7 Ways to Reduce Transportation Costs in Supply Chain

Transportation costs are a big concern for businesses, often eating up over 10% of revenue. Last-mile logistics alone account for 53% of shipping expenses. But the good news? There are practical ways to cut these costs and improve efficiency. Here's a quick overview of 7 proven strategies:

1. Route Optimization: Save up to 12% on transport costs by using tools like GPS tracking and real-time adjustments.

2. Shipment Consolidation: Combine loads to reduce empty truck space, saving money on fuel and labor.

3. Carrier Rate Negotiation: Use data to secure better shipping rates and reduce surcharges.

4. Multi-Modal Shipping: Combine transport methods (e.g., rail + truck) to cut costs by over 50%.

5. Freight Management Tools: Automate processes to save time and avoid billing errors.

6. Inventory Control: Use Just-in-Time (JIT) shipping to lower storage costs and improve delivery timing.

7. Green Transport: Invest in fuel-saving equipment and eco-friendly methods to reduce costs and emissions.

Quick Comparison

These strategies can make a significant impact when implemented thoughtfully. Start with route optimization and shipment consolidation for quick wins, and explore digital tools and green methods for long-term savings.

How To Reduce Transportation Costs In Logistics

1. Route Planning with Data Analysis

Using data to plan routes helps cut transportation costs. For example, UPS reduced fuel consumption by 20% through advanced route analysis [2].

Tools for Smarter Route Planning

Modern route optimization relies on tools like GPS tracking, traffic updates, weather forecasts, and warehouse and order data.

DHL's Resilience360 tool is a great example. It evaluates customer orders, demand trends, and global risks, helping the company lower inventory carrying costs by up to 20% [2]. Beyond collecting data, real-time updates play a big role in improving route efficiency.

Real-Time Tracking and Adjustments

Real-time tracking has changed how transportation is managed. With smart systems, operators can monitor delivery progress, compare planned routes with actual ones, and minimize inefficiencies like empty miles and idling.

"Onfleet is a no-brainer for any serious delivery operation. We were able not only to increase our delivery capacity by 50% using their route optimization engine but also to improve on-time rates and customer satisfaction through accurate ETAs and real-time visibility." - Emily Ehrlich, eCommerce Coordinator, The United Family [3]

Real-World Success Stories

Maersk's Daily Maersk tool is a standout example. It cut fuel consumption by 10% by optimizing routes and factoring in weather conditions [2]. Similarly, FedEx uses tools like FlightSense and SenseAware to improve route efficiency and save on fuel costs [2].

To get the most out of route optimization, companies should track key performance metrics, such as:

2. Combining Shipments to Cut Costs

In 2023, 43% of U.S. truckloads were partially empty - leaving an average of 29 unused linear feet per trip [6]. This inefficiency wastes money, but combining shipments helps solve the problem. By consolidating loads, businesses can reduce costs and improve how they operate.

How Combining Loads Saves Money

Consolidation strategies help cut:

• Fuel costs by reducing the number of trips

• Labor expenses with less handling

• Per-shipment fees

• Impact on the environment

For example, one company using Deposco's system saved $865,000 in a year by eliminating 140,000 shipments through a 24-hour consolidation window [5]. On average, each combined order saved about $5.50 in shipping costs [5].

Steps for Effective Shipment Consolidation

To make the most of shipment consolidation, follow these practical, technology-driven steps:

1. Set Clear Guidelines

   • Define a maximum wait time (e.g., 24 hours)

   • Ensure product compatibility

   • Group shipments by destination zones

2. Use Technology to Your Advantage
   Advanced software can pinpoint opportunities to combine orders, lowering transport costs and improving truck space usage.

   "Consolidating orders going to the same location offers rapid, substantial benefits, including significantly lower shipping expenses and better use of your staff's time before the package ever leaves the building." - Deposco [5]

3. Measure Success
   Track key metrics to evaluate your strategy:

   Metric	What to Monitor
   Load Utilization	Percent of truck space being used
   Consolidation Rate	Orders combined vs. shipped separately
   Cost per Shipment	Average shipping cost before/after
   Delivery Time Impact	Effects on delivery schedules

For ocean freight, consider Less than Container Load (LCL) programs. These let smaller businesses share container space and ship partial loads at full container rates [4]. It's an ideal solution for companies that don't regularly fill entire containers.

3. Getting Better Rates from Carriers

Getting better shipping rates requires smart use of data and strong carrier partnerships. With U.S. parcel shipping volume hitting 21.6 billion parcels in 2021 - almost double the 11 billion in 2016[8] - carriers are managing more shipments than ever. This creates opportunities to fine-tune your shipping costs by understanding rate structures and using detailed shipping data.

Using Shipping Data in Rate Negotiations

To negotiate better rates, businesses need detailed shipping data. According to McKinsey, inefficient freight operations can add up to 19% to logistics costs, leading to annual losses of as much as $95 billion in the U.S.[7].

Build a shipping profile that includes key data points:

"The most successful companies are those that understand that their supply chain partners, including carriers, are an extension of their own organization." - Bob Ferrari, Supply Chain Consultant[12]

Contract vs. On-Demand Shipping Rates

Choosing between contract and spot rates has a direct impact on shipping costs. Each option fits different business scenarios:

"Understanding when to utilize which solution can help shippers maximize freight spending, meet service levels, optimize shipping strategies and mitigate risks during uncertain market conditions." - Penske Logistics[9]

Tips for Managing Rates Strategically

• Work with Multiple Carriers
  Building relationships with several carriers allows you to compare rates and services. Always communicate clearly about volume changes or service concerns, and ensure payments are timely[11].

• Keep an Eye on Market Trends
  Spot rates often affect contract rates with a delay of four to six months[9]. Use this timing to your advantage when renegotiating contracts.

• Negotiate Specific Terms
  Instead of focusing on overall rates, negotiate based on specific needs. For example, secure low rates with USPS for lightweight packages while working with FedEx for heavier shipments.

• Leverage Technology
  Use a Transportation Management System (TMS) to track performance and streamline communication[12]. This data will strengthen your position during rate discussions.

Contract rates usually include both a base rate and a fuel surcharge (FSC)[10]. Breaking these down and negotiating each part separately can help you secure better pricing.

4. Using Multiple Transport Types

Mixing different transportation methods can help cut shipping costs while maintaining reliability. Studies show that using a combination of rail and truck transit, instead of relying solely on trucks, can reduce transportation expenses by over 50% [14].

Choosing the Right Transport Combinations

The success of multi-modal transport lies in selecting the best combination for each situation. Every transport mode has its own advantages:

When deciding on transport combinations, think about factors like cargo type and volume, distance, time sensitivity, accessibility, and available infrastructure. These factors directly influence costs, as outlined below.

Comparing Costs: Single vs. Multi-Modal Methods

Using multiple transport methods can bring significant savings. Here's a breakdown:

For example, companies transporting heavy machinery to remote mining locations often combine sea, rail, and road transport. This approach helps lower costs, reduce fuel consumption, minimize handling, and improve delivery consistency [15].

Implementing Just-In-Sequence (JIS) strategies with multi-modal transport has shown impressive results:

• 40% shorter lead times

• 45% less space required

• 25% lower overall logistics costs [13]

Tips for Maximizing Multi-Modal Benefits

To get the most out of using multiple transport types:

• Map Your Network: Review your shipping routes and identify where combining modes is practical. Pay attention to high-volume routes with existing rail infrastructure.

• Calculate Total Costs: Factor in all expenses, including base rates, equipment costs, handling fees, and potential delays.

• Evaluate Environmental Impact: Multi-modal options tend to lower carbon emissions, which can result in tax benefits and boost sustainability metrics [16][17].

Transport optimization systems that support multi-modal strategies can offer measurable benefits, including:

• 4–8% ROI on freight costs [13]

• Up to 20% savings on overall transport expenses [13]

• 30% faster delivery times [13]

5. Digital Tools for Freight Management

Digital tools are changing how businesses manage freight costs, offering smarter ways to handle logistics data and avoid overspending. By centralizing information and automating processes, companies can cut down operational expenses. A great example is Mello, a platform designed to simplify and optimize freight cost management.

Mello: Simplifying Freight Cost Management

Mello tackles common freight cost challenges with three main features:

These automated features free up teams to focus on higher-level decision-making.

Tracking Cost Savings with Freight Software

To see how freight management tools like Mello pay off, businesses can monitor specific metrics:

Here’s how to make the most of freight management software:

• Combine data from carriers, warehouses, and systems to improve visibility.

• Use tools that flag billing errors and remove unnecessary charges.

• Track key performance indicators like carrier reliability and cost per shipment to find areas for improvement.

"Messy data leads to overspending on transportation. Mello AI provides the data, automation, and insights to help you ship more with less" [18].

6. Inventory Control for Lower Shipping Costs

Managing inventory wisely can help reduce transportation expenses by ensuring better control over stock levels and shipment timing.

Just-in-Time Shipping Methods

Just-in-Time (JIT) delivery focuses on receiving goods only when needed, which reduces the need for storage and simplifies operations.

Here’s how JIT can impact performance:

A great example of JIT in action is Zara. The company aligns its production and sales geographically, ensuring stores only stock what’s necessary to respond quickly to market trends [19]. However, JIT isn’t without risks. For instance, Toyota experienced a 160 billion yen revenue loss due to a supplier disruption [20].

"Just-in-Time Delivery refers to an inventory and supply chain management approach which aims to increase efficiency by reducing inventory." - Elite EXTRA [19]

JIT success depends heavily on accurate demand forecasting, which helps synchronize inventory levels with shipment schedules.

Predicting Demand to Plan Shipments

Demand forecasting plays a critical role in planning shipments effectively. By understanding market trends and customer needs, businesses can avoid unnecessary rush shipments and overstocking.

Key steps for better demand prediction include:

• Data Collection: Gather detailed information from various sources.

• Supplier Collaboration: Share forecasts with suppliers to prevent stock shortages.

• Regular Monitoring: Continuously track forecast accuracy and refine strategies.

For example, a company using Netstock achieved a $900,000 reduction in inventory write-offs by improving its demand forecasting process [21].

"The goal for every distributor is to strike the optimal level of product inventory to support future sales demand." - Amber Salley, Expert in Supply Chain Planning Technologies [22]

7. Cost-Saving Green Transport Methods

Green transportation practices help businesses cut costs while reducing their environmental impact.

Fuel-Saving Equipment and Methods

Using smarter driving techniques and upgrading equipment can significantly reduce fuel consumption. For example, the Public Service Company of New Mexico boosted its fleet’s fuel efficiency by 15% by installing a telematics system to track performance [23].

Here are some key equipment upgrades to consider:

"Implementing fuel-efficient strategies, systems, and programs for some or all vehicles can help fleets monitor and better manage their vehicles, vehicle-related costs, and carbon footprint. These strategies are cost-efficient and do not require extended vehicle downtime."
– Alternative Fuels Data Center [23]

A great example of this is Shenzhen, China, which electrified its fleet of 16,000 buses in 2018. This transition cut annual CO₂ emissions by 440,000 tons and reduced fuel costs by half [24].

In addition to equipment upgrades, tax incentives provide further opportunities for savings.

Tax Benefits for Green Transport

Tax incentives can offset the upfront costs of adopting eco-friendly transportation solutions. Both the U.S. government and individual states offer programs to encourage businesses to invest in clean energy and vehicles.

Here are some current tax benefits:

Texas, in particular, offers generous incentives for clean energy investments. Businesses can either deduct the full cost of solar or wind energy systems from their taxable capital or take a 10% deduction from taxable income [26]. Additionally, the state’s franchise tax credit program offers benefits of up to $100 million per project, with credits that can be carried forward for up to 20 years [26].

Combining operational improvements with these tax incentives can maximize savings. For instance, installing solar-powered charging stations for electric delivery vehicles not only cuts fuel costs but may also qualify for both federal and state tax benefits.

Conclusion: Next Steps to Cut Transport Costs

To start reducing transportation expenses, focus on the following practical steps. Studies indicate that using a Transportation Management System (TMS) can lower transportation budgets by 5%–10% [28].

Implementation Framework

This table outlines steps you can take to achieve quick results. Integrating a TMS, such as Mello, centralizes your data and automates processes, enabling better decision-making. Keep an eye on these key metrics to track progress:

• On-time delivery rate (aim for 96%)

• Cost per mile

• Capacity utilization

• First attempt delivery success

• Freight billing accuracy

Start with route optimization and shipment consolidation to see immediate, cost-effective results. For example, pairing shipment consolidation with automated carrier selection can trim freight costs by 5–15% [28]. Additionally, using collaborative dock management can reduce waiting times and related penalties by up to 25% [28].

For even greater savings, consider working with a 3PL provider. As mentioned earlier [1], this partnership can help speed up implementation and reduce the burden on your internal team.