Breaking Down Transportation Costs for Last-Mile Delivery

We break out the transportation costs in last-mile delivery in this new guide where you will learn what transportation costs are and how you can calculate them. You’ll also learn about the most common delivery expenses and what factors affects these fees when it comes to logistics. And of course this wouldn’t be helpful without some actionable information, so we’ll also talk about what your business can do to reduce transportation costs for last-mile delivery.

Table of Contents

• What are Transportation Costs?
• What Makes Transportation Costs So Expensive?
• How Do You Work Out Your Transportation Costs?
• Logistics Transportation Costs
• What Are Some Examples of Transportation Costs?
• What Factors Influence Transportation Costs?
• Planning, Dispatching, and Routing: Hidden Transportation Costs
• What Are Some Ways to Cut Transportation Costs?
• Use software when managing the last mile
• Reduce the cost of last-mile transportation today

What are Transportation Costs?

Transportation costs include all costs incurred in transporting raw materials, finished items, or retail products to customers, enterprises, or third-party sellers. They comprise both direct and indirect expenditures, such as gasoline and payroll, as well as vehicle maintenance, support structures, distribution networks, and other overhead.

What Makes Transportation Costs So Expensive?

In last-mile delivery, transportation costs account for the majority of total operational expenses. They have the potential to have an impact on other critical areas of company. For example, the pricing of your items or your market competitiveness.

As a result, businesses are always looking for ways to cut costs by improving the shipping process.

However, there is no such thing as a universal cost. And it isn’t universally applicable to all industries and businesses. Instead, it is determined by a variety of circumstances.

Your industry is one of them. The size, structure, and complexity of your operations, as well as the location of your company, are all factors to consider.

You’ll also need to learn how to calculate how much you spend on transportation:

How Do You Work Out Your Transportation Costs?

The first step in doing a cost analysis of your transportation expenses is to determine how much money you spend on transportation. You’ll need to use the following calculation to figure out how much transportation costs:

Total transportation expenditures (direct and indirect) %
Gross income before taxes (monthly or yearly)
x 100

Total transportation expenditures are your company’s direct and indirect transportation expenses (monthly or annually). Gross income is the amount of money you make from deliveries before taxes for the same time period.

The outcome is expressed as a percentage. It also tells you how much of your income you devote to transportation during a certain time period.

To be clear, however, every business will have a different percentage. And this form of transportation cost calculation will provide you with a rough estimate of your overall expense.

You’ll need to do a thorough dive into operating expenditure to get it as accurate as feasible. This proportion will be more precise the more expenses you mention. And there’s a lot to think about because transportation affects every aspect of last-mile delivery:

• Consumption of fuel
• Payroll for employees
• Upkeep of vehicles
• Tools and equipment
• Subscriptions to software
• Utilities, rent, and other general overhead

Most of these costs are covered by the service price you pay to a third-party logistics provider if you utilize an external delivery fleet rather than an internal delivery fleet. However, you’ll need to track extra spending to get a more accurate picture which includes staying on top of logistics transportation expenses.

Logistics Transportation Costs

The majority of logistics expenditures are incurred in transportation. In fact, in 2020, it accounted for 50.3 percent of all logistical spending. In addition, according to the 2019 Annual State of Logistics Report, US businesses allocated $1.04 trillion (or 10.4% of total revenue) to transportation.

Because logistics affects every aspect of the delivery process, this is true. This means that the amount of money you spend is determined by the many sorts of transportation costs.

Transportation management has become the backbone of logistics because no one wants this figure to go out of control. As a result, it’s critical to track essential delivery indicators as well.

This will give you a better idea of where you spend the majority of your money. Let’s look at some of the areas of logistics where these charges are most prevalent right now:

What Are Some Examples of Transportation Costs?

Your ultimate transportation cost computation is shaped by various transportation charges. So, in this section of this blog post, we’ll break down the costs by delivery logistics. Here are some examples of transportation costs and where they can be found:

Transportation of Goods to Storage in the Supply Chain

Last-mile delivery requires a well-managed supply chain. You won’t be able to sell your products if you don’t have enough supplies. However, this also entails locating and getting those things to your store. Alternatively, if you’re in the e-commerce business, you can move them to your storage facilities.

As a result, a large portion of supply chain transportation costs is determined by geography. The location of your suppliers is the most important factor to consider.

If your supply chain is overly dispersed, drivers will have to travel further to pick up goods. You’ll have fewer supply runs as a result. As a result, you’ll need to buy and pick up additional items. Products will be kept in inventory for longer periods of time. And keeping them there will be a waste of resources.

On the other hand, you must consider the last-mile supply chain. If you plan several supply depot locations that are too far away from your transportation hub or delivery area, the cost of transportation will rise as well.

The longer it takes to move commodities, the longer it takes to get them to end users. And the longer you wait for your package, the more money you’ll pay on transportation.

Getting Orders to Customers in the Last-Mile

The final phase of the delivery life cycle is referred to as last-mile delivery. Alternatively, getting products from retailers and distribution centres to customers. While this is crucial in many industries, it is especially important in e-commerce.

In fact, Statista projects that by 2023, there will be 300 million online customers which means that transportation will be a significant expense in last-mile delivery.

Customers’ preferences in last-mile delivery, however, aren’t helping you cut costs. Because corporations like Amazon, Walmart, and Target are focusing on providing quick and free fulfillment, this is the case. People now expect items to arrive sooner and at a lower cost than before.

When the average cost per delivery is $10.1, this is an issue. Small firms, unlike retail behemoths, do not have the financial wherewithal to bear these expenditures. Instead than actively competing with Amazon, firms must coexist with them.

This entails shortening the distance between pick-up and drop-off. One of the reasons many small firms use stores as supply depots is because of this.

Alternatively, they may be concentrating on the local last mile. Additionally, they are eliminating the gap between themselves, their suppliers, and their customers.

On the other hand, other businesses are improving their operations. To cut transportation costs, they’re depending on route optimization software. (Even if they subcontract operations to third-party logistics providers like UPS, FedEx, or DHL.)

They are reducing operational expenditure by learning how to optimize last-mile deliveries.

Despite their expenditures, they are able to provide delivery choices such as free or same-day delivery. This means they can afford to have a high shipping expense since they can attract more customers. As well as increasing sales revenue.

Making Service Calls to Customers in the Field

If your company relies on field service, your transportation rate will be determined by how quickly you can get your personnel out to see your clients.

Aside from that, the costs of running a field service firm are comparable to those of last-mile delivery. These expenditures are heavily influenced by gasoline prices and consumption. However, mileage and local tolls are also factors.

As a result, many businesses use field service management software. This allows you to plan and optimize the routes that technicians use when responding to service requests.

This implies you can save up to 50% on your fuel use. However, it also allows you to make better timetables. You can maximize the number of field trips your staff take. You can shorten the time between outings by reducing the average time per service call. As a result, your field service operation can produce more revenue.

Delivery Vehicle Maintenance

If you own and operate your own fleet, the way you manage it is a cost of doing business. Vehicles lose their value over time. Parts and tires degrade with time. Oil becomes soiled.

All of this has an impact on your cars’ performance. However, it also symbolizes the expense of maintenance. Routine vehicle repair, on the other hand, is an essential aspect of fleet management.

Despite the costs, tuning vehicles on a regular basis is significantly less expensive than repairing them. It also helps you save money on gas. You can increase their longevity while also lowering their fuel use.

They also have a lower chance of breaking down. This increases the dependability of vans and trucks on the road. And, if your company relies heavily on transportation, the amount you spend on car transport upkeep will decide your total cost.

Other factors, however, have an impact on logistics transportation costs:

What Factors Influence Transportation Costs?

The cost of transportation is influenced by a variety of factors. In this section, we’ll show you how every component of delivery adds to those costs.

Distance

The fundamental cause of high transportation costs is distance. To reduce the cost, you must reduce the distance travelled by your vehicles.

Finding out your typical delivery distance is an easy method to start measuring distance. You can use the following formula to figure it out:

Total distance per route %
Total number of deliveries

You can employ delivery strategies to reduce this number once you have it. Optimizing your routes is a simple approach to accomplish this. Using roads with fewer cars, better entry locations, and stop signs.

Another option is to increase the number of stops each route. This entails shortening the distance between the map’s numerous pick-up and drop-off places. All of this is simple to accomplish with vehicle routing software.

Urgency

The cost of sending a cargo normally increases as the urgency of delivery increases. This does not just imply that the end-user will pay a greater price. Fast fulfillment will also result in a greater last-mile cost for you.

Consumers, on the other hand, want their orders delivered quickly. They are, nonetheless, willing to pay for them.

According to delivery statistics, 23 percent of consumers would pay a premium for same-day fulfillment. As a result, you can cover at least part of the cost of urgency by shifting some of the costs to your customers.

Delivery Accuracy

Delivery accuracy is impacted by failed or missing deliveries. As a result, transportation costs have increased. That’s because you have to refund a customer’s purchase if they don’t receive it. As a result, accuracy suffers and the cost of reverse logistics rises.

Even though these things can happen, it’s critical to keep returns to a minimum. Ensuring that your drivers arrive at their destinations should be a priority.

This might be accomplished by providing more precise directions to your drivers. In most cases, delivery driver apps are used to accomplish this.

Handling of Goods

Transporting items that are damaged incurs additional fees. You are responsible for sending a replacement item if this occurs.

It also implies that if you work with more fragile or perishable goods, you’ll need to devote more time, money, and effort to packaging and delivering them to customers. The more delicate your goods are, the higher the shipping cost.

However, investing in high-quality packing, trucks, and equipment pays off in the long run because you reduce the number of times this occurs.

Delivery Area

The cost of transportation is determined by the delivery region that your company covers. Short-distance delivery is available, and it can manage big order volumes. Wide distances must be covered in a nationwide delivery. In order to satisfy the same order volumes, it must likewise have a huge fleet.

Focusing on local last-mile delivery is the greatest solution. If you have many places where you deliver, make sure to treat each one as an unique last mile. You can then utilize techniques to expand your delivery operations without sacrificing transportation costs.

Planning, Dispatching, and Routing: Hidden Transportation Costs

Transportation’s hidden costs might surface anywhere. Some of them are outright costs and many of them are related to indirect expenses. They’re all related to planning, dispatching, and routing.

Payroll

Many companies overlook the expense of personnel wages when calculating the delivery rate per mile. Many more only include the driver’s remuneration. But what about the rest of the last-mile delivery crews? How are your dispatchers doing? Who are the route planners? Managers of logistics and inventory?

You pay all of their salaries in one way or another. These charges can quickly spiral out of control if you’re not attentive. It’s equally as important to maintain track of your delivery teams’ salary load (worker benefits and payroll taxes).

Inefficient Schedules

More time on the road is a result of inefficient timetables. That means more money spent on gas and tolls. They may also result in increased pick-up bottlenecks. And this can wreak havoc on your supply chain as well as the last mile of delivery.

On the other hand, it could result in additional downtime. You might hire more drivers than you need, and they’ll spend more time waiting for orders than completing them. The same can be said for the vehicles in your parking lot. Also, the items you store in storage.

Inefficient Routes

Many businesses make the mistake of not planning routes. And poor routes have a significant impact on transportation costs. It’s the cornerstone of a sound transportation policy. If you don’t plan your routes, you’ll end up with set paths that limit your growth potential.

Alternatively, you may have self-motivated drivers who are unsure about the best path to take. You also have no influence over the final mile. However, there is a distinction to be made between route planning and route optimization. Routing isn’t enough, either.

That is why manual route planning is impossible. You’ll also need to employ digital techniques, such as vehicle route optimization software. This allows you to automate the process and develop routes that are actually cost-effective.

Order Accuracy

A delivery KPI is order accuracy. Technically, it informs you of your delivery’s success rate. As a result, every time you miss a delivery, your company’s order accuracy suffers.

It can also harm your reputation and authority if you don’t keep track of it. This could result in higher delivery charges. If you make a mistake, you’ll want to fix it right away. You risk ruining the customer’s experience and even losing their business if you don’t.

And if your order accuracy begins to deteriorate, you will lose more than a few customers. In fact, you run the danger of losing all consumer loyalty.

Delivery Costs

Another useful KPI to track is the cost per delivery because it aids in the tracking of shipping costs. If this KPI is lower, it indicates a cheaper transportation cost. This has an impact on both you and your customer.

You can provide better basic shipping rates when the delivery expense per mile decreases. Profits increase as the cost per delivery decreases.

Time to Delivery

Time is a valuable commodity. As a result, the longer it takes for you to deliver goods to your customers, the more money you will lose.

If your delivery time is long, you won’t be able to manage as many orders. You’re losing money yet again. Customers will leave if they have to wait longer for their packages to arrive. (As well as their cash.)

All of this has an impact on both costs and revenue. That is why it is critical to keep track of delivery times.

So, how do you reduce it, as well as other transportation costs? Let’s have a look:

What Are Some Ways to Cut Transportation Costs?

How can you save money on transportation? You can use software in addition to what we’ve already stated.

Various tools, such as delivery management software, help to save costs. End-to-end solutions are provided by these systems. As a result, they improve the efficiency of the entire last-mile delivery process one step at a time.

And when efficiency improves, expenses decrease dramatically.

Reduce payroll costs by automating activities

Do you schedule delivery by hand? It’s time to come to a halt. Why? To begin with, automating delivery operations saves money on payroll.

Software allows one person to perform the tasks of multiple others. A professional can plan, dispatch, and oversee the whole delivery lifecycle using a delivery management software.

But it doesn’t imply you’ll have to rely solely on one person. The software has a minimal learning curve because it looks like any other app. This means you may delegate route planning and delivery scheduling to anyone.

The software subscription fee is also less than the cost of payroll. So, how much does software for delivery management cost? It is debatable. However, the average monthly cost is $182.35. And that’s a lot less expensive than the average wage.

Plan efficient routes to save money on gas

You don’t need any other tools if you use SaaS delivery management software like EasyRoutes. It contains a number of modules that let you handle various aspects of delivery from route planning and optimization to picking and packing.

The program is unable to lower the amount of gasoline consumed by automobiles. However, it can assist you in planning effective routes that take into account a variety of factors that influence fuel use. This includes the distance travelled as well as the amount of time spent on the road. But also traffic, drop-off access, road kinds, stop lights, and other factors.

Technically, the more restrictions you place on your drivers, the less gasoline they will consume to complete orders. Additionally, routes can be optimized based on order priority or stop density. As a result, your last mile becomes more profitable.

Increase the capacity of your fleet and the efficiency of your vehicles

You must benefit from each component of your supply and delivery chain. Make no mistake: while your vehicles are idle and empty, you are not in a status quo. You’re squandering your funds.

Indeed, after the impact of COVID-19 on last-mile deliveries, increasing fleet capacity has been very beneficial. That’s why software solutions like these go into great detail to help fleet management.

In terms of technology, you’re constructing a virtual fleet. Each vehicle is customized based on its kind, model, cargo capacity, speed restriction, and mileage. After that, you can organize the fleet. Vehicles should be organized into smaller groups that cover specific parts of the last mile.

It makes no difference if you employ an internal or external fleet. Alternatively, a hybrid model that incorporates both alternatives.

As a result, these software solutions are designed to accommodate the full capacity of your vehicles and fleet. And here’s how it can help:

• Plan shipping so that cars don’t have any empty space.
• Make the most of your drivers’ time in the field and output.
• Reduce the time it takes to deliver a package and increase the stop density.

As a result, the more effort you put into increasing fleet capacity, the more orders you’ll be able to fulfill.

To reduce botched delivery, track orders as they’re being delivered

It is important to track orders as they are being delivered because:

• It allows you to share the order location with customers, for starters. You can improve the customer experience by using tracking links.
• Then it allows you to react to diverse field circumstances. If a delivery fails, you can contact the driver right away or schedule a redelivery.
• It also allows you to plan deliveries while on the go. If there is space in the timetable, you can add orders as they come in and alter the route to match.

And, because the driver has access to all of the data through the app, he can observe the changes right away. This keeps the precision of your orders from sliding. Also, the number of failed delivery is reduced.

Use software when managing the last mile

Errors by humans are unavoidable. They’re guaranteed to happen, even with last-mile delivery software. However, adopting software can help you mitigate them to the greatest extent feasible.

Delivery planning software helps with the following:

• Keep up with the latest shipping information and needs.
• Make it easier to navigate, create, and change tasks.
• Integrate with your store’s back-end
• Use well-known apps like Google Maps or Waze for navigation.
• Gather digital proof of delivery for reporting purposes.
• Provide customer notifications and alerts
• and much much more!

But for the time being, it’s up to you:

Reduce the cost of last-mile transportation today

So that’s how you can make last-mile transportation less expensive. Now it’s up to you to put these plans into action and EasyRoutes is here to help. Try our excellent delivery management app free for 14-days and cancel at anytime if you don’t see the immediate value EasyRoutes brings to your delivery business.