Keeping your small business afloat in the global market against big players is no small feat. It can be exhausting and tumultuous, being battered by every rise or drop in the markets, different currencies and most importantly, the cost of fuel. Fuel costs are often the culprit for unexpected transportation costs. Here we investigate some methods which small businesses can employ to reduce the effects of these unexpected transportation costs.
The mantra is generally that storing a large amount of inventory increases carrying costs such as handling, warehouse rent and insurance costs. For that reason, ‘low stock’ inventory methods such as Just-in-Time inventory have been developed. However, a major factor in support of storing goods is that the company can then significantly reduce transport costs which are ever-increasing and constantly eroding the bottom line.
Transportation costs are not only increasing, but transport can be very uncertain when going by sea; many shipping lanes connecting the Northern and Southern Hemispheres are commandeered by pirates. When we consider air transport in the last few years, things such as ash clouds from volcanoes have been a concern. One cannot always ensure that goods will arrive on time and in perfect condition which can represent a cost to the company in terms of customer satisfaction and company reputation. It could be worth investigating whether the costs of storage offset these transport costs and short term disruption risks.
Combine loads to reduce transportation costs
A major way to not only reduce transport costs but to ensure your goods are transported on time (if the carrier has the policy of trying to send full loads rather than half-empty ones) is to combine several of your own loads in one hit or to even collaborate with other small businesses and share shipping costs. This can be a major way of reducing the effect of uncertain transport costs and having the capacity to absorb them without damaging your budget.
Choose direct-to-destination delivery runs
Recently carriers have tried to reduce some of their storage costs by using the method of cross-docking for shipments. This is where freight is offloaded from one truck, straight onto another going in the right direction – this strategy takes a lot of planning but, however avoids unnecessary storage. The only issue to be aware of is that each time cargo is offloaded and reloaded, it incurs a fee. This is then charged to the customer and can result in significant unforeseen transportation costs. A method of combatting this is to either factor it in and pass it on to your own customers or to search for carriers which ensure direct-to- destination runs, cutting down on the amount of manual-handling.
Draw up a contract
With any business transaction, it is imperative to cover your bases and ensure everything is backed by a written contract. This applies to dealings with your shipping carriers as well. From the get-go, seek to establish a contract outlining all the various costs they will charge you and the quotas they expect you to fulfil for certain discounts. This will not only keep everything protected and above board, but will also prevent unforeseen costs arising and being billed directly to you.
Ensure you do not over-promise to your customer
Finally, it is important not to over-promise your customer only to find you cannot fulfil the promises. This might mean the company loses money and the customer becomes dissatisfied. If you promise an expedited shipping service and then find that the carrier insists on charging you more than expected, then the company must absorb the cost. Unless the customer is willing to pay for premium options, keep shipping options standard so that you can find carriers to ship for the rates you have specified.
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.