There are still ways to lower transport costs

Published In: The Australian Financial Review
Date Published: 23rd September 2004
Author: Susannah Moran

Freight costs have been trending lower for years, but there's still room for further savings, says Susannah Moran. Companies in Australia have enjoyed reduced freight costs in real terms over the past 35 years. But it's still possible to achieve more savings.

Technological advances, better roads and more efficient vehicles are all contributing.

Road freight rates have almost halved and rail freight rates have fallen 70 per cent in real terms since 1965, according to a 2002 study by the Bureau of Transport and Regional Economics.

Other factors contributing to the decrease in costs include track improvements, more efficient engines and better use of container space, according to the author of the report, David Gargett.

While overall costs have fallen, recent increases in fuel and higher labour costs will affect freight costs in the near future.

Although large companies may have the resources to concentrate on their freight management, smaller firms that do not have the resources may be missing out on savings, according to Henry Marlow, a senior consultant at cost reduction company ERA.

"We look at the way in which they are freighting their goods," he says.

"What they may not realise is that pricing may have moved and savings have not been passed on," says Marlow.

One way to see immediate cost savings is to ask the freight company to changes from prices based on kilometres travelled to a parcel-based price, advises Marlow.

"We know what the prices are Australia-wide for moving freight, whereas all a client may know is whether he is getting a good deal compared to the supplier, not across the market."

However, Marlow warns against going for the cheapest possible solution, saying that companies might compromise on service.

The main issue affecting freight costs is the rising price of fuel, according to Barry Jenner, a management consultant who advises the transport industry. However, he describes the industry as "tough" and says profitability is quite low, even for the large companies.

"As consumers we are getting a good deal," he says.

In regards to costs, Jenner says businesses should look beyond freight expenses and take a broader approach otherwise, they may end up with damaged goods, theft and other problems.

The smart way is not to look at how much you pay your operator, but the total supply-chain cost. The smart customers will pay a bit, but their overall supply-chain costs will be cheaper.

However, there are many advancements in technology, such as the ability to track vehicles, stock and automate accounts.

For companies in Tasmania, the federal government has acknowledged the additional costs in moving goods across Bass Strait.