Drayage, as the “last kilometre” or “first mile” connecting ports, railroad hubs, warehouses and distribution centres, plays an indispensable role in the whole supply chain. Although the distance is not long, its cost is complicated and easily affected by a variety of factors, and may even become a pain point in the control of enterprise logistics costs. Understanding the definition of Drayage costs, how they are calculated, what they consist of, the variables that affect them, and the strategies for saving them is essential to optimizing logistics efficiency and controlling budgets.
What Are Drayage Fees?
Drayage fees are the cost of transporting goods (especially containers) over short distances between transportation hubs such as ports and railroad stations and nearby warehouses, factories or distribution centres. This cost is more than just the base freight rate; it often includes various surcharges due to operational complexities, potential delays, or out-of-standard service. For shippers, accurately grasping the concept of Drayage costs is the first step in effective cost management.
How are Drayage Rates calculated?
The calculation of Drayage Rates is not simply a single pricing but a combination of factors. The core pricing basis usually revolves around the following:
- Base Freight: This is the main cost of the transportation service itself and usually takes into account the two most critical variables: the weight of the shipment and the distance travelled. Cargo that is heavier or requires longer mileage will naturally have a higher base cost.
- Characteristics of the shipment: The size of the shipment (whether it is over-dimensional or not), whether it requires special handling (e.g. fragile, hazardous), or special equipment (e.g. forklift, special stacking) will also be taken into account in the base rate.
- By Weight/Size: The cost is increased accordingly for heavier or larger shipments (over-dimensional shipments), sometimes using the hundred-pound method (CWT).
- By Distance: Mileage is a direct factor in cost.
- Fixed Rate: For shorter distances or smaller shipments, provides a predetermined total price.
- Consider additional services: Specific delivery time requirements or multi-point delivery can also affect pricing.
Different Types of Drayage Fees (Cost Components)
In addition to the basic freight costs, the total cost of Drayage Fees often includes various surcharges and potential charges, which make up the complexity of the costs:
- Fuel Surcharge: This is used to cover fluctuations in fuel prices.
- Tolls: necessary costs incurred during the route.
- Chassis Fee: The cost of using a container chassis, which may include passed-on overheads.
- Chassis Split Fee: Additional costs incurred when a chassis is not available at the pickup point and has to be shipped elsewhere.
- Driver Detention: Charges incurred by drivers for waiting longer than the free time limit for loading and unloading (usually 1-2 hours) can be hourly and expensive.
- Demurrage: Fines incurred when a fully loaded container remains in a port or terminal beyond the free period (usually 3-7 days), which can add up from day to day and can be very high, especially in North American ports.
- Detention: Charges incurred when an empty container is not returned to its designated location on time, calculated similarly to demurrage.
- Pre-pull Fee: Handling and storage charges incurred when a container is lifted out of the port in advance and stored in the carrier’s yard in order to avoid demurrage charges.
- Bobtail Fee: The additional round-trip cost incurred by the carrier for unloading the container at the destination, leaving, and coming back later to pick up the empty container, or transporting the empty container to the designated location.
- Peak Surcharge: An additional fee charged during peak shipping hours (nights, weekends, holidays, peak seasons) or for urgent transportation needs.
- Terminal Fee: Handling fee charged at the port or railroad station.
Factors Affecting Drayage Fees
Overall, the following factors have a significant impact on the total cost of short-distance transportation:
- Cargo factors: weight, dimensions (whether oversized), type (ordinary, fragile, dangerous goods), packaging method (pallet, floor loading) and loading status (whether easy to handle)].
- Distance and route: The length of the transport distance, the complexity of the route (whether it goes through congested areas), the specific location of the departure and destination points, and the operational efficiency of the hub.
- Transport mode and equipment: The type of vehicle required (truck, van), whether special loading and unloading equipment is needed (forklift, pallet truck), and the availability of chassis.
- Time factor: The transport period (whether it is peak season), whether there is a specific delivery time window, and the urgency of the transport.
- Market and operations: congestion at ports, tightness of capacity during peak seasons, waiting time for drivers, efficiency of loading and unloading, carrier’s operating procedures and management level.
- Fees and fines: road tolls, fuel surcharges, and various possible demurrage and detention charges.
Effective Ways to Save on Drayage Fees
Although the composition of Drayage Fees is complex, there is still room for savings through effective management and strategies:
- Strengthen planning and communication.
- Make careful plans in advance, set flexible pick-up/delivery times as much as possible, and avoid peak periods.
- Optimize the packaging of goods to ensure that they are stacked correctly at the origin to facilitate efficient loading and unloading.
- Maintain good communication with carriers, provide accurate volume forecasts, and coordinate schedules to minimize driver waiting.
- Optimize operational processes
- Research the best options for consolidating goods or separating mixed loads to improve transport efficiency.
- Choose more direct routes where possible and avoid unnecessary toll stations.
- Use strategic pre-pull operations to avoid potentially high demurrage fees with a lower pre-pull fee.
- Use technology and data:
- Use technology tools such as a transport management system (TMS) and freight audit software to streamline processes, track shipments and record transaction details.
- Keep records of the transport process (e.g., take photos) to check bills and resolve potential charge disputes.
- Selecting partners and negotiating: Compare rates from different suppliers and choose a freight forwarder or carrier with experience and reliable service.
- Establish long-term relationships to negotiate prices based on a stable volume of goods.
- Cost awareness
- Adhere strictly to deadlines at all stages and pay particular attention to avoid demurrage and detention charges, which are both high penalties.
- Consider investing in reusable storage containers to reduce long-term costs.
