Logistics transportation costs are spread across several stages – moving raw materials to the manufacturing facility, shipping the stock to the distributor/dealer, and making the final product available to the end consumer. Being distributed over multiple stages, they become one of the major determining factors in product pricing.
Businesses suffer losses if the high logistics costs are not passed on to the final product prices, with the customer paying the ultimate price for inflated logistics costs. This directly impacts customer satisfaction and retention efforts. Thus, optimizing transport activities is a primary objective of logistics businesses.
Transportation Expenses – A Major Cost Center in the Supply Chain Network
Certain components are fixed while some are variable but their inadequacy affects timely product delivery and increases warehousing costs. Strategic decisions about the mode of transport, movement schedule, and carrier choice directly impact inventory levels, and ultimately customer satisfaction.
Types of Transportation Costs
Direct Costs
Fuel charges, vehicle maintenance, driver fees, tolls, and any other fees charged by the transporters - higher in urban areas due to frequent traffic congestion and stoppages.
Freight Charges
Carriers' or logistics service providers' charges for transporting goods depend on the tonnage, volume, travel distance, and transportation mode.
Packaging Charges
Packing materials that include boxes, crates, and other protective details ensures the safety of goods while in transit.
Custom Duties
In international trade, import and export duties, customs fees, documentation, and other regulatory charges add to the cost.
Cargo Insurance
Insurance covers to shield the cargo from potential financial losses while transporting it from one point to another.
Reasons Behind High Transportation Costs
- Unorganized Industry – Dominance of multiple, small players in a highly unsystematic structure.
- Inadequate Infrastructure – Road and rail networks that aren’t equipped to meet the huge demand of a wide supply chain.
- Rising Fuel Costs – Volatile global prices of fuel impact costs significantly.
- Inefficient Routing and Idle Time – Lack of real-time traffic data leads to higher vehicle idling.
- Regulatory Complications – Several state and national-level taxes and permits, with a long way to go for GST.
- Empty Trips – High load-free return trips due to poor coordination.
Now that the problems are highlighted, let’s discuss the solutions that can be implemented to reduce costs and improve overall business productivity.
Productive Tips to Cut Down Logistics Costs
By introducing innovative solutions, logistics costs can be trimmed significantly. The various ways include:
- Optimal Mix of Transportation Modes – Using a feasible mix of various modes of transport, altering among roadways, railways, or waterways.
- Strategic Logistics Network – Warehouse and distribution centers located optimally to minimize travel distances.
- Training & Development – Conducting driver and logistics personnel training for efficient driving and vehicle maintenance.
- Enhanced Focus on Green Logistics – Investing in fuel-efficient vehicles, alternative fuels, and renewable energy.
- Technology Investment - Technology plays a big role in streamlining logistics and reducing associated costs, and some of the ways include:
AI-Based Demand Forecasting
Traditional methods use simple rules to present a forecast but AI generates demand forecasts through a deeper analysis of patterns and rules. Improvements include:
- Better supplier negotiation terms
- Optimized labor scheduling
- Better transport planning
AI-based forecasting not only makes the processes more efficient but also improves customer satisfaction.
Warehouse Management with IoT
IoT-based warehouse solutions allow for item-level stock monitoring that enables real-time planning and reporting capabilities. It’s also beneficial in lowering risks and reducing losses caused by accidents.
Automated Carrier Selection
Carrier selection is a tedious manual process involving complicated calculations. Automated solutions, such as spot auction, enable organizations to choose the optimum carrier for all shipments based on real-time factors.
Digitalizing Documentation
Traditional logistics methods involve a great deal of paperwork which leads to a vast wastage of time. Digitizing the process not only reduces the scope of errors but also saves valuable business time.
Autonomous & Connected Vehicles
Autonomous delivery vehicles reduce travel time and improve productivity, improving fuel economy and lowering costs on driver and maintenance.
Vehicle Telematics Solutions
Logistics costs can be efficiently managed by implementing technology solutions such as driver activity monitoring, GPS trackers, fuel sensors, and more.
Smart Containers
For end-to-end visibility and cargo traceability, smart containers provide real-time tracking and internal monitoring capabilities. Any potential issues can be detected and alerted better and the collected information is stored digitally for better analysis.
Grow with the Power of Data Analytics
By implementing advanced technologies with strategic planning, Indian logistics can reduce transportation costs while improving operational efficiency. User-friendly dashboards offer real-time reporting and logistics analytics, making the entire process cost-effective.
However, an efficient implementation partner is essential for comprehensive success. Are you exploring your options?
