Packaging Series: Understanding the True Costs of Packaging - Transportation

The direct cost of packaging is a very small % of your logistics spend, but it impacts every part of your business, so choosing packaging purely based on its direct cost is a surefire way to either cost your business money or to leave savings on the table. Over the upcoming weeks, we’ll be exploring the cost drivers of packaging, including:

o   Transportation

o   Product Protection

o   Warehousing

o   Handling

There are some softer impacts as well that matter, but are more difficult to dollarize:

o   Branding

o   Administration

o   Environmental

Transportation

Improving packaging design in order to optimize shipping through dimensional improvements, stacking strength, weight reduction, etc… can drastically reduce your total cost of logistics.  Here’s a simple example using increased stacking strength (Note that pricing used below is for simplicity):

Overview: Company X ships 60 products per day.  Products can ship in a 48x40x50 Corrugated Box + Die Cut PE Foam solution.  Product ships from Chicago to Indianapolis and an agreement has been made for a fixed $700 FTL (Full Truck Load) rate.  The buyer has 2 options for corrugated + foam solutions. 

Option A:  32C Corrugated + PE Foam.  Product weight is too heavy to be stacked 1+1.  Company X can fit 30 products per truck: 2x15x1.  Solution Cost is $20 EA.

Option B: 48BC Corrugated + PE Foam.  Product can be stacked 1 + 1.  Company X can fit 60 products per truck: 2x15x2.  Solution Cost is $25 EA.

So which option is better?  If you look at only direct packaging cost, you’ll choose option A as option B is 25% more expensive, however, let’s look at the total costs annualized.

Description	Option A	Option B
Packaging Cost	$ 312,000.00	$ 390,000.00
Transit Cost	$ 364,000.00	$ 182,000.00
Total Cost	$ 676,000.00	$ 572,000.00

Option B Savings

$ 104,000.00

As you can see option B is $104K (or 15%) less expensive than option A because although the packaging in Option B is 25% more than option A the freight is 50% less.

In this blog we examined just one of the ways that packaging impacts transportation, but there are several others to consider, such as the impact of corrugated stacking strength in ocean shipments, the impact of dimensional weight on air shipments, etc... Transportation is one of the main drivers of cost that packaging impacts.  Making sure you truly understand the impact your packaging is going to have on your transportation costs is critical when sourcing packaging.

In the next blog of this series I'll examine the impact of Product Protection and Optimizing Packaging Design