For businesses that deal in large quantities of inventory, transportation costs can have a significant impact on profitability and growth. Transport costs can be mystifying for many businesses, with a number of different freight products, classes and highly dynamic costs. Although it pays to plan for cost spikes, the best strategy to reduce the financial burden of transporting your inventory is to reduce freight costs on a day-to- day basis. Here are five strategies to unlock cheaper and more reliable freight.
Reconsider your packaging
Packing freight more efficiently is one of the simplest ways to reduce cost. Space occupied is typically a key factor that businesses take into account when setting freight rates, so reducing dead space will almost always result in lower rates. In some cases, new packaging may increase breakage or spoilage rates; while it generally pays to reduce lost stock, some breakage may be an acceptable price to pay for a significant reduction in freight costs.
Ship less regularly
Shipping in bulk is typically less expensive than shipping the same volume of product in multiple, smaller consignments. Bulk customers get cheaper rates because carriers can load a container more efficiently – less time is required as the carrier does not need to process, load and unload as many customers’ shipments. On the other hand, regular shipping requires your customers to carry a larger quantity of inventory than they immediately need. This incurs inventory carrying costs, so a small reduction in price or otherwise favourable terms may therefore be necessary.
For some products, shipping components or ingredients in bulk to assemble and pack closer to the point of sale may also allow you to transport product more efficiently.
Agree to ship a fixed volume
Larger businesses often turn to standing capacity to reduce transportation costs; the business agrees to regularly purchase specified space with the carrier in exchange for discounted rates and preferential treatment. This option may not suit very small businesses, although it may be a good option if you regularly ship product between fixed locations. In the event that demand for transportation spikes, having standing capacity saves you from paying significantly higher prices.
Unless you’re in the business of supplying perishable goods, there is no need to pay for on-peak shipping. From time to time, customers who have implemented just-in-time inventory control will require on-peak delivery, but at their own expense. Shipping on off-peak days can, depending on the local market, create significant savings. Backhaul shipping, where carriers attempt to fill empty trucks heading back to base, can further reduce expenses. If you ship significant volumes, consider contacting carriers based in destination centres to see whether there is any backhaul capacity available.
Use data to identify freight weaknesses
Modern inventory management systems collect a significant amount of data, covering most facets of a business’ inventory operations. This data can be used to identify instances of poor shipping performance and to determine the potential cause. For example, shipping records can be used to identify carriers or shipping lanes that have higher than average breakage or late delivery rates.
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.