Due to pandemic-related tailwinds, companies are experiencing painfully stretched supply chains, leading to unprecedented rises in logistics costs.
Global logistics providers UPS and FedEx raised rates by 5.9 percent in 2021 – the first time in eight years that rate hikes would exceed 4.9 percent. Elsewhere, the cost of shipping broke records, with container prices up to 10x higher than two years prior.
While sellers are hoping that 2022 might bring some respite, the difficulties persist. Shipping services continue to trade at elevated prices, and logistics providers are now passing on the costs of expensive operations to sellers.
In a market where marginal gains can be vital for survival, Alibaba.com said that cutting down on logistics costs might be a way to attain commercial success.
Impact of the pandemic
Covid-19 will be remembered as possibly the most significant global event this century. Not just because of its health implications but also due to the span of its global effect. The logistics industry was among the most affected by the pandemic. One reason for this is the nature of global supply chains.
Globalization has led to company sourcing and distribution chains that literally reach around the world. As a result, companies rely on logistics firms to affordably move products to and from various countries.
However, while global supply chains enabled access to quality components, affordable labor, and a cheaper process overall, they also created a fragile value chain. That fragility was exposed when countries imposed lockdowns and health restrictions to fight the coronavirus.
China, a global industrial hub, saw some of the first effects of Covid-19 in early 2020. Due to health and travel restrictions, freight forwarders, carriers, truck drivers, cargo handlers, and port operators couldn’t work.
Cargo was backlogged at the country’s major ports. Long haul trucking, which carries over 80 percent of China’s goods, broke down between January and February 2020, making transportation unavailable or prohibitively expensive.
During 2020, logistics providers either shut down operations at various points or endured longer lead times due to health and travel restrictions. While the development of Covid-19 vaccines brought some hope that 2021 would be better, supply chain difficulties continued to persist.
Reducing logistics costs
Cheaper logistics operations can help lower costs, encourage higher sales, and boost profitability. But determining where to cut costs and how can be complex, especially in B2B e-commerce, where businesses typically experience tight margins.
The first step to profitably cutting logistics costs is to prepare for a long-term approach. While quick fixes might provide some immediate respite, they still leave your supply chain fragile. Instead, it’s a good idea to conduct a deep analysis of your logistics value chain, identify gaps, and permanently plug them up.
These are some methods to reduce your logistics costs:
1. Audit logistics costs. To gain better visibility into your logistics costs, conduct a detailed review of your operations. Ideally, you should identify every logistics service you’re receiving and the cost to your business. In addition, make sure you understand every surcharge and add-on fee you’re paying. The visibility you gain here will help you understand if your service providers are overcharging or where cost-cutting opportunities lie.
2. Eliminate unneeded fees. You can keep costs low by eliminating unnecessary spending. For instance, remove options for same or next-day delivery and other expedited services if you can – or substantially reduce them. Likewise, scrutinize the frequency of avoidable accessorial fees within your delivery network and work to cut them out. Accessorial fees can include additional handling, address corrections, extended storage, and similar expenditures. Other actions like purchasing bulk packaging and being proactive with service providers can also help cut costs
3. Prioritize closer sourcing. One factor that determines the cost of shipping is your shipment route. Therefore, prioritizing the most cost-effective route can help save you money. You might achieve this by identifying shorter routes or exploring delivery pathways that profitably merge multiple destinations.
4. Consolidate shipping loads. Less than container load (LCL) shipments might not be a good idea during this period. Rather, work to exploit that empty space by consolidating loads. For example, you might organize orders to capture customers from one geographical location in a single shipment, ensuring fewer trips and reduced expenses. Optimizing shipping loads with only your most profitable products can also be beneficial. Evaluate your stock-keeping units (SKUs) to identify your best-performing products and then prioritize those in shipments.
5. Proactive customer service. Returns, delivery disputes, and chargebacks are a normal part of e-commerce. But the costs they represent will further bloat your logistics expenses when frugality is paramount. Significantly reducing these expense heads will help to lighten your logistics burden. One way to minimize these costs is to proactively clarify critical delivery terms and other conditions buyers should know.
6. Explore creative options. You can save money by leveraging ocean or land freight rather than air delivery. While you might lose faster delivery times, the trade-off in lower shipping fees might be worth it. Likewise, you can creatively exploit shipping zones to cut logistics expenses. Shipping zones classify various geographical locations to impose fees. Zones that are farther away are more expensive to ship to.
7. Leverage digital tools. Digital solutions take the guesswork out of your logistics sector. You can better identify optimal routes, rates, and other shipping arrangements with intelligent tools. Likewise, software like logistics management systems can automatically audit your entire operation to determine inefficiencies, risk factors, and opportunities for improvement. At the same time, this software can plug into your other enterprise resource management (ERP) software.