shipping cost reductions

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Green Delivery Service > Business Owners In-house vs. Outsource

Cut Shipping Costs By Outsourcing

On the previous page, it was demonstrated that most businesses operating a delivery fleet can reduce shipping costs by eliminating excess company vehicles and other resources associated with their shipping operations. Of course, the shipments still have to go out, so here we will compare the cost of outsourcing the "variable" segment of our shipping versus maintaining the in-house resources necessary to service all, or most, of our deliveries.

2. Replace high fixed costs with a flexible variable expense.

The specific numbers in the following example have been rounded for simplification and may vary widely per business, industry, and type of vehicle used, but the basic ratios and concepts remain the same.

For the purposes of this example, we will assume that, based on this company's product being delivered and geographic service area, each company driver can make an average of 12 deliveries in a day, with the stops being an average of 10 miles apart. Additional assumptions are on the chart below. Note that "fixed" vehicle expenses include all of the hidden costs of company owned vehicles that are often overlooked.

Cost of In-House vs. Outsourced Shipping
compare shipping expenses

There are a few interesting points on the chart above. First, it is obvious that, as the number of deliveries rises, the costs of both in-house and outsourced shipping increase, but because of the high fixed expenses, in-house costs rise at a choppy rate, whereas outsourced increase in direct proportion to the volume of shipments.

Secondly, the cost of in-house shipping only drops below the outsourced costs at a few key point, which occur at multiples of the number of deliveries a driver can make in a day. These are the points where you are experiencing near 100% productivity from your delivery resources, but as we have noted, this scenario can result in some deliveries running behind schedule. Also, in the real world your volume of shipments will not be identical from one day to the next, so it is likely that you will be over capacity on some days, and below 100% utilization on others.

Imagine what the chart we look like if you were maintaining resources for 30 deliveries per day (your average), but the number of shipments going out on any given day ranges from 15 to 45?

Varying Daily Shipping Volume
shipping cost comparision

In the real world, the volume of deliveries varies every day and of course we can't adjust resources every day to compensate. In the scenario above, again the costs of outsourcing are often less than in-house, and in cases where the in-house cost is lower, there may be service latency issues as a result of exceeding daily delivery capacity. Furthermore, if there are any extended periods of low volume, outsourced costs remain low, and if for some reason you have no deliveries at all on a given day, your shipping overhead is exactly $0.

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3. Reduce courier expenses.

- Choosing the right courier for the job. Continue >>

4. Get shipping discounts.

- Take advantage of available courier discounts. Continue >>

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