How to Reduce Expedited Freight Costs Without Sacrificing Service Levels
Companies that rely on overseas or long-lead-time suppliers often face a difficult trade-off: holding more inventory as a buffer against delivery uncertainties or paying high costs for expedited freight.
When air freight or premium parcel shipments become routine, it’s usually a symptom of underlying inventory planning issues and not simply a logistics problem.
This article outlines a structured approach to reducing expedited freight costs without compromising service levels, using inventory analytics and targeted decision rules.
Why Expedited Freight Becomes a Habit
In many businesses, air freight and expedited parcel shipments are intended to be occasional stopgaps. However, they often become default options due to:
Stockouts of high-demand SKUs
Poor forecasting or delayed replenishment
Insufficient safety stock
Overly lean inventory policies
Lead time variability from overseas suppliers
The financial impact is significant. Air freight and parcel delivery can cost 10-15 times more than ocean freight when used for urgent shipments. When emergency shipments are frequent, total landed cost increases dramatically.
The Path to Reducing Expedited Freight Dependence
Reducing these costs without hurting service levels requires a methodical, data-based approach. Below are six key steps:
Step 1: Analyze Freight Triggers
Start by reviewing historical transactions to understand when and why expedited freight is used. Look for patterns such as:
Demand spikes that weren’t forecasted
Stockouts triggered by late reordering
SKUs that vastly exceeded projected demand
Inadequate lead time buffers or inaccurate lead times
This initial diagnostic helps isolate whether the issue is driven by a few SKUs or is systemic across the inventory. This is a good first step if your inventory involves a large number of SKUs.
Step 2: Segment the SKU Base
Not all items deserve the same treatment. Use ABC analysis (based on value or volume) and XYZ analysis (based on demand predictability) to classify your SKUs. This enables you to:
Prioritize high-volume, low-variability items for tighter planning
Avoid overstocking erratic, low-volume SKUs
Apply differentiated policies/strategies for each category
For example, an A/X item (high sales, stable demand) should have more frequent reviews and tighter safety stock policies than a C/Z item (low sales, erratic demand).
Step 3: Optimize Reorder Points and Safety Stock
With lead times of 30–90 days or longer, relying on fixed reorder quantities or rule-of-thumb safety stock levels is risky. Instead, calculate reorder points.
Determine safety stock using statistical models that incorporate demand variability and the target service level (e.g., 95%). This ensures that the inventory buffer is appropriate to absorb fluctuations without resorting to emergency shipping.
Step 4: Simulate the Financial Impact
Use scenario analysis to evaluate how changes to reorder points, safety stock, and ordering frequency affect freight usage and cash flow. Questions to explore:
What is the impact of increasing safety stock by 10% for top SKUs?
How often does the current policy trigger expedited shipping?
How much freight cost could be avoided with more proactive replenishment?
Simulation helps build a case for adjusting policies without guesswork.
Step 5: Align Ordering Schedules to Freight Cycles
Strategic timing of orders can reduce reliance on costly shipping methods. Consider:
Grouping orders for sea freight to match container loads
Using calendar-based ordering cycles for high-volume SKUs
Planning replenishment to arrive just before projected demand peaks
For items that require some level of responsiveness, consider hybrid replenishment strategies, e.g., regular ocean shipments supplemented by occasional air freight only for selected SKUs.
Step 6: Configure Your ERP for Smarter Decisions
If the business is implementing or optimizing an ERP system, ensure it supports inventory control practices such as:
Accurate lead times per supplier and shipping method
ABC classification
Dynamic safety stock calculations
Alerts for demand surges or delayed shipments
Reporting on expedited freight usage and service level compliance
A well-configured ERP can automate many of the processes required to maintain optimal inventory and avoid reactive logistics decisions.
Conclusion
Excessive reliance on expedited freight is rarely just a logistics issue. It’s often an outcome of inventory misalignment or inventory data inaccuracies. By analyzing SKU behaviour, recalibrating reorder policies, and planning shipments around data-informed thresholds, companies can reduce freight costs while maintaining or even improving service levels.
The key lies in data visibility and control. With the right data and methodology, expedited freight can return to being the exception, not the rule.
