How Much Is Lost or Damaged Freight Really Costing You?
Lost cargo is a serious problem that can severely affect your business' bottom line. Across the globe, cargo loss is estimated to cost more than $50 billion annually. However, this number can be slightly misleading, and in fact, most shippers tend to vastly underestimate the amount that lost or damaged cargo costs them each year.
How to Calculate the Real Cost of Cargo Loss and Damage
The theft or loss of cargo carries with it numerous financial impacts that go far beyond the basic costs to replace and reship the lost or stolen goods. For this reason, it is important that everyone working in logistics management knows how to fully calculate the total costs of cargo loss.
This begins with calculating the probability of loss, which is done by figuring out the total number of damaged or lost goods throughout the previous year. By determining the percentage of your loads that are thus compromised, you can then arrive at your probability of loss. For instance, if you shipped 1,000 loads and 15 of them were either damaged or lost, then you have a 1.5% probability of loss or damage.
With this number in hand, you can then estimate the total cost of loss per shipment. If you estimate the average value of each load you ship to be $20,000, your 1.5% probability of loss means that you are losing an average of $300 per shipment. However, this number doesn't include a number of various other factors that can contribute to even greater losses due to cargo theft or damage.
Additional Costs Associated with Loss or Theft of Cargo
In order to understand exactly how much lost, stolen or damaged cargo is really costing your company, it is necessary to look into some of the other associated costs and figure them into the equation. For instance, filing insurance claims on your lost cargo could eventually see your company forced to pay higher insurance rates, which will obviously raise your overall shipping costs.
In addition, stolen shipments could see you facing some charges related to the criminal investigation into the theft. As well, you will obviously be required to pay additional costs for expedited shipping in order to replace the items that were stolen or damaged. You will also need to figure in the additional manufacturing costs associated with making the new replacement items, while also factoring in the additional labor costs associated with fielding calls and emails related to the loss.
An even bigger problem arises when those cargo losses or damage eventually leads to you losing customers or having future orders cancelled. Should this happen with one of your major customers, your business could soon find itself losing one of its main sources of revenue. This could obviously have dire consequences for the health and future of your business, which is why it is so important that supply chain managers take steps to protect their company from cargo loss or theft in any way possible.
Mitigating Cargo Loss or Theft
After figuring out all of the associated costs due to cargo loss or theft, you can then use this information to predict the total financial consequences and draw more attention to how cargo loss is potentially impacting your company's bottom line. Of course, crime rates do change, which means that you could easily see a huge spike in the rate of loss from one year to the next. Nonetheless, by figuring out the total economic value of cargo loss, you can then use this information in order to find ways to help reduce this number.
This potentially includes using security seals or choosing a logistics management Savannah company that offers full cargo tracking software, which will allow your business to monitor shipments in real time in an effort to prevent or at least track any theft. All of this information concerning the total cost of theft can also be important in helping you to choose a shipping or distribution company, as it enables you to understand more about how insurance rates and legal issues can affect shipping rates. In this sense, you can use this information to help you find the best shipping rates, while also ensuring that the company you choose is able to meet your basic security requirements. Learn more about Logistics management and what we can do for you.