Helpful Information















Logistics / Warehouse Cost Reduction

After product cost, logistics and warehousing expenses account for the largest cost driver for most importers and distribution companies. Nothing deteriorates gross profits quicker than expedited freight or hidden warehouse fees. Understanding the logistics process flow and how fees are incurred or charged are the first steps to creating efficiency of operations and reducing costs.

Logistics/Warehousing Costs
The following are typical costs incurred by third party logistics/warehouse companies:

  • Freight out to the customer: many logistics companies have negotiated rates with freight companies. Freight deliveries over 150-200lbs typically are sent by truck. Deliveries under this weight typically are sent by a small parcel carrier such as UPS. The weight cutoff varies by company depending on their negotiated freight rates, and location of their warehouse and ship to locations. Trucking rates are charged by total weight of shipment and decline with higher weights. Small package delivery rates are charged by package depending on weight, or if oversized, by dimension.
  • Handling of fees charged when the product is received into the warehouse.
  • Order processing fees charged per fulfillment order
  • Small package handling fees charged for UPS type shipments per package. Typically the fee is higher for the first package in an order and then less for additional packages in that order.
  • Storage fees that may be charged on a weekly basis based on cubic feet of inventory or number of pallet positions.
  • Labeling fees charged per label
  • Palletization fees per pallet
  • Rush order processing per order
  • Cycle or full physical inventory count by labor hour

Reducing Cost
The first step to reducing costs is to require the warehouse to provide electronic bills that are logical and consistent to your process flow and accounting system. For instance, if you send orders with items and "ship to" information to the warehouse and track this information in your accounting system, then the warehouse should send bills with the cost of these shipments by order, item and "ship to" location. If you track items in inventory by category, department, customer, etc., you should require the warehouse send bills consistent to this. Your accounting system should track the weight and dimensions needed to review costs. For instance, many warehouses charge storage fees based on item case pack cubic feet. You need to have this information in your systems. Cubic feet are calculated by multiplying width times length times height. Once the bills are logical and easy to understand, companies can analyze logistics costs per product line and customer. This will allow good decisions for pricing, warehouse location, quantity and frequency of delivery to customers, and inventory levels.