Operations · April 22, 2021

How Transportation Providers Can Drive Cost Reduction in Logistics

If your company is seeking strategies for cost reduction in logistics, transportation can be a prime area for opportunity. Even in the digital age, transportation logistics continues to be the backbone of supply chain management, as companies aim to meet customer demand in the fastest, most reliable way possible.

However, this industry involves many variable and fixed costs that companies need to manage with great efficiency. Manufacturers and logistics providers that can accomplish this goal are in a better position to maintain healthy bottom lines and offer more value to their clients.


Understanding cost drivers

Although geography can dictate the transportation solution, it's important to still take into account all viable options. Whether by air, road or sea, each transportation mode offers inherent value while also posing risks of increased costs. You can see this reflected in a number of cost drivers, including:

  • Fuel prices
  • Vehicle costs and maintenance
  • Insurance
  • Labor
  • Infrastructure
  • Regulatory framework, such as customs, licensing and inspections

It's important to also evaluate how cost drivers may remain outside your company's control. For example, trucks can be an adequate, affordable mode for many transportation needs. But deteriorating highway infrastructure in the US can pose increased threats of traffic congestion, vehicle damage, safety threats and other concerns that impact operational efficiencies and the budget. Also, keep in mind that cost hiccups in one area can increase downstream expenses for all supply chain stakeholders.

How to reduce transportation costs

First and foremost, establish relationships with all stakeholders: suppliers, transport providers and customers. Knowing more about your business ecosystem can make it easier to mitigate threats and discover opportunities. Aim to cultivate flexibility in solutions, allowing room to pivot. This strategy increases the ability to be conservative in budgeting and still plan for a certain level of uncertainty.

If shocks to the system occur, such as a fuel price surge or temporary labor issue, can you quickly offer a more fuel-efficient option? When suppliers offer bulk purchasing discounts, being able to provide affordable logistical solutions for the increased freight can set you apart from competitors. Or perhaps you can exchange better pricing for loyalty, facilitating the enhanced resource management that can come from long-term planning capacity.

An increasing number of manufacturers and wholesale customers are looking to source inputs or inventory from locations that are in closer proximity to the end-market to decrease transportation costs. The ability to support this approach may help you deliver value to your customer base.

Think about offering intermodal transport solutions. This involves combining modes, such as air and truck or truck and rail, to find the most value in specific segments of the shipping route. You can also tailor shipping options to meet the needs of the freight and customer. You may want to consider providing adapted solutions, such as the following:

  • Scheduling for off-peak days and times
  • Consolidating large shipments of different products or shipments for all buyers into one for full-load shipping
  • Organizing less-than-truckload shipments for smaller weights

Don't forget to use the power of technology. Innovations like artificial intelligence and big data have transformed the way businesses move goods around the planet. Over the past decade, third-party logistics providers have invested heavily in data and automation solutions, finding efficiency in leaps and bounds. At a minimum, logistics companies can use technology innovations to reduce the massive paperwork and manual processes that can lead to inefficiencies. Specifically, a more integrated data analytics solution can help you and clients minimize costly shipping delays caused by audit trail issues.

Build partnerships for strategic solutions

Cost reduction in logistics can be a pragmatic, adaptive undertaking rather than a slash-and-burn affair. Still, finding the right strategies can take planning and capital. Your banking partner can be a trusted source of financial management advice to help you identify the right methods to drive efficiency and reduce costs.

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