Checklist to avoid hidden charges when calculating total landed cost

July 29, 2019
Finance

If you are calculating your landed cost, you need to be aware of possible hidden charges.

Knowing them will provide a more accurate estimate which means saving money.

In some cases, significant money.

Is identifying hidden costs easy? NO

Is it critical? YES, if you are protecting your bottom line.

According to Reg Johnston, Owner, RJ & L Consulting Ltd, “hidden costs can have a significant impact on the total landed cost. Many people don’t think about things such as seasonal rates and surcharges.”

The following is a checklist to help make identifying hidden costs easier for you.

his list tackles all stages of shipping a product including:

  • Inbound transportation
  • Occupancy
  • Inventory
  • Outbound transportation.

1. Inbound Transportation

Loading a trailer poorly can drastically increase costs. You need to ensure there is the right balance between weight and cube when load planning.

Lane costs can vary greatly depending on origin/destination pairs (lanes) such as Shanghai to Winnipeg or Shanghai to Toronto.

Gather cost estimates for every lane. 

Costs for modes of transportation/capacity and delivery time from supplier location to your location can change from one carrier to another and from one geographic region to the next.

When calculating cost of duration 
cost/rate, consider all variables.

Many companies have multiple carriers for each lane so you want to be sure you cover each lane.

You can uncover any hidden costs here by determining the lanes (the delivery route taken), the volume in each lane and the merchandise class being shipped.

You can identify poor carrier service, inefficient routing and inbound shipment rates that are too high by conducting a lane-by-lane benchmark analysis.

Seasonal rates, where they apply, may vary so negotiate the best rate.

Additional surcharges, duties, tariffs, taxes, brokerage fees and insurance costs should be negotiated and can vary.

 

2. Occupancy

Labour availability, wage rates (influenced by housing availability, price and public transit).

Inefficient processes for pickers will add to costs. For example, if pickers are going out into the warehouse to locate and pick split case items manually, this can add to costs.

An efficient system would bring the inventory to the picker who remains in one location. Look for efficient picker systems.

Poor administrative paper systems that do not operate in real time can add to costs.

Human error at the outbound dock can add up. All trucks need to be going in the same direction to help avoid confusion and costly mistakes.

A company’s occupancy costs can impact earnings, share value, and overall performance. Reducing these costs can lower total landed costs.

The case assembly process for mixed case palletizing can add to costs if it is inefficient. This complex process can be streamlined with semi-automated or automated systems.

 

3. Inventory (cash to close cycle)

Inventory that is in transit too long can add to costs. Minimizing the time your inventory is in each phase of transit will lower your total landed cost.

Exchange rates 
trade financing options can vary.

Damage of inventory due to improper storage. If product is too hot or too cold, damage occurs and this adds to the cost.

Poor material handling needs to be properly maintained. For example, a broken conveyor belt can damage boxes and inventory.

Inventory held too long can be costly. You pay interest for the time your inventory is being held.

 

4. Outbound Transportation

Costs for modes of transportation/capacity and delivery time from the facility to the customer can change from one carrier to another and from one geographic region to the next.

When calculating duration
 cost/rate, consider all variables.

Lane costs can vary greatly depending on origin/destination pairs (lanes) such as Shanghai to Winnipeg or Shanghai to Toronto. Gather cost estimates for every lane.

Loading a trailer poorly can drastically increase costs. Real time software will help find the right balance between weight and cube.

Inefficient drop off planning can add to costs. When routing, you have to manage pick-up and how goods will be stored. The first drop off should be the last load onto the truck.

 

Other variables that can increase total landed costs

Rates for full truck, less-than-truckload (LTL) and small package pricing.

Many companies have multiple carriers for each lane so you want to be sure you cover each one. Look for inefficiencies in the combination of multiple carriers.

There can also be additional surcharges, taxes (eg. fuel taxes) and insurance costs so be sure you have all these costs worked out in advance.

Last minute changes such as time sensitive needs including traffic, customer delivery windows and proximity to customers can also add unexpected costs.

 

A few final pointers

When calculating total landed costs, companies are more frequently calculating a triple bottom line to allow for variables such as CO2 and socio-economic impacts.

Many companies also include risk assessments and require flexibility in network design and agility.

These companies are also allowing a small margin for unexpected costs incurred along the way.

This checklist is not intended to be comprehensive.

Rather, it is a starting point where businesses such as yours can share additional ideas on how to identify hidden charges when calculating total landed cost.