Total Transportation Cost: How to Know & What to Consider | Blog (2024)

A critical metric that managers must closely monitor within the supply chain industry is total transportation cost.

Those totalbusiness costs for transportation have been at an all-time high.

Total transportation cost is the average cost incurred for moving products from point A to point B along the supply chain. It includes operational costs, packing, shipping, employee pay, fleet maintenance, and all other fees and expenses related to transporting freight.

Total transportation cost is a component of many measures that management uses to understand all cost expenditures related to transportation management services and shipping. Understanding what commonly constitutes total transportation costs is critical.

And using an enterprise TMS solution can help managers monitor trends in these vital areas more closely.

Four essential cost elements are typically measured in total transportation cost monitoring metrics.

Understanding these sources and their costs gives shippers a more precise picture to work from. It is easier to secure the best price by pairing the best shipping load with the correct shipping method.

The four essential cost elements that logisticians can track through an enterprise TMS are as follows:

• Linehaul:the operational costs of transporting loads through various shipping modes.
• Pickup and delivery: the expenses incurred in handling, sorting, and delivering loads.
• Terminal handling: the fees and costs of terminal stops for loading and unloading.
• Billing and collecting: the costs involved in issuing invoices and tracking down payments.

Monitoring expenses and total transportation cost metrics is critical for ongoing growth and logistics success. However, it is essential to understand what impacts and influences these costs. It is important to know how these costs affect every other link in the supply chain, especially in the final mile.

According to the Capgemini Research Institute, last-mile delivery costs account for41% of total logistics supply chain costs, with retailers absorbing a significant portion of these costs, often offering free delivery to consumers.

So it’s imperative to know a few key factors affecting total transportation costs and how managers can help reduce these freight expenditures.

• Market characteristics: how the current market looks and where current trends and demands are heading.
• Product specifics and features: considering factors such as product weight, size, shape, contents, and packaging.
• Volume and frequency: the sheer volume that has to be carried per load and how often shipments are shipped out.
• Consolidation and cross-docking: combining loads and orders to reduce empty miles, partial loads, and dwell times.
• Appointments and scheduling: promised delivery timeframes and how they can affect route and travel.
• Shipping transportation modes: careful consideration of pros and cons for single or multimodal shipping modes
• Regulations and competition: state and national guidelines and competitor offerings can increase performance pressure.
• Geographic limitations and weather concerns: some locations inherently bring more challenges and expenses due to where they are.
• Transportation infrastructure: certain shipping lanes and paths can add to costs from toll roads, freight limitations, etc.
• Customer demand and supply changes: the ever-changing status of the market in terms of supply and demand impacts cost.

Today, many shipping and logistics managers rely on cost-effectiveness measures to understand all cost expenditures with day-to-day operations.

Many transportation management services and shipping processes utilized today come with inherent costs. However, many of these expenses can be significantly reduced or even avoided.

Understanding total transportation costs are essential for growth in the years ahead.