The most persistent hidden costs lurking in transport and logistics for small business

There are many places for hidden costs to lurk in transport and logistics, draining profitability for any small business that relies on deliveries to get their product out there.

For small businesses with bigger demands than parcel post and who require a delivery fleet, transport is often a top five cost of doing business. There’s a great opportunity to improve profitability by clamping down on leakages in this area.

Major sources of hidden costs

A major hidden cost is not having backup vehicles and drivers at short notice. The longer it takes to organise a replacement, the more likely this is a hidden cost to your business. If you’re needing to take staff from other parts of your business to fill in when a driver is absent, this may also represent a hidden cost to another part of your business.

Some of the largest hidden costs come from small business owners and managers spending too much time on their transport and logistics. I have met businesses managing their own fleets of 200 vehicles and drivers – a sizeable fleet given transport is not their core business, and they never set out to be a transport company.

That’s ok if you’re happy to become a fleet manager. But if you didn’t intend to become a fleet manager when running your small business, you may experience the hidden cost of wasted management time – that is, all the time you or your management team spend on managing delivery-related issues when you could be adding more value to the business.

Some of the most common hidden costs in transport occur due to inefficient delivery schedules – drivers taking inefficient delivery routes, and drivers doubling up on runs, where two or more drivers go to the same part of town at around the same time. Unless someone is planning, tracking and measuring fleet performance it won’t be picked up.

Little things can become bigger costs over time

Fuel use may not seem like much over an hour, or a day. But it can become a more substantial hidden cost over months or years if vehicles are not being properly tracked, measured for speed, and measured for things such as excessive idling or inappropriate use.

Inefficient use of vehicle resources may also add up. If a van or truck spends several days each month sitting idle, it might be a bigger hidden cost than you realise. Each day the vehicle is not being used means it is not adding to your profitability, yet is still costing you for insurance, registration, and potentially financing or leasing.

It might not seem a big deal over a day or two. But weigh up the opportunity cost of an under-utilised vehicle, together with the tangible costs to keep it in service, to consider its potential as a hidden cost.

Some solutions to tame hidden costs

A good starting point is understanding what your actual delivery transport should cost, warts and all. There are several applications available which can give you a true figure but it’s important your inputs are honest and absolutely everything is included.

It not only provides a picture of what your deliveries really cost, it is a great starting point for benchmarking and measuring efficiency, essential to keeping costs in check.

On benchmarking, stress-test your delivery fleet to see how it might cope during periods of heavy usage – simulating peak stress will find areas of weakness, which is where hidden costs lurk.

Analyse your transport solution for flexibility and adaptability. The longer it takes you to turn resources on or off, the more likely this is to be a hidden cost. Analyse any owned resources, such as vans and trucks, for efficiency and responsiveness. Be honest. You want to establish a good baseline so that if you engage third party suppliers, such as transport specialists or couriers, you know what is required.

When trying something new such as engaging a third party, push for a trial period – start small before committing to something bigger. You need to establish that this strategy is the right fit.

You may need to renegotiate with third parties for a more optimised solution, in which case it’s important to do your homework and be informed, while articulating clearly what you’re trying to achieve.

Be honest about wasted management time. Consider the value of your time as a business owner or manager. Put an hourly figure on it, then calculate how many hours a week you’re being distracted from core business due to transport issues – magnify this over a 12 or 24-month period. This information becomes something you can measure in comparison with any subsequent changes to your deliveries.

If you’re not employing tracking technology, start simple. There are a million things you can measure but some of these will become a distraction. It’s better to focus on a few things rather than trying to measure absolutely everything.
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