Understanding and Optimizing Transport Costs for Delivery Businesses

Is it easy to run a transport business? How important is it to emphasize transportation costs? Transport businesses need to decide whether they are spending an appropriate amount on their transport costs or not. 

It is because your profit will be transportation costs subtracted from the total money earned after fulfilling an order batch. So, the mission of your business should be to minimize the overheads and optimize the mandatory operation costs to maximize profitability. 

So, it is now proven important for all transport business owners to understand what affects their transport costs and how they can minimize them. 

What Are Transportation Costs?

Transportation costs are the expenses you make related to transportation operations including raw materials, driver wages, employee salaries, vehicle maintenance, vehicle operations, and finished products. Some of the transportation costs are fixed, while others are variable.

For instance, gas or fuel costs are variable because fuel prices keep changing. The insurance costs, however, have a fixed premium, depending on the policy you have opted for.

Types of Transportation Costs

To help you understand global transport costs better, here are a few examples that will help you understand where you spend most of your money:

1. Freight transportation costs

Freight is the term used for long-distance shipping of goods, through semi-trucks, ships, and trains. Such types of long-distance shipping include shipping or line haul costs that can be calculated depending on the distance from the origin to the destination.

In addition, the final expenditure includes actual operating costs, including pick-up, delivery, handling, billing, payment collection, and insurance costs. 

If you are running a freight or large-scale transportation business, you should choose your carriers wisely. It is because you might have to build a professional relationship with them in the long term to get price cut-downs on your mandatory operating costs. 

Hence, it will help you increase your profit ratio from each freight you send to your customers. 

2. Vehicle-related expenses

Buying a vehicle to provide actual transport services might be a one-time investment. However, operating and running the vehicle over time for business purposes will add to the actual costs of transportation.

Commercial vehicles must abide by the rules of getting inspections done at regular intervals. Unexpected repairs in commercial vehicles in the transport sector are often expensive. 

The vehicle needs timely maintenance where the engine lubricant, tire health, mechanical functionality, and all other things are checked and amended. It is a part of the transport system that you cannot omit. 

Vehicle depreciation and accidental repairs are some other vehicle-related costs that transportation businesses have to bear.  

3. Last-mile delivery costs

Most transportation or trucking companies opt for last-mile delivery services to keep up with the trend. In this, the companies must deliver the order to customers’ doorstep.

It is undoubtedly an expensive part of the delivery business. Delivering a product to the customer instead of a decided warehouse or storage hub comes at a higher cost. It demands the need for more drivers, vehicles, routes, and transport costs. 

The final mile operations in the business can cost you 50% of the complete shipping costs. Global transport costs state that last-mile operations are responsible for over 40% of the total logistics costs. A few more things that add up to the expense of last-mile delivery costs are reverse logistics and failed deliveries.

4. Optimizing route planning

Planning delivery routes manually may be complex and time-consuming, especially if you have to consider multiple constraints, including traffic, drivers’ shifts, customers’ preferred time windows, or priority. 

This may result in inefficient routes that may lead to increased drive time and distance, increasing fuel and vehicle maintenance costs. Moreover, it may also cause double-backing or idling causing inconvenience for drivers and operational inefficiency. 

5. Improving Customer Communication

Establishing constant communication with customers may become tough, especially if your drivers don’t have the right mobile app or device to connect with them while on the road. 

Further, without real-time visibility into delivery operations, you may fail to determine the most accurate ETAs and convey them to customers, resulting in a loss of transparency and trust.

Factors Affecting Transportation Costs

While some factors that influence transportation costs, such as gas prices, are not under your control, there are other factors that can help you minimize high transportation costs. Based on the below factors, you can determine which areas you can work on to limit the expenses without affecting profitability. The factors include:

1. Distance of transportation

The logical understanding is that the farther a package or freight is to be transported, the higher will be transport costs. It is because manpower, mileage, and fuel needed will be higher in such scenarios. 

If you are operating with international trade, the distance will trigger other costs such as surcharges and custom fees. The majority of the logistics costs that you have to bear concerning the distance of transportation cannot be minimized or cut down.

You can determine the global transport costs dataset for international trade. Suppose the international trade frequency is higher for your business. In that case, you can consider developing a global transport costs dataset to determine the transport cost for international trade. 

But you can eventually reduce the distance your delivery drivers and vehicles travel. It can be done with the use of route optimization software. It will help you limit the transportation cost to some extent, in terms of fuel and delivery time. 

2. Handling of goods

Some shipped goods are marked fragile or hazardous. Hence, special handling is required from the transportation service providers. Such handling comes at a high price as the goods demand special packaging or hazard-proof vehicles.

Packaging of some fragile goods is also more expensive than usual methods. For instance, glass and perishable goods are cushioned with thermocol and air packets to be safe from jerks during transit. Hence, such additional packaging elements also contribute to overall goods handling cost. 

3. Package weight and size

The heavy and big packages will cost more to be shipped to a specified destination than the small and lightweight packages. It is because the shipment costs are often decided based on the weight of the package. 

You can reduce the weight of a package to some extent by using lightweight and more practical packaging materials. It might not impact too much on a single package’s product weight but will be a cumulative cost-saving approach for all the packages you ship. 

4. Failed deliveries

Failed deliveries indicate that your delivery driver has to visit the customer’s address again to attempt the delivery. It will cost your business fuel, driver effort, vehicle health, and additional order fulfillment time. Therefore, shipping accuracy is one of the most crucial elements to saving some unwanted expenses. 

5. Faster delivery

The transportation or trucking companies that prefer maritime transportation, with a delivery span of 6 months, often save money on overall shipping operations. But the companies using maritime transport to rush the deliveries will have to pay a very high price for the job.

Depending on the transport modes, you should decide on a reduced shipping cost, whenever possible. If the customers are ready to bear the overheads for faster deliveries, then you can consider taking the risk of paying higher transportation expenses.

Strategies to Minimize Transportation Costs

Below are the steps to minimize or reduce transportation costs.

1. Optimizing route planning

Using automated route planning software is the best way to save a lot of money in the transport business. Such software will use an automated algorithm to pinpoint the delivery destinations, and an optimized and shortest route will be generated for you. 

It will help you deliver the goods faster by reducing the fuel consumption and distance traveled by your vehicle and delivery drivers. 

2. Improving customer communication

Using proper operations management software, your drivers can consult the customer a couple of hours before attempting the delivery, based on their availability at the site. 

If it is confirmed that the customer won’t be available and the product can’t be left with the neighbors, then the attempt will not be made in the first place. This way, you will have more successful deliveries in the first attempt.

3. Insurance and risk mitigation

Insurance pricing varies depending on the providers and your credit rating. Some insurance providers will offer you discounted policy rates if you have a good record. So try to compare multiple insurance policies before you can decide on one. 

USAA is one of the best vehicle insurance companies in the United States for you to count on. Its customers have the highest satisfaction rate as per 2022’s survey. Its annual average rate is $1000. You must consult them to discuss the ideal policies available for your vehicles.

Insights from Industry Experts

Philip Schmidbauer, the senior director of analytics and solutions with ODW Logistics, suggests having different carrier options instead of relying on only one so you can utilize competition for better prices.

Another strategy that industry experts recommend is smart contract negotiations. Allen from ITS suggests entering into long-term contracts to secure comparatively lower rates instead of renewing contracts frequently and paying increased rates due to inflation. 

Real-World Case Studies

Amazon, the online retail giant, uses sophisticated routing algorithms to optimize delivery routes and utilizes real-time data to adjust them. It helps them reduce mileage, and fuel consumption, and improve last-mile delivery efficiency. It also helps consolidate multiple deliveries into a single journey to reduce the need for multiple trips. Moreover, efficient routes help meet delivery timelines, improving customer satisfaction. 

Another major example is Walmart. It uses intermodal transportation that incorporates a combination of truck, rail, and ocean freight to optimize the transportation network. For long-haul shipments, it relies on rail transportation. This multi-modal approach enables minimizing transportation costs while ensuring timely delivery. 

Reduce Transportion Costs with Upper Route Planner

Upper Route Planner is the perfect automated software to give you optimized delivery routes in a matter of a few clicks. You must just enter the delivery addresses to pinpoint them on the map. Once the route is ready, it will be dispatched to the driver’s application portal.

You can enable automated notifications for the customers to give them constant information on where their package is at the moment. Upon delivery, you can collect electronic signatures with the Upper Route Planner to ensure order fulfillment. 

You can also integrate Upper Route Planner with your existing business solutions, such as Shopify, Salesforce, or others. You can talk to our consultants, and we will guide you through the process. 

So if you are concerned about the over-expenses of your transport business, you should explore the features of Upper Route Planner with its 7 days FREE trial. It will help you determine your potential of preventing your losses after availing of it. 

Final Thoughts

Running a transportation business is not an easy task. You must have to invest a lot of capital for every truck or freight dispatch. Customer satisfaction is the key to growth in this business. Therefore, you must do everything possible in your power to minimize the high transportation costs.

Start by using Upper transportation scheduling software for optimized and scheduled routes. You will also be able to call and make updates from customers about their availability before delivering goods. This will help you make more successful deliveries. 

Check out the website of Upper Route Planner and get insight into the features and service perks it offers for transportation businesses.