To combat the rising costs of logistics, companies should reassess each aspect of their transportation and logistics strategy. Here are six factors to consider.
Logistics costs have skyrocketed over the last few years as fuel prices increased and the United States economy spiraled downward. A study by the Council of Supply Chain Professionals (CSCMP) found that logistics costs in the U.S. alone rose by $91 billion in 2007, an increase of 7 percent over the previous year. According to the CSCMP’s 19th annual State of Logistics Report, logistics costs accounted for more than 10 percent of the country’s gross domestic product.
Higher interest rates, the deflating dollar and increased customs and warehousing costs in addition to fuel prices have contributed to the high costs of logistics. In 2007, U.S. businesses spent more than $1.4 trillion on transportation, storage and distribution of goods, according to CSCMP estimates.
“Clearly, there is a cause for concern,” says a new white paper from LTL trucking company Purolator USA, Inc. “[B]usinesses cannot exist without logistics, but at the current rate, businesses can’t really afford to exist with them either.”
To assist companies in finding ways to control the amount of money being spent on the purchase, transport, storage and distribution of goods — especially for products crossing borders — the paper provides tips on getting around logistics costs. Some considerations include the following.
Consolidate packages. Combine shipments that are traveling in the same direction, as “costs will be lower for freight traveling on a truck that is at near-to-full capacity than a less-than-full truck.” If the freight is crossing borders, consolidate it with additional shipments at the border and use one set of customs documents. Once the shipment clears the border, the packages can be broken down into individual orders at a processing facility.
Rethink shipping classifications. “Businesses that ship goods at a higher level of service than is necessary are increasing their overhead without even realizing the adverse effect to profitability,” the Purolator paper claims. Why ship “next day overnight,” which costs significantly more, if you don’t have to? A logistics provider can make recommendations about a business’ delivery options that are commensurate with its needs.
Understand the hidden costs of imports. Whilst it may be smart to look beyond U.S. borders for components, businesses need to be wary about other costs that go into importing parts, such as transportation costs, taxes, processing fees and security fees. Review these factors and tack their costs onto the import’s price.
Take advantage of trade incentives. There are several government programs that encourage cross-border trade, especially with Canada. Beyond the North American Free Trade Agreement (NAFTA), there’s also Canada’s Non-Resident Importer (NRI) program that allows U.S. companies to prepay all taxes, duties and fees on goods entering Canada before they arrive at the border. “This means that a U.S. company can pass along all fees to consumers up front,” the Purolator paper explains. “Canadian consumers will be aware of the fees at the time of purchase, and be able to pay them at that time. No more surprises.”
Another incentive scheme is the U.S. Duty Drawback program that prevents businesses from being over-taxed by giving “special consideration to businesses that pay duties on goods imported into the U.S., that are then used in the manufacture of products that are then subsequently exported.”
Avoid supply chain disruptions. Ninety-nine percent of companies surveyed by Aberdeen Group had supply chain disruptions in 2008, with 58 percent suffering financial losses as a result, Modern Materials Handling reports. “Distribution center stopovers waste precious time and money” and many companies “do not have the luxury of ‘padded schedules’ built into their distribution networks to absorb disruptions,” Purolator explains. Bypassing distribution centers by having direct-to-store delivery can save a manufacturer seven to 14 days by shipping directly to end-users.
Manage returns. Returns are a $100 billion business, according to the white paper, and as much as 7 percent of a business’ gross sales can be eaten up by return costs. One strategy for saving money while properly handling a customer’s dissatisfaction is outsourcing the returns processes. Logistics providers can offer a returns management solution that can arrange for the pickup, transportation and replacement or issuance of credit on a return.
With logistics costs having risen by nearly $100 billion in 2007 and no signs of the upward trend stopping, businesses must figure out a way to move their products as efficiently and economically as possible. Logistics costs are unavoidable, so companies must understand their overall businesses needs and address them within the context of the current economic environment.
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