Daily Archives: April 24, 2013

Why Does Shipping Cost so Much?

Oil, of course. Most trucks run on diesel, the fractional distillate of petroleum fuel oil, and the cost of oil, which is almost 100 times what it was 50 years ago, keeps rising at an average rate that is over 10 times the rate of inflation, as calculated using the consumer price index over the last 50 years.

But is that the only reason? No. Someone has to drive the truck, and labour costs go up, albeit not as quickly every year.

And someone has to buy the truck, which contains a lot of steel, which has also been rising over the last 30 years. The inflation adjusted hot rolled coil transaction value has more than doubled over the last 30 years, which partially explains why trucks are so expensive.

Are these the only reasons? From a simplistic point of view, you need a truck to carry your goods, fuel to power the truck, and a driver to get it to the destination. You have maintenance, but that can be built into the cost of the truck, and you have administration, and that can be built into the cost of the driver. So one might think these are the reasons and there’s no way to decrease the cost of shipping, as none of these costs aren’t going down soon, but if one did, one would be wrong on both counts.

There’s one more reason shipping costs so much. Empty pallets and empty loads. What typically happens when you ship a product is that your 3PL shows up with an empty truck, loads your pallets of merchandise onto the truck, and delivers them to the destination, where the truck is again emptied. It then drives empty to its next pickup which, if it’s lucky, is in the same city, but could be half a state away. At a later time, it returns to your supplier, picks up the empty pallets, and either carries them back to you for reuse, or, if you are part of a pallet-exchange program, the nearest manufacturer. In either case, the truck is completely empty before pickups and after delivery and effectively empty when it is carrying empty pallets. This takes driver time, fuel, and wear-and-tear on the truck. This cost money, and this cost has to be recovered – from you!

This is a big reason why shipping costs so much and your biggest chance to lower costs. If you want the best rates you can, you need to select a 3PL that does a lot of business in your area so that it’s trucks aren’t empty for long and that minimizes the distances that empty pallets are carried.