Welcome to our first Logistics Glossary post of the Fall season! This week’s focus: factors that affect trucking costs! One of the things that we’ve written about before is the difference between calculating the lowest rate and the lowest total cost when quoting a delivery from point A to point B. Today, we can provide a real concrete example of factors that can make calculating a basic rate misleading. Any good third party logistics (3PL) providers can provide a rate for transport, but to be able to consider these factors below to generate a lower total cost (even though it is not the lowest rate in the market) is what makes them great! But let’s start with the definition of what getting a rate is in the logistics sense:
Definition: In logistics terminology, getting a rate or pricing from a 3rd party logistics provider simply means that you are being given the established charges for the transport of certain goods.
So, if I want to transport a package from New York City to Mexico City, the rate would simply mean how much the service would cost to move these goods from origin to destination. But that doesn’t really cover all aspects for what your total cost could be. What is usually being calculated is the line haul cost.
Line Haul Cost
Definition: What is usually given to you when you as for a rate from origin to destination. Exclusive to trucking terminology, it is incurred in transporting goods over a route but not including costs of loading and unloading. Line-haul costs vary directly with distance.
Sometimes, because rates are Below we’re providing a list of some common, additional costs that should be taken into consideration when getting rates to have a better idea of total cost.
Definition: In logistics terminology, loading and unloading is the process of putting shipments into or taking shipments out of containers respectively. The main reasons that these costs apply to your shipments is primarily because initiatives taken to minimize problems that may occur during these phases, especially the loading phase. Problems such as inadequately sized docks and rough terrain can lead to load damage and more costly delays.
Definition: A fuel surcharge is an additional charge for motor carriers like trucks to cover fuel costs and is dependent on the line haul. There is some controversy with how fuel charges work as having a line haul cost and the fuel surcharge in flux makes it hard to calculate total freight spend and makes carrier relationships more difficult to maintain. There’s an old blog post from Inbound Logistics Magazine that gives great insight into the standardization of fuel surcharges.
Definition: A stop-off charge is an additional cost to cover trucks having to make specific stops between origin to destination. In some cases this ‘stop-off’ might be conveniently on route to the destination, but it is not necessarily always the case. These factors obviously affect the cost for the line haul as we affect the distance and the route that trucks have to travel through. The main reason stop-off charges happen is primarily due to packages in the truck having to be delivered to more than one location (i.e. Toronto – Montreal, but with a stop-off in Ottawa). But another common reason is due to warehouse space capacity issues. Sometimes the destination has an overflowed warehouse and a stop-off is needed to accommodate for it.
Definition: A special type of storage fee for ‘legal’ reasons and is usually seen in cross-border shipments. A package ‘in bond’ means that the goods under customs control (for clearance, inspection, or other form of legal involvement) either until import duties or other charges are paid, or to avoid paying the duties or charges until a later date.
We hope after looking at some of these cost definition you have a better appreciation of our earlier statement:
A good third party logistics (3PL) providers can provide a rate for transport, but to be able to consider other cost factors to generate a lowest total cost (even though it is not the lowest rate in the market) is what makes them great!
If, for example, I wanted to take a load from Vancouver to San Francisco and I have been given Rate A at $100 and Rate 2 at $120 from just the line haul cost. I could obtain estimates on the additional cost factors and find out that other charges are similar except Rate A has a high fuel surcharge of $50 and a bond fee of $30, while Rate B has a those costs at $20 and $10 respectively. We can see that Rate A actually has a total cost of $180 while Rate B has a total cost of $150. Thus the lowest total cost would be Rate B. This is something to definitely keep in mind when getting rates for transport. It pays to know your logistics terminology!
And that’s all for us this week! Hope you have a great weekend! If you liked this blog post, why not subscribe to our blog? If you’re interested in what we do as a 3rd party logistics provider, don’t hesitate to check out our services (as expressed above, we are very pro finding you the lowest total cost!). We’re also in the twittersphere, so give us a follow to get the latest logistics and supply chain news! We’ll catch you next week!