Factors Impacting How Much Your Logistics Will Cost

Logistics costs sit at the heart of a company’s total operating expense. If managed properly, efficient logistics enable a company to offer competitive prices and maximize its profit. On the other hand, uncontrolled logistics costs can reduce profit margins and drive customers toward competitors.

This is why an in-depth understanding of logistics cost components is crucial. Logistics costs are the expenses a company incurs in its supply chain. This expense covers the procurement, storage, transportation, and distribution of raw materials, ensuring the timely and efficient movement of goods from the source to end users.

The Macro and Micro Impact of Logistics Costs

1. Micro Impact (Company Level): Logistics costs directly affect total operating expenses, product pricing, and, most importantly, profit margins. Efficient logistics are key to price competitiveness.

2. Macro Impact (National Level): When a country has heftier logistics costs relative to its Gross Domestic Product (GDP), it can lose its export price competitiveness in global markets. Thus, governments attempt to reduce these costs through infrastructure development, digitalization, and more efficient distribution systems.

Two Main Categories of Logistics Costs

Logistics costs fall into two main categories based on the direction of goods movement:

• 1. Inbound Logistics: Costs related to procuring and transporting raw materials or components from suppliers to factories or warehouses. (Examples: transportation, storage, and raw material purchasing administration costs.)

• 2. Outbound Logistics: Costs related to distributing finished goods from factories or warehouses to distributors, retailers, or directly to end users. (Examples: transportation, warehousing, and order-fulfillment management costs.)

The Five Core Components of Logistics Cost Structure (LCC)

Logistics costs comprise five key components that must be individually analyzed to reveal opportunities for cost efficiency:

1. Transportation Costs

Usually the largest cost component, as it covers all goods movement. The factors determining these costs are usually fuel price fluctuations, transportation modes (land, sea, or air), shipping routes and distances, and surcharges (for toll roads, loading and unloading, and parking).

Meanwhile, last-mile delivery (shipments to end users) often costs more because it involves smaller volumes and higher flexibility demands.

2. Warehousing Costs

These include all expenses for storing raw materials and finished goods. Inefficient warehousing can quickly become a financial burden.

Major cost elements include warehouse rent or ownership, warehouse equipment (such as forklifts and racks), investment in warehouse management systems (WMS) for stock efficiency, warehouse insurance, and dead stock (unsellable inventory).

3. Fulfillment Costs

These cover expenses for the preparation and shipment of orders to customers, whose complexity heavily depends on the volume and type of the order.

Components include packaging (boxes, bubble wrap, labels), returns processing (including reverse logistics), and order account management administration.

4. Inventory Costs

Related to stock management, the goal is to strike a balance between availability and storage expenses.

This comprises ordering costs for each order to the supplier, stockout costs that may trigger a loss of customers, express emergency delivery costs, and shrinkage costs due to damage or theft.

5. Labor Costs

A major operational expense that includes wages, benefits, and training for logistics personnel.

Components cover warehouse staff wages and salaries, drivers, logistics administrators, overtime costs during demand spikes, insurance and employee benefits, and recruitment or training expenses for new hires.

5 Key Factors Affecting Logistics Cost Fluctuations

Logistics costs are dynamic, influenced by both internal and external factors companies must anticipate:

1. Global Fuel Prices: The biggest external factor. The fluctuating oil price directly influences transportation and trucking costs, increasing vehicle operating expenses.

2. Labor Costs and Wage Regulations: The increase in the regional minimum wage (UMR), high demand for labor in the logistics sector, and employment regulations can raise payroll and benefit expenses.

3. Port Delays and Congestion: Ports are critical points. Demurrage, ship traffic congestion, or missing documents can lead to significant extra costs and supply chain delays.

4. Regulatory and Trade Policy Changes: Import-export companies must adapt to tariff shifts, customs policies, and trade barriers (e.g., trade wars). One strategic solution is nearshoring—moving production closer to main market to reduce global supply chain risks.

5. Rising Warehouse Rent and Facility Costs: Warehouse rents have surged alongside e-commerce growth and the demand for strategic locations. To address this, companies can employ cross-docking (shipping goods directly without long-term storage) and optimize the warehouse layout.

Strategies to Identify and Reduce Logistics Costs

Identifying detailed logistics costs is the first step toward efficiency and profitability.

1. Conduct Regular Logistics Cost Audits

Audits help map cost structures, pinpoint inefficiencies, and uncover savings opportunities.

• Audit Focus Areas: Transport cost per shipment (is there a cheaper mode?), warehouse capacity utilization, and labor productivity versus cost.

2. Calculate Cost per Unit

This approach shows how efficiently logistics spending contributes to each sold unit.

• Calculation Steps: Divide total logistics costs (transportation, warehousing, etc.) by the number of units shipped over a certain period. Then, analyze cost variations by destination or distribution method.

3. Identify Hidden Costs

Hidden costs often do not appear in profit-and-loss statements but still impact logistics budgets.

• Examples of Hidden Costs: Lost customer costs due to late deliveries, reverse logistics costs resulting from errors in order processing, and dead stock occupying valuable warehouse space.

One of Indonesia’s trusted logistics service providers is SERA Logistics (SELOG), a subsidiary company of PT Serasi Autoraya (SERA) under PT Astra International Tbk. SERA is widely recognized as one of the largest logistics transport service providers in Indonesia.

Building upon more than 32 years of continuous innovation, SELOG can cater to your end-to-end logistics needs with a variety of solutions it has to offer, including Contract Logistics, Shipping Services, Shipping Agency, Freight Forwarding, Warehouse and Yard Management, and Courier Services. In other words, SELOG offers a one-stop solution service for all logistics needs.

SELOG is also supported by a transport fleet—both land and sea—that is constantly well-maintained and fully equipped, making it ready for deployment anytime.In short, the company has swift, effective, and safe warehousing, shipping, and distribution solutions for your goods.

For more detailed information, visit their official website at https://www.selog.astra.co.id and follow SELOG on Instagram @serasiautoraya and LinkedIn Serasi Autoraya.