Top 5 Hidden Costs of Logistics


February 08, 2013


Wondering about your true logistics costs? Logistics costs are mutable, not fixed, so any one category of logistic cost is subject to your enterprise’s own efforts. Logistic cost analysis is a crucial first step to finding any logistic cost that is out of step with the needs and expectations of your business. In fact, it is the first thing that you need to do in order to implement a truly comprehensive logistics cost management strategy.

It can be challenging to cost logistics, but with the right assistance, it is far from impossible.

Logistics cost management can save you a significant percentage on every logistical transaction that you make. Plus, you will often be surprised about the true vulnerabilities that are exposed by logistic cost analysis. To give you an idea of what you might expect during the process, I have compiled a brief overview of the Top 5 Hidden Costs of Logistics.

These costs frequently represent an outsized drain on the resources of Source Logistics clients which, upon identification, can be reduced 20%, 30%, or even 50% using our expertise. Of course, your own individual logistics cost analysis may provide insights that go above and beyond the ones listed here; this is simply a sample of what happens when our experts cost logistics for our clients. Naturally, no individual enterprise information is provided.

The Top 5 Hidden Costs of Logistics Revealed By Logistics Cost Analysis

1) Carrier Error

Carrier error is by far the largest cause of preventable costs in the world of logistics. Most carrier errors will go unnoticed for months or even for years because they are the result of human error and do not reflect a pattern of systematic behavior that can be easily detected. Uncovering these issues usually requires insight from someone who understands the practices of such carriers and can review invoices in light of this information.

2) Unfavorable Contracts

When businesses first begin to optimize their own logistics, they can frequently fall prey to contract terms that are less than desirable. As a business grows, however, it should be continually leveraging the expansion of its transactions in order to get more and more favorable terms from its carriers. Even when a business is in a relatively early state, it is frequently able to improve its contract terms by using the clout of an established logistics consultant.

3) Shipping Exceptions

Shipping exceptions can arise from a number of causes, but the central cause is insufficient “visibility” of your logistics-oriented processes. Greater visibility equates to more actionable intelligence for your shipping managers to use, which allows you to avoid shipping exceptions even as your supply chain begins to grow more complex. Usually, this will require a sweeping change in the technology that you use to handle your business analysis.

4) Suboptimal Routing

Although one might expect suboptimal parcel routing to be the major cause of lost money in logistics, the truth is that the other problems outlined above are frequently much more severe. Even so, however, suboptimal routing goes hand in hand with shipping exceptions, and having a reputation for such exceptions will negatively impact both your logistics budget and your reputation with your customers. This can become a very serious matter.

5) Parcel Insurance

Most carriers have their own insurance schemes that are not necessarily favorable to the businesses that they purport to serve. Even in the best of times, it can be extremely difficult to follow through on a parcel insurance claim when you need to. To establish a routine process for collecting on the claims that are rightfully yours, you should speak to a consultant who will be able to optimize your logistics-oriented processes and save you time and money.

Bottom line: If you are concerned about your logistics cost, odds are there is good reason to be. Engage a consultant who can help you impact the trajectory of your enterprise’s logistics cost profile.

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