. One way is by planning routes to make trips shorter. You can also reduce the number of trips. Placing warehouses in strategic locations can help. Using specific delivery times can also lower costs. Other ways include finding the best prices for transport services and reducing office planning time. Using vehicles efficiently and keeping track of delivery performance can also help.
What does transport cost include?
Transport costs are all the expenses for moving goods or people. These costs include fuel, vehicle upkeep, and driver wages. They also include tolls, tariffs for international trade, and office work.
How do you calculate transport costs?
You calculate transport costs by adding up all related expenses. These expenses are for moving goods or people from one place to another. They include costs for fuel, vehicle upkeep, and driver wages. Costs for office work are also included.
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