In the world of supply chain management, logistics play a significant role in importing and exporting goods and materials. Logistics service providers help other companies or individuals to transport goods, either domestically or overseas, from their source to the required destination.
Logistics has gotten the frame in the world back in the late 19th century. Logistics was named from the French word “Logistique” which means to lodge. It first came in the book named “The Art of War”.
Nowadays, there are different factors that are driving down the financial cost of logistics that you may not be aware of. This article examines the financial cost of logistics and understand the factors that are causing the downwards turn of the financial cost of logistics.
What Is The Financial Cost Of Logistics?
The Financial cost of logistics, also known as logistical costs, means all the expenses that are related to the logistics of a given company. Now, these expenses can be packages, transportation, warehouses, etc.
The total financial cost of logistics of a company depends on the planning, including the variations of costs for different logistics companies when importing and exporting. There are management teams and specialists that help to transport your goods to your required destination through a defined process.
If the management of your logistics is not good enough, costs can rise very quickly. It is very important to pay attention to the transport and logistics costs of your business. Keeping your transport prices low for customers can help you to gain more space and relevance in the market.
What Are Included In The Logistics Costs?
Logistics costs are the summation of all the expenses that helps to ensure availability of goods or services to the market. It mainly targets the end consumers. The economy that relies on the extraction of resources that are natural will have a higher financial cost of logistics.
Here are some of the most significant financial cost of logistics;
Transport Cost: The cost of transportation mostly accounts for half of the logistics costs. This usually relates to the operation and maintenance of different terminals.
Inventory Costs: This is a variable cost relating to the inventory of a warehouse. The costs that a business occurs while holding goods in the inventory include labour cost, warehousing, capital cost, insurance, tax, etc. This is all part of the financial cost of a logistics operation.
Administrative Cost: Covers overheads like customer service, orders receiving and processing, etc.
What Are The Reasons For The Financial Cost Of Logistics Being Driven Down?
If you are in a company where transporting goods is a mandatory operation, then you may face the expanding charges throughout the whole of your logistics operation as market prices are rising, machinery and fuel costs are increasing, and competition are doing all they can to reduce their costs. Consume budgetary pressures means you could have less people buying your products and as volumes fall, costs will increase.
Logistics management can help you to reduce these costs. Utilising their industry and market knowledge while working to reduce transportation costs. This is the number one priority for any logistics team.
There are some well-known ways to reduce logistics costs;
Consolidated Shipping
Consolidated shipping methods influence the financial cost of the logistics greatly.
Figure 1 – Consolidated Shipping
If you consolidate the shipment of different products for all buyers into one consignment, you can save a lot of money. It reduces the other financial cost of your logistics operations too.
Creative Ideas
When shipping goods from source to destination, it is very important to understand every route and transport medium available. Creative ideas can greatly reduce costs!. Sea transportation is much cheaper than air freight, but the unique combination of these can help in both time and budget.
Warehousing Services
Warehousing services have created a drastic amount of cost reduction in logistics. You can store products closer to the consumers if you are too far away from the source.
With hundreds of secure locations available for you to store your products, using a warehouse service provider can greatly reduce overheads and transport times.
If you have your own warehouse, ensuring you have a warehouse management system that reduced double-handling, is quick and effective to find and move products and a team that understand their responsibilities, can again reduce the overheads of your logistics.
Automatic Loading Containers
The invention of the automatic loading container has made a great economic change in shipping as labour costs are reduced. You can also save on production costs to replace damaged products.
Here is a great video to help you understand how automatic loading containers work-
What Factors Drive Down The Transportation Costs And Pricing Of Logistics?
Transportation is the major cost of any logistics operation. It is vital that you total control of transportation costs to prevent blowing your logistics budget!
Here are some factors that are driving transportation cost down along
Market
Market can have a great impact on the transportation costs. The competitiveness in the market, distance your products need to travel, weight limitations, domestic and international transportation, etc. are all affecting your transportation costs.
As the market conditions are not usually something you can control, transportation costs vary a lot throughout a year.
Volume Of Shipments
Volume of a shipment can have a great impact on your transportation costs. The rates of a container, pickup and dropping costs, commitments can all change transportation costs.
Cross Docking And Consolidation
These two methods can affect the cost of transportation a lot. Carriers use these methods often, but importers do not do it. It is important you understand what services are available, what you are actually paying for, and if there is a better, more cost-effective way to move your items.
What Is The Current Condition Of The Global Logistics Costs?
In this modern world, logistics companies are doing their best to improve and reduce the financial cost of transport to be as low as possible. As importing and exporting is essential, you need to examine factors that are affecting the cost of your whole logistics operation.
Being aware of challenges and opportunities, and reacting quickly when you spot cost increases before they spiral can protect your bottom line. Here is what you need to be aware of;
Transportation Cost Reduction
One of the biggest challenges of the logistics industry is reducing the transportation costs. As fuel prices are rising continuously the cost of transportation is getting higher too.
Methods like, reducing carriers, consolidation of shipments, reducing shipments, etc. are used by many professional logistics companies. These efforts are driving down the financial cost of logistics.
Improvement Of Business Processes
Research has concluded that logistics partners should have knowledge and experience of overall supply chain and logistics operations. To gain for the long-term, they have to be financially stable and open to taking reasonable risks.
As the logistics business is very competitive, to survive, companies need to be the best and the fastest at everything in supply chain and logistics.
Impact Of The Economy
In this modern era, the increase in CPI (Consumer Price Index), inflation rates, etc. are increasing the demand for products and services that require import and export. This is making the logistics more viable and more frequent. It also impacts freight demand.
Technology Advancements
Advancement in technology is driving constant positive change across the supply chain and is key to a successful logistics operation. As customers have become more demanding, technology advancements have made shipping products easier with less time, less operational costs and better visibility available for customers to track the status of their orders.
Different systems like automation, packaging and labelling, warehouse storing, etc. are now all done in a few seconds with the help of technologies. Consumers can monitor their product location with the help of trackers too.
Sustainability
Sustainability such be a key consideration for any business. To be more sustainable within logistics operations includes finding a way to reduce emissions. This is a primary objective for many logistics companies. With a focus on route and load optimisation you can create a greener more sustainable logistics operation that will also provide financial savings on your transportation costs.
Nowadays, there are different models of truck with better engine performance than before, greener emission compliance and with good mileage to help keep transport costs within budget.
Driver Shortage
It is very important to choose a good driver for transportation of goods. As there are a lot of government regulations, the recruitment processes of a logistics company has become more selective. In the US, currently a driver’s average age is around 45.
The driving records of the company are very important. Violations of rules, poor record keeping and unskilled drivers, you can put your logistics company’s safety, accountability and reputation in danger.
Final Words
This guide was designed to provide you with insight into some of the ways the financial costs of logistics operations can be impacted by both internal and external factors. It is crucial to ensure the management of your logistics remains a priority and that your business finds sustainable cost-effective ways to meet consumer demands.
Can logistics companies meet customers’ expectations and generate profit at the same time?
Depending on the flexibility, and commitment to upgrade technology, people and procedures, yes they can!