How to Calculate Freight Cost Per Item
If you are a business owner, you likely get excited when you make sales that help your business grow. Often, these occasions can help you grow your budget so that you can continue offering more merchandise to your customers. One thing you may not think about, however, is how you are supposed to get your goods to the individuals who bought them.
First, you need to consider how to calculate freight cost per item. This factor is essential when determining how much you want to charge per item. There are many fees associated with freight shipping, as seen below.
Shipping Costs Overview
You may wonder, how is freight cost calculated? There are several charges incorporated into your final total.
You will need to consider the equipment needed for your packages and how far away the destination is. There are many other factors you may not even consider when learning how to calculate freight cost per item, as seen below.
Port Handling Charges
When learning how to calculate freight cost per item, you first need to consider port handling charges. These will come up at the beginning and end of the shipping journey.
Port handling charges cover several essential services, including those below.
- Weighing goods
- Inspecting goods
- Documents provision
The seller will pay for the transportation of the freight packages. Ultimately, the money will not come out until the shipment arrives at the destination facility.
Insurance and Certification
When asking yourself, how are freight charges calculated, you need to consider how often you make shipments. If you frequently require the transportation of your business packages, you may want to invest in a broker.
These freight brokers become middlemen who handle the behind-the-scenes work of the transactions. If you want to become one of these professionals, you will have to pay for a USDOT number and a company registration as an LLC.
If you are a business owner, these brokers can help you get the best deals on insurance for your freight shipments. These policies will cover any lost or damaged packages.
You can use an inventoriable cost per unit formula when determining the price for your freight shipment or you can manually add the numbers. In either case, the next cost considerations to keep in mind are the customs levies.
If you need to send your freight packages to another country, you will have to pay a customs clearance fee. The cost will cover the preparation needed to complete documentation.
You will have to pay the customs levies up front, before shipping your freight packages. Ultimately, each broker will determine the fee. Most of the time, the cost is around $50 per package.
Consider Landing Costs
Understanding how to calculate landed cost is one of the most essential steps to determining your final freight shipment price. This fee will only apply to you if you ship international packages.
International freight shipping costs are often quite expensive. Prepare for what you will have to pay as soon as possible so that you can budget effectively. Use a landed cost calculator to determine exactly what types of preparations you need to make.
Do note that many of the factors listed above are part of the landed costs. There are additional fees to consider, including those below.
When learning how to calculate landed cost prices, you first need to determine the exchange rates in the other country. Try to keep as up-to-date on this information as possible. A non-beneficial exchange rate can harm your business.
If your freight packages have to sit in the port for a longer than expected time, you will have to pay demurrage fees. They will continue increasing until your merchandise leaves.
Most international shipments do not require that you obtain an export license. Do your research so that you do not get in trouble later. Look up your Export Control Classification Number to determine what you need to pay.
Calculating Unit Freight Cost
The final cost that you will need to pay per unit will include all of the expenses aforementioned. Before even getting to the shipping fees themselves, however, you need to consider the production expenses. Start with those listed below.
- Incurred overheads
- Packaging materials
- Staff pay
- Incidentals coverage
Add the material and preparation costs to the above shipping fees to determine how much you will need to pay per unit. Subtract this price from how much you sold the merchandise to calculate your profit margin.
Calculating Sea Freight Cost Per Unit
The steps needed to calculate your sea freight cost per unit are similar to those in the last point. You will need to determine how much you had to pay to prepare the package and all shipping fees.
When determining the sea rate cost, you need to search the origin and destination ports. Choose the size of the container you need for your belongings, just like you would for a trailer on a truck. Some of the most popular options include a 20-foot, 40-foot, and 40-ft high cube box.
FTL: Full Truckload
When learning how to calculate freight cost per item, you need to consider if you want to use a full truckload or a less-than-load. Ultimately, the determination concerns how much truck space you can afford.
If you choose FTL services, you will rent the entire truck space. This option is best if you have a wide expanse of items that you need to ship.
FTL services are also beneficial for those individuals who have fragile items to ship. You may only have enough products to fill part of a truck, but they will not risk damage from others’ packages. Try to use FTL services if you have at least 10 parcels you need to ship.
The advantage of using FTL services are below.
- Your shipment will not have to switch trucks.
- Your packages will arrive at their destinations faster.
- Any fragile items will remain safe from the damage of other items.
There are also disadvantages to using FTL services, as seen below.
- FTL services are much more expensive than LTL.
- There is less flexibility in shipping options when using FTL.
- You should not ship small packages or orders using FTL services.
When learning how to calculate freight cost per item, you may want to consider LTL services, especially if you are on a budget. Packages from multiple customers go into the same truck, so there is more of a risk when utilizing this method.
Most of the time, trucks that have LTL shipments on them have to make frequent stops. They have to unload specific packages at different destinations. Sometimes, to access thee parcels, the drivers may need to remove and place your package back, running the risk of damage.
When using LTL services, you will only have to pay for the space you need. It is, for this reason, the most budget-friendly option.
Find some of the advantages of signing up for LTL services below.
- The costs of LTL services are much more budget-friendly.
- Any size of business can benefit from these services.
- Your freight will be on a separate and secure pallet.
- Many providers offer LTL services throughout America, giving you more flexibility.
If you choose LTL services, there are some disadvantages, as seen below.
- LTL shipments take longer to get to their destinations due to frequent stops.
- Though still low, there is a greater risk of damage due to the need to load and unload packages.
- Sometimes, carrier providers use a third-party hub, which could increase the shipping costs.
There are a few other considerations you need to look into when learning how to calculate shipping costs for online store purchases.
Sea Freight Quotation
Finally, when learning how to calculate freight cost per item, you need to look into the sea freight quotation. the carrier will charge a flat rate to move the container from port to port. As mentioned above, most of the time you can choose from three different sizes.
The rate will show up as a ratio. If you choose a 20-foot box for your sea freight, you will see a number on your inventory listed like $1000/’20s, for instance.
Some carriers do require additional charges. You may have to pay carriage prices or chassis usage. Both of these charges are for the space you take upon the boat.
Calculating Freight Costs on Arrival
Most of the time, you will not need to pay for your freight shipments until you arrive to the destination port. The individuals will weigh your merchandise along the way, ensuring that it remains consistent.
When you get your invoice, the carrier will likely automatically charge your card. Discuss with them if you would rather pay ahead of time or at some other moment.
If there were incidents with your merchandise during the shipping process, you may have to pay even more. This reason is why you should seriously consider looking into insurance policies for your freight shipments.
Balancing Costs for Various Items
If you are on a budget, there are ways that you can save money on your freight shipments. Make sure you understand the costs of sending your merchandise to your customers and factor that into the selling price. Do not offer free shipping unless you are certain that you can afford it.
If you do offer free shipping, slightly increase the prices of your merchandise themselves. At the same time, give your customers the options of premium options that cost more, off-setting the costs associated with two-day or overnight options.
Calculating the Freight Cost Per Unit
By now, you should understand how to calculate freight cost per item. Be sure that you budget for all of the fees listed above. Always set your products at a fair price.
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