Transportation cost is a term that is familiar to virtually every company and entrepreneur since the beginning of time. In essence, it should be a simple matter. The goods need to be transported from point A to point B, and we need to know how much it costs!

Unfortunately, there are several situations in this field where carriers want to lower their risk, and therefore introduce several variables in pricing (fuel surcharges, road tolls, labour costs, congestion fees, COVID-19 surcharges, etc.).

Understanding Freight Price Formation: Why It Matters for Your Business's Bottom Line

For several reasons, knowledge of freight price formation is crucial for manufacturers, wholesalers, and retailers. Firstly, transportation costs are a significant expense in the supply chain, and a lack of understanding of how these costs are determined can lead to overpayment, which could significantly impact a company's profitability.

Secondly, transportation costs are subject to numerous surcharges, such as fuel surcharges, road tolls, and labour surcharges, which can vary widely between carriers and regions. Understanding these surcharges and how they are calculated can help businesses negotiate better rates and avoid unexpected costs.

Thirdly, knowing how transportation costs are determined can help businesses make informed decisions about their logistics strategy. For example, if a carrier's rates are based primarily on distance, a company may consolidate their shipments to reduce transportation costs. Alternatively, if a carrier's rates are based on weight or volume, a company may opt to use smaller or larger packaging to optimize its shipping costs.

Finally, understanding freight price formation can help businesses maintain healthy relationships with their carriers. By understanding the factors that influence transportation costs, businesses can have more meaningful discussions with their carriers and work together to optimize shipping efficiency and costs.

What does transportation cost consist of?

According to popular belief, the transportation cost is calculated from various cost-based components (fuel price, driver's salary, truck cost, etc.). There is some truth to this, as several factors do play a role in the formation of the transportation cost. Different cost components, direction-based export-import balance, availability of transport routes, direct traffic, and partner networks, but in practice, the transportation cost is still based on market price since these factors are rapidly changing and differ among carriers.

Carrier or freight forwarder cost components:

  • Driver salary
  • Fuel cost
  • Truck leasing
  • Truck maintenance
  • Road tolls
  • Carrier licenses
  • Carrier liability insurance

Freight price explained
Freight price explained

Different surcharges on freight invoices?

There are many different surcharges and ways of calculating them in the transportation sector, and it is not possible to list them all here. 

Here are the most common surcharges in Europe:

  • Fuel surcharge (BAF - Bunker Adjustment Fee)
  • Road tolls
  • Labor surcharge
  • Hazardous cargo surcharge (ADR - Accord relatif au transport international des marchandises Dangereuses par Route)
  • Thermo surcharge
  • Tailgate surcharge
  • Terminal fees - cargo handling
  • Various error fees - waiting time, no loading reservation, lack of gate access permit, missing documents, required repackaging of goods

How quickly can I get a rate quote from a carrier?

When choosing a carrier, transportation cost is one of the most important criteria for the shipper, along with delivery time, expertise, reliability, and payment terms. However, sometimes it is even more important to quickly get a rate quote for the required shipment.

The response time to a query can vary greatly depending on the carrier, shipping direction, and different freight managers. Depending on the carrier, the offer can come in a few minutes, and take a few hours, and it is not uncommon for the response to take several days.

Using smart TMS software (for example Cargoson), the user can receive the first ad-hoc quotes in about 5 minutes (from the time of the request). But using your long-term agreed price lists or carriers' public online rates (some TMS provide instant carrier rates in software) it only takes 1 minute to place a transport booking.

Freight price management in Cargoson TMS

The software allows users to easily search for and compare rates from different carriers, request quotes, and track shipments in real time.
Cargoson TMS also includes a pricing module that allows businesses to manage their rate sheets and pricing agreements with carriers.
The system also provides businesses with analytics and reporting tools to help them optimize their transportation spend. Users can analyze their shipping data, track KPIs, and identify areas for cost savings.
Furthermore, Cargoson TMS includes a robust carrier management module that allows businesses to manage their carrier relationships and monitor carrier performance.

As a Cargoson user, can I configure my preferred carriers in the selection, upload long-term price lists, and make price inquiries? YES, you can!