Transportation costs are always top of mind for logistics leaders. The world of delivery and transportation has to absorb so many shocks—from huge swings in demand to fuel and material cost fluctuations to changing regulations and tariffs—that it can be difficult to keep up with what the latest challenge is. Luckily, the fundamentals in logistics cost reduction are fairly evergreen. Whatever challenge has cropped up this week, optimization is mission-critical.
And optimization itself has never been easier to come by. SaaS technology has been making cutting edge optimization capabilities available to more businesses than ever in the past several years, and the emergence of usable AI use cases in logistics has only increased the power of the right technology.
In this post, we’ll give a step-by-step guide on how to reduce transportation costs in logistics, and what kind of tools and techniques you can use to turn theory into practice.
Before we dig into the meat of the cost reduction strategies, let’s get on the same page about what types of costs we’ll be prioritizing. Most delivery organizations will have similar areas of focus when it comes to keeping transportation costs under control:
One thing you might notice about the first three of these is that they correlate strongly with one another. If your transportation plans have a bunch of unnecessary mileage, you’re going to burn more fuel, your drivers are going to spend more time on the clock, and your trucks are going to log more mileage. Anything you can do to shorten the distances traveled addresses all three cost centers.
Warehousing isn’t precisely in that same category—you can run extremely efficient routes and still have a huge warehouse and distribution footprint—but it is the sort of thing that overall optimizations in transportation planning can impact meaningfully. If you are improving your transportation planning and execution enough to move the needle on lead times, for instance, you can also shrink your footprint and reduce costs that way.
When it comes to the last two factors, it might seem like reducing them could work at cross purposes—but as we’ll see in the rest of the piece, the ROI in terms of both labor time savings and logistics optimizations can be more than enough to justify technology spend. (That said, the right technology can even help you consolidate your IT to the point that your overall bill stays manageable).
Without further ado, here’s the five-step rundown on how to reduce transportation costs in logistics.
It’s a cliche at this point to say “you can’t optimize what you can’t measure.” And while that’s certainly true, it really goes one step deeper than that: you can’t control what you can’t see. That’s why the first step to reducing transportation costs in logistics is to implement true, strategic visibility.
What does this look like in practice? It starts with having total clarity into your available delivery capacity, your orders, your schedules, and your deliveries when they’re underway. With this as your starting point, your teams can instantly get answers to the questions that crop up constantly across their daily tasks. Simply put, every team and every touchpoint is in a position to get their jobs done more effectively.
Okay, you’ve got visibility into your orders and delivery capacity—what’s next? It’s time to start optimizing your transportation routes and schedules. This is the type of thing that used to get done by hand, but a modern logistics technology stack simply isn’t complete without route optimization capabilities that can radically streamline the process of creating routes and schedules.
The key here is to find something where your teams can easily input their routing parameters (e.g. site and vehicle-specific requirements, differences in service time between different types of deliveries, driver skill, cost factors, etc. etc.), generate a workable route in a matter of minutes, and update the route seamlessly by hand if anything needs to change. No matter how much complexity you throw at it, an efficient routing engine will offer cost-effective routes that your drivers can actually execute on. This can help reduce driver hours and fuel cost by a huge percentage, while saving back-office time and labor.
One of the potential pitfalls when you improve the efficiency of your routes is that there’s still no guarantee that customers will be at the delivery site at the right time to accept delivery. When this happens, you effectively double your mileage, and therefore increase your costs. Luckily, when your routes are reliable (in other words, when your ETAs are actually accurate), it’s easy to ensure first-time delivery success. How? By improving your customer engagement to the point where customers are confident about when the truck is actually going to show up.
The best practice here is to leverage alerts, notifications, and live delivery tracking for your customers. Communicate early and often and you’ll be able to decrease the frequency with which your drivers have to come back to the distribution center laden with unplanned returns.
Customer experience orchestration of the kind that we’re discussing has the potential to save costs in a huge way (especially if you introduce AI-powered agents into the equation to automate simple customer chat interactions).
So why isn’t it standard practice across the entire industry? One reason that some companies aren’t able to reach this level of customer service is that it’s a huge amount of work to do by hand—keeping customers in the loop by phone. could easily require an entire call center for a mid-sized operation. Here, as in so many parts of the logistics planning and execution process, automation is critical. You can reduce the costs associated with manual effort not just in customer communications, but in manual data entry, dispatching, and a host of other areas.
When you have real visibility into your delivery costs at the planning stage and after the fact, you can get smarter about how you allocate your resources, how you plan your transportation, and even how you manage your larger logistics network. The key is to track the most important KPIs to your business and iterate over time. As with so many of these best practices, the right logistics solution will be an essential piece of the puzzle.
If you’re wondering how to reduce transportation costs in logistics, there’s good news: the playbook for making that happen isn’t mysterious. There are concrete steps you can take—from optimizing routes to improving first time delivery performance to automating as many functions as possible—that are proven to decrease transportation costs.
Wondering what that looks like in practice? We’d love to walk through the ways that DispatchTrack logistics optimization platform helps you seamlessly enact these cost reduction best practices. Drop us a line here and we’ll set up time to talk.