It is that being close to customers saves you money.
With many shippers paying 5-10 percent or more of their total revenue in shipping costs, it’s something worth paying attention to.
It’s not complicated. Transportation costs are primarily a function of distance traveled and the size of the shipment. The equation is pretty basic. The good news is both of these factors are very much in your control.
Let’s start with the easy one – distance to customers.
The miles your product needs to travel has a direct impact on your shipping costs. More miles means more gas, more time on the road for drivers, and more wear and tear on equipment. All these factors are directly proportional to the rates carriers will charge to move your products.
There are other important factors such as the specific parts of the country you are shipping to or from that impact price, but for the most part mileage trumps those details.
Just as impactful is the size of the shipment, but the control you have may not be as obvious.
The control you have mainly comes in two forms:
- Product and packaging design
- Order optimization
Or, in other words, the size and shape of your products – and the method for how orders are shipped matter. Product and packaging design determines weight and the space the product takes up during shipping.
Designing products and packaging with the following details in mind will help reduce shipping costs.
- Be lighter – less weight lowers shipping costs.
- Require less and simpler protective packaging – less weight, less cost spent on packaging, requiring less space for shipping.
- Protective packaging that optimizes the number of units that can be stacked on a pallet, or in a truck.
Another consideration is order optimization. How orders are shipping – like Truckload vs. Less-Than-Truckload (LTL) or choosing between FedEx or the USPS have huge impacts on costs. Each option has its benefits and costs. There are almost always BIG differences that need to be accounted for with every shipment.
The concepts are simple but the execution is not. Its takes experience and data-driven technology. Your goal needs to be to create or adjust your network with proximity to your customers in mind. But remember, cheaper rates at a fulfillment center are often wiped out by higher shipping costs if you are not closely tracking them.
Do you ship nationally? The geographic center of the country might be somewhere just west of the Mississippi, but the most central location for optimizing shipping costs to the bulk of the U.S. population is further east.
The key takeaways are to always minimize the distance from your fulfillment and warehousing operations to your customers, and that optimized packaging design will reduce the cost of sourcing materials and help further optimize your shipping costs.