A Comprehensive Guide to Logistics Costs

Read Time: 4 min. 

Keeping operating costs under control is essential for the success of any business. Customers these days expect economy and service, so much of your effort is spent keeping costs in line so you can satisfy their demands.

In logistics, hidden costs, inexperience, and inefficient processes cause delays, adding to the cost of doing business. Ultimately, you need to understand what to expect so you can forecast accordingly.

>>The Importance of Transparency in Freight and How it Helps You Reduce Costs

Typical Logistics Costs

Logistics costs can be categorized into five distinct areas:

• Incoming Goods is involved with receiving goods at a warehouse, DC, or fulfillment center. You incur costs based on each product’s quantity, the number of SKUs on a pallet and the required level of service. For example, the goods might simply need to be held in the warehouse, or they might need to be counted, inspected, or repacked. Inspection, in particular, requires special skills that could be outside the scope of your contract. It is critical to understand what is and is not included in your agreement.
• Warehousing and Storage. Costs of warehouse space are generally based on the amount of space you occupy. Goods that require special conditions, such as temperature control or hazardous goods handling, might incur higher costs. Be sure your provider maximizes your storage and shelf space as you don’t want to pay for space you don’t necessarily need. Palletized goods are more reliable from a cost standpoint because it is a standard measure.
• Fulfillment. Several things contribute to your fulfillment costs:

o Packaging materials required
o Customization
o The number of orders
o Number of SKUs
o Product size
o Units per order

Additionally, costs can vary depending on the level of automation used—the more automated the operation, the more cost-efficient the result.

• Shipping costs depend on the method (land, rail, air, ocean) and your load’s size and weight. The best third-party logistics partners leverage technology and experience to ensure you get the best possible rates.
• Returns costs are based on shipping and handling. Often, the returned goods must be inspected before they are returned to stock or sent back to the manufacturer, which can get complicated. Alternatively, you might work with your provider to donate or resell returned goods to avoid or offset additional costs.