Why is Shipping so Expensive?

April 22, 2024

If You’ve Ever Wondered Why Shipping is so Expensive, You’ve Come to the Right Place

If you’ve ever needed to ship anything larger than a small box, you probably already saw that the number next to the dollar sign can have one or two digits more compared to your usual parcel shipments.

To understand why freight shipping is so expensive, we have to dive into the intricacies of freight pricing, as well as the operational costs faced by freight carriers.

How Freight Pricing is Determined

First, let’s look at freight pricing and how it’s determined. For an in-depth look at freight pricing, feel free to check out our previous article about what goes into freight pricing, and why freight quotes expire. 

Freight pricing is a complex process, and the more people are involved, the higher the labor cost and the price is likely to be. Below, you’ll find the most important and most common factors that contribute to the cost of shipping goods.

Distance and Route

The longer the distance, the higher the cost of fuel and the final cost. Lanes with more redistribution required are likely to incur additional fees due to longer travel times and more care required by all staff involved.

The distance traveled doesn’t only mean higher fuel consumption. It also means often much higher driver and warehouse worker work hours, storage, etc.

Weight and Volume

Freight costs are directly affected by the weight and volume of the shipment. Heavier and larger shipments require more resources to transport. 

This factor varies in degree from carrier to carrier, but generally, if your shipment is fragile and takes up a lot of space, it’s more likely to cost more to transport as well.

If your shipment is bulky, easy to maneuver, and dense (doesn’t take up too much space relative to the weight), it’s likely to be more reasonably priced. 

Mode of Transport

Different modes of transport (such as air, sea, rail, or road) have varying costs associated with them. Air freight is typically the most expensive due to the speed and fuel requirements.

Freightera specializes in B2B ground shipping, so we’ll just mention rail, road, and intermodal as the main examples.

If you’re shipping anything via ground freight, the most affordable (and the greenest!) option will be rail shipping. However, due to various complicated factors, it’s also the slowest mode of transportation in North America. You can read more about it in our train vs. truck shipping article. 

Intermodal shipping is a combination of road and rail shipping and offers a good mix of rail and road transportation to make sure you get a faster delivery at a more affordable price.

And lastly, road shipping is the fastest and most expensive way to ship freight on the ground. It means using only trucks to get your cargo from point A to point B. 

Fuel Costs

Fluctuations in fuel prices regularly impact freight costs. Higher fuel prices mean higher operational costs for carriers. Unfortunately for most of us, these charges are passed down to the shipper.

Fuel price fluctuations are actually the main reason freight quotes last for only a few days. 

Demand and Seasonality

During peak seasons when demand is high, prices tend to increase. This is due to the limited availability of resources and the higher costs of managing logistics during busy times.

Trucks are more difficult to manage and maintain than other modes of road transport. This means that they’re more limited in supply too. Each carrier we work with has a limited number of trucks and drivers, and depending on the location, they may be limited in how often they can service a given area, depending on its demand. This is especially true during the “shipping season” like when wholesalers and retailers are preparing for the summer or winter holidays.

Regulations and Tariffs

Compliance with various regulations and tariffs, especially in international shipping, can add substantial costs to freight operations.

This point is fairly specific and varies greatly from place to place and based on what you need shipped. These price increases don’t only concern import/export and customs brokerage fees. They may also include special permits for using trucks on various roads due to maintenance, or permits for transporting oversize or overweight cargo.

As mentioned, one of the important factors is supply and demand, which is sometimes directly shown through dynamic pricing structures. Dynamic pricing means that freight rates vary from day to day, or even hour to hour depending on demand and fleet capacity. 

Next come the operational costs of trucking companies and/or drivers themselves. 

The Operational Costs of Trucking Companies and Owner-Operators

For owner-operators in the freight industry, managing a transport business involves far more than just covering the cost of fuel. 

Here is a deeper look at the expenses of maintaining a competitive and efficient logistics operation.

Vehicle Purchase and Maintenance

Acquiring a truck or a fleet is a major investment. Depending on the machinery you have in mind, you can expect to pay even hundreds of thousands of dollars. 

Then comes the maintenance of your vehicles, especially as they age or endure heavy use, which demands regular expenditure on parts and service. From engine overhauls to tire replacements, these costs can quickly add up, and they’re nothing to scoff at.

Insurance

Transportation over long distances comes with inherent risks, ranging from road accidents to cargo loss, or even theft. To mitigate these risks, comprehensive insurance is mandatory, albeit expensive. 

Carriers’ default compensation for lost or damaged goods is usually about $2/lb of cargo. This is the standard amount you can expect to receive from a carrier if your goods are damaged or lost. 

Considering the amount of shipments carriers handle on a daily basis, the mandatory carrier insurance packages can be expected to cost a handsome amount. 

Licenses and Permits

Operating legally in the freight industry requires adherence to quite a handful of regulations and requirements. Acquiring the necessary licenses and permits (the prices of which can vary significantly from one region to another) can be costly, particularly when crossing international borders. 

Each of these licenses comes with a fee, and a lot of the time, they need to be renewed periodically, which means that the carrier will always have these ongoing operational costs.

Employee Salaries

When working alone as an independent contractor, a driver will have only themselves to worry about payment-wise. 

However, for operations large enough to require a team, competitive salaries are essential to attract and retain skilled professionals who can operate the trucks safely and reliably. From drivers to dispatchers or warehouse workers, salaries can make a significant part of the operational budget.

Operational Fees

The day-to-day running of a freight operation (or even a single freight truck) involves numerous additional fees. Before we even get to truck maintenance, road tolls, fees at weigh stations, and other charges related to infrastructure use are constant. And yes, freight trucks get weighed to make sure they adhere to road regulations.

These fees vary by route and can significantly affect the cost of a single transport job.

Downtime Costs

Finally, downtime is an often overlooked but still a significant factor for carriers when it comes to losses. When trucks are out of commission for repairs, or when they are idle waiting for the next load, they are not generating revenue. 

During these periods, unfortunately, there can still be costs related to vehicle storage and security, which compound the financial strain.

So Why is Shipping so Expensive?

As we’ve seen, shipping is expensive, in large part because it’s very complicated. 

Reasons range from factors brought on by the shipper such as the weight, commodity, and dimensions of the freight, all the way to the hefty operational costs such as insurance paid by the trucking companies and owner-operators.

In the sea of high prices and difficult-to-deal-with carriers, it’s difficult to know where to turn. That’s why we recommend reading through what separates Freightera from other freight shipping solutions out there. If you want it done affordably, and more importantly if you want it affordable and right — You’ll ship it with Freightera.