4 ways to reduce costs on freight transport – A guide for SMEs
SMEs and exportation in North America
SMEs constitute a very dynamic group in the North American economy. In Canada, SMEs represent 54.2% of the economic output produced by the business sector. And 90% of exporting companies have fewer than 100 employees, but produce 25% of the total value of Canadian exports. In 2019, 81% of exporting firms in Canada exported goods to the U.S.
In the U.S., SMEs account for nearly two-thirds of net new private-sector jobs in recent decades. SMEs are important contributors to U.S. services trade. More than 95 percent of all U.S. firms that exported services in 2015 had less than 250 employees, and such firms accounted for almost half of the total value of U.S. services exports in that year.
In Mexico, SMEs contribute 42% of the Gross Domestic Product and generate 78% of employment. However, in Mexico, the participation of SMEs in trade is low: exports represent only 7.6% of total sales of manufactured products.
SMEs that export tend to grow even faster, create more jobs, and pay higher wages than similar businesses that do not.
How can SMEs cut freight transportation costs in North America?
1- Timely plan your shipments to cut costs off
Planning your shipments is key to reduce costs, pay special attention to these 3 points:
- Greater planning horizon to anticipate scarce availability.
- Consider the increase in transit times depending on the transportation mode and service.
- Prepare documentation in advance to smooth the border crossing.
It is possible to reduce transport costs by planning ahead your shipments. Planning allows you to choose a freight service that will require more transit times but will cost you less.
Example of how planning ahead can translate into lower freight costs for SMEs:
A medium-size manufacturing company wants to ship the following load:
6 skids of 48x40x86 Inches
3000kg total weight.
From Ontario, Canada
To San Luis Potosí, Mexico
Rates and transit times:
2- Combine modes of transportation to take advantage of lower rates
In the North America Region, the offer of freight shipping services and some regulations change from country to country. For example, some services such as the Partial Truckload Service or lift gates are available only in Canada and the US but not in Mexico. One way to save money is to use one freight mode in one country and switch to a cheaper freight mode in the countries where it is available.
A clear example of this is when companies transport goods in FTL mode on the Mexican portion and in Partial Truckload mode in the US-Canada portion. By using the Partial Truckload service in the countries where this transportation mode is available, SMEs can save up to 50% of freight costs.
Let’s check an example of how a combination of modes of transportation can help SMEs save money.
For a load from Michigan, USA to Quéretaro, Mexico
Case 1) Without combining Transportation modes
Using Full Truckload Service only, the rate is: 5500 USD
Case 2) Combining transportation modes
Using Full Truckload Service in Mexico and Partial Truckload in US and Canada, the rate is: 2,500 USD
In this example, a small size company saved 54% off on freight shipping costs by combining transportation modes.
If you need help finding the most cost-effective freight shipping solution for your company, contact us at info@mexicomlogistics.com
3- Use a Third-Party Logistics Provider to save more
The Road Freight Market in North America is composed of a large number of players leading to high competition between them and driving the demand for integrated logistics solutions with value-added services.
SMEs can benefit from the advantages that freight brokers offer them to find the best prices on the market. There are several reasons why shippers use a freight forwarder. A freight forwarder
- Negotiates transportation rates with carriers
- Provides cargo insurance to protect the goods transported.
- Recommends the type of truck in which your cargo should be transported and books the truck to transport your cargo on the day and time you need it.
- Organizes and manages the cross-border crossing of your cargo
- Guides you through the transportation of your cargo, requesting the documents you require for the transportation and border crossing. The freight forwarder advises you on the rules and procedures for importing and / or exporting goods to a specific country.
Mexicom Logistics is a Third Party Logistics provider that can help you reduce freight costs
4- Take advantage of the Trade Agreement in North America
While worldwide one of the most important barriers to export mentioned by SMEs are trade tariffs, in North America, the USMCA/CUSMA has set some rules that facilitate the participation of SMEs in international trade.
The agreement was established to allow preferential duty treatment for goods manufactured and shipped between the Customs territories of Canada, Mexico, and the United States. This applies to commodities manufactured within the USMCA/CUSMA region only.
Also, the USMCA/CUSMA has addressed key challenges such as technical barriers to enhance market access for SMEs. Finally, the Agreement has created rules to address potential barriers to digital trade and protect the free flow of data across borders, which benefits SMEs. Get informed on the advantages that his Agreement has for SMEs.
Sources:
https://www.bdc.ca/en/articles-tools/business-strategy-planning/manage-business/pages/10-things-didnt-know-canadian-sme.aspx
https://ustr.gov/trade-agreements/free-trade-agreements/transatlantic-trade-and-investment-partnership-t-tip/t-tip-12#:~:text=SMEs%20are%20the%20backbone%20of,similar%20businesses%20that%20do%20not.
http://www.scielo.org.mx/scielo.php?script=sci_arttext&pid=S1665-952X2004000200006
https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/cusma-aceum/benefits-sme_avantages-pme.aspx?lang=eng
Hello Marben! Such an awesome blog. I have been looking for some ways to reduce transportation costs on freight transport for a long time. Thank you for helping me out for it. You have shared very beneficial ways to reduce costs. Keep sharing!!
I agree as a business owner that planning allows you to choose a freight service that will require more transit times but will cost you less. My brother needs help build his start-up freight hauling business since he always wanted to run his business venture. I’ll share this with him as I advise on his business plan. Thanks!