For many shippers, calculating the cost of running freight in-house starts and ends with direct costs. Think subscription fees, employee wages, and money that goes to fines and charges. However, there are plenty of hidden transportation operational costs that go unnoticed when running in-house freight—ones that can add up to several million dollars once you account for them.
This post breaks down what we call the transportation tax—the hidden cost of running transportation in-house. Not only will we help you identify it, but we’ll help you make smarter decisions with how you run your transportation logistics.
The transportation tax is the total hidden cost of running transportation in-house. In some cases, this hidden cost can reach more than $1 million for mid-market shippers.
This transportation cost is more easily understood when we break it down into its individual components.
Full-Time Equivalents (FTEs) making up a transportation team in-house are probably the largest hidden cost. The money paid to FTEs covers not just their salaries but benefits and overhead. For mid-market shippers, a transportation team is likely to consist of four to eight FTEs being paid $500,000 to $1.2 million total.
Mid-market shippers typically invest in two to three software subscriptions, such as a transportation management system (TMS) for execution, a shipment tracking and visibility platform, and rate benchmarking or procurement tools. This can run anywhere from $75,000 to $300,000.
Integration and implementation costs go hand-in-hand with any software investment. Connecting your TMS to ERPs, carrier networks, and EDI partners can run $100,000 to $300,000, depending on the number of systems and integrations involved.
Operating in-house without dedicated logistics expertise can make it difficult to detect inefficiencies. Missed opportunities typically represent 5% to 15% of your total freight spend.
The transportation tax isn't a static figure in your operations. Instead, it only grows with every new addition to your team or attempt to scale your software usage. Subscription upgrades, growing headcount—these costs compound over time.
Here’s what shippers do about the transportation tax—and why most of these approaches fail.
Often, shippers turn to technology to try to solve their operational issues. Investing in a transportation management system is a logical impulse. The only problem is that it won't make the transportation tax disappear. Implementation of a legacy TMS takes 12 to 18 months on average (though some modern TMS platforms can get you up and running much quicker), and you'll still need a transportation team to manage your operations and interpret data.
Another step shippers take is engaging a 3PL to take some of the load off of managing their transportation. With many traditional 3PLs, the downside is opaque costs along with a lack of data ownership.
The other solution shippers run to is AI. Treating AI tools as a cure-all is a misstep, as artificial intelligence only augments human operators rather than replacing them. This is why more than 40% of shippers take logistics providers’ AI capabilities into account, but fewer than 10% treat AI as a mandatory criterion. Even if you’re adopting AI-powered solutions, you still run into the issue of needing a team to manage your transportation.
Mid-market shippers may turn to managed transportation providers that bundle the technology and expertise they’d otherwise have to build in-house. The model scales with your needs; you can start with specific functions like optimization or freight audit, and expand to fully managed end-to-end execution as your operation scales.
You can calculate your company's transportation overhead by identifying all indirect expenses such as insurance, taxes, management salaries, and rent.
The fastest way to reduce transportation overhead is through strategic route planning, shipment consolidation, and more effective carrier negotiation.
The figures above are industry ranges. Your actual number depends on your team size, freight volume, and software stack. Loadsmart offers a free transportation savings assessment that analyzes your freight data and identifies where your hidden costs are.