Part of operating a business is providing something for someone else for a charge. Now unless you provide services, it is likely that a significant proportion of your operations involves bundling up stock, booking couriers and sending it out to customers. There are many types of freight and modes of transport all with differing logistics.
Freight charges can add up quickly and end up chewing through what would be valuable profit. Therefore, it is very useful to understand what comprises them so that it is possible to determine areas for adapting and saving money.
It costs more to send a document in a large box than in an envelope suited for its size. Similarly, the packaging and dimensions of your shipments can drastically affect the cost of freight. You should investigate the different dimension categories for your freight company and get creative. Figure out ways to package items so that you are optimising freight charges.
Expedited freight is a luxury for which you (or your customer) will pay dearly. Freight companies charge more for timely deliveries. Therefore, if you are looking to prioritise capital elsewhere in the business, it would only be beneficial to only ship items for quick turnarounds if absolutely necessary. If the customer is not concerned with a faster service, a more economical shipping option should be considered. To avoid placing your company in a compromising situation with your customer, longer shipping timeframes should be conveyed to them at the time of ordering so that you do not end up failing to meet their delivery time expectations.
For some products, a constant temperature in transit is required (usually cooler temperatures for items that may spoil easily) which can be costly. Unfortunately, this may not be a shipping option you can avoid. Spoiling or product damage may occur if the item is delayed or transits through a hot or humid location, all of which will cost money. Consider better packaging and run temperature trials – you may find you can optimise the packaging to save on special treatment and refrigeration while products are in transit.
Volume plays a large role in determining shipping costs. As with most vendors, if items are bought in bulk, there are usually associated discounts available. The same is true for shipping. To save on freight costs, it would be worthwhile considering where you could ‘piggyback’ shipments so that the freight company has a bigger load. This may involve encouraging different ordering patterns in your customers or tweaking manufacturing slightly so that you can combine shipments to similar locations.
Given that freight invariably crosses borders and time zones, it may of course involve different currencies. As soon as a fee is charged in a different currency (be it an airport tax or port charge of the destination country) it will be influenced by exchange rates and the economic climate of the different countries in which the payments are due.
Likewise, freight invariably involves fuel which is subject to the fluctuations of oil prices. Although you are unlikely to be in a position to mitigate fuel price risks, it pays to remember that they will affect your freight costs.
The mode of shipping (road, air or sea) can drastically affect the cost of freight. The timing of shipments will also be determined by the mode of shipping, so it is important to consider these factors when trying to save on freight costs.
Freight routes, fees and insurances
Different freight routes will result in different fees and require different insurances. For example, a ship carrying cargo along shipping lanes near the Horn of Africa (which are frequented by pirates) may be subject to increased insurance premiums to cover the possibility of pillaged goods. It may pay to ask questions of your shipping company and make sure that you optimise transport mode, timing and route to achieve the best result for both your company and the customer.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.