Transportation and freight
27 February 2024
Air Freight Inland Services Ocean Transport Rates
Beyond being just figures on an invoice, shipping freight costs are pivotal parameters that can define a business’s profitability and operational competence.
Many factors influence how much you pay to get your goods from point A to point B. Let’s explore seven of them in detail.
Key determinants of shipping costs
Logistics costs primarily comprise expenses related to various supply chain activities. Here are the most critical parameters that define these expenditures:
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Mode of transportation
Your haulage choice directly affects how much you pay and how long it takes your goods to arrive. For example, air freight offers the fastest delivery, but has the highest price tag, ideal for urgent shipments or perishables. And ocean freight provides the most cost-effective option for bulky cargo over long distances, but requires longer transit times. So:
- Know your needs: Consider urgency, budget, cargo type, and destination when choosing a transport mode. Prioritise speed for perishables, leverage sea freight for bulk, and explore land options for regional needs.
- Compare options: Get proposals from carriers across various modes and compare services, transit times, rates, and other fees like fuel surcharges and accessorial charges.
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Shipment size and weight
Every cubic metre counts. Bulky and heavy shipments require more space on trucks or containers, translating to higher fuel consumption, increased driver hours, and greater vehicle wear and tear. This ripples into a higher price tag on your invoice. So:
- Consolidate smaller shipments: Instead of sending multiple small packages, strategically bundle your freight into larger, consolidated shipments. This fills up space efficiently, optimising container utilisation, and driving significant savings.
- Embrace compact packaging: Ditch oversized boxes and excessive void-filling materials. Invest in well-fitting boxes and space-saving freight packaging techniques to minimise wasted area capacity and reduce your overall shipment dimensional weight.
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Destination distance
The further your goods travel, the deeper the financial trench they dig. Longer journeys equate to increased fuel consumption, extended workforce hours, and potentially multiple modes of transportation. These factors inflate your shipping costs, so:
- Explore regional sourcing: Can you source materials or finished products closer to your production or distribution centres? Reducing the distance travelled in supply chains can significantly decrease fuel costs and transit times, leading to substantial savings.
- Consider intermodal shipping: For long-distance shipments, combine land and sea transport. While ocean freight has longer transit times, its cost-effectiveness for bulky cargo can often outweigh the speedier and pricier option of all-land transport.
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Delivery speed
While the promise of fast delivery is tempting, it comes at a premium price. Express and expedited services command significantly higher rates due to dedicated resources, shorter transit times, and prioritised handling. These costs can quickly erode your profit margins. So:
- Compare transit times: Not all expedited options are created equal. Research and measure the haulage times and rates offered by different carriers. You might find competitive expedited options that fit your budget without sacrificing much on speed.
- Plan ahead: Anticipate your inventory needs and order materials well in advance to avoid the last-minute hassles for express shipping. Proactive planning allows you to utilise standard shipping options, which are considerably reasonable on fees.
- Prioritise cost-effectiveness: Unless lightning-fast delivery is absolutely crucial for your business model, opt for standard shipping options. Remember, every step up in speed comes with a corresponding jump in freight shipping costs.
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Fuel fluctuations
The global oil market is extremely volatile. Soaring fuel prices translate directly to increased operating costs for carriers, which inevitably reflect higher shipping rates. This unpredictability can wreak havoc on your budget and cash flow. So:
- Monitor trends: Stay informed about global fuel price forecasts. Knowing what’s on the horizon allows you to adjust your inventory management, shipping strategies, and pricing models to reduce the impact of potential fuel-driven cost increases.
- Consider alternative fuels: Some forward-thinking carriers are embracing eco-friendly options like electric trucks. While still in their early stages, these alternatives offer the potential for lower costs and a reduced environmental footprint for your business.
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Accessorial services
Think of these services as the hidden fees lurking in the shadows of your base freight rate. Liftgate use, chassis fees, pallet removal, door-to-door delivery, and other add-ons can quickly wreck your shipping budgets if not carefully managed. So:
- Choose delivery locations: Residential deliveries typically incur additional fees; thus, opt for commercial delivery addresses when possible. Also, consider delivery locations with loading docks to avoid liftgate charges.
- DIY where possible: If your resources allow, handle loading and unloading yourself to avoid liftgate or pallet removal charges. Remember, every bit of self-reliance translates to cost savings. Identify the services you frequently use and plan ahead.
- Bundle and save: Negotiate package deals with your carrier for frequently used accessorial services. For example, combining liftgate use with pallet removal can secure a better rate than paying for each service individually.
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Supply market dynamics
The shipping landscape is not static; it’s a dynamic ecosystem constantly reshaped by the interplay of supply and demand, economic fluctuations, and seasonal variations. Peak seasons, equipment shortages, and economic downturns can all lead to capacity constraints and price hikes, impacting your profit margins significantly. So:
- Embrace flexibility: Adapt your shipping strategies during busy periods or capacity shortages. Consider alternative shipping modes, routes, or even temporary storage options to navigate around bottlenecks and avoid exorbitant fees.
- Build carrier relationships: Strong partnerships with reliable carriers can be your lifeline in turbulent market conditions. Negotiate preferred rates and access during busy periods, ensuring your shipments aren’t stranded when demand surges.
- Stay informed: Monitor industry trends, capacity reports, and economic forecasts. Proactive awareness allows you to anticipate market shifts and adjust your shipping plans accordingly, minimising the impact of external factors on your costs.
Get the checklist: 7 factors impacting freight shipping costs
To help you keep this information top of mind, we’ve created a downloadable checklist with the seven factors impacting freight shipping costs.
Manage your freight shipping costs with Maersk
By understanding these factors, implementing these strategies, and staying adaptable, you can transform your shipping expenses from a daunting obstacle into a manageable element of your business operations.
Ready to transform your logistics and shipping ops? Book your freight with Maersk.
