Best Way to Reduce Warehousing Costs in 2024

eCommerce business owners need to handle many operating expenses tied to their businesses. The warehouse costs a certain amount of money for them to be operational.

As experienced sourcing experts, we have dealt with clients who question these costs. You’ll get solutions about the fees required to buy warehouse space. 

You can save more hourly fees on your order volume with adequate knowledge. You can also understand the differences between different fulfillment services. 

This article includes the costs of warehouses and ways to reduce them. Let’s get started.

What are Warehousing Costs? 

A warehouse is a large building where you can store many kinds of goods. They usually will require a certain amount of expenditure. 

Warehousing costs generally mean the management needed for the warehouse. It includes the operations fees, like wages, utilities, and equipment handling. 

But, different companies will have different costs. It differs in terms of the storage they handle and the warehouse’s scale. Also, safety management is part of the expense.

Types of Warehouse Costs 

There are 4 types of costs for the warehouse. Let’s see what it is.

Handling

It is the largest cost in warehousing costing. It includes the receiving, put-away, order picking, and loading of goods. I minimize my handling cost with packaging optimization and choosing small packages. 

The equipment used in the warehouse is also part of the handling fees. It is associated with the electricity used to power the equipment. The goods here are called ‘goods in motion.’

Storage Pricing

The goods in storage are called ‘goods at rest.’ Even if the goods are not moved, they will charge the fees. My client chooses Dark storage near cities for lower storage pricing. 

Usually, it will charge per pallet for goods, called monthly cost after accumulation. The fees include the expenditure of occupying the facility. The facility has a total occupancy charge if the whole building is used.

Operations Administrations

The operations inside a warehouse also require a cost. The operating expenses are tied with the wages of the employees. Employees such as clerks and laborers are under operations administrations. There are also costs such as information technology, supplies, and insurance.

General Administrative Expenses

The general administrative expenses are indirect. They are excluded from the operating fees. For example, wages for non-operating staff and general office expenses. The allocation of these expenses is from the headquarters of the organization.

How to Calculate Your Need for Space

To calculate the total cost of space of the warehouse, you need to calculate the space. Here are the steps you can take to calculate:

1.Stack All Goods Side by Side

The lesser need for warehouse space, the lesser the cost of warehousing. You can compact the goods so they will only use small storage space. 

After compacting the goods, you need to measure them. You have to measure the stack’s height, width, and length. If I don’t know about these measurements, then my supplier give me this information. Later on, my storage manager handles these calculations. 

2.Multiply the Length of the Stack

Multiply the length and the width of your pallet storage. The final number is the total square foot that you need for storage. 

3.Multiply the Square Foot Number with Height

You have to measure the highest point of the pallet stacks. Then, you can multiply the number with the calculated square foot. That will be the warehouse space needed per cubic foot.

4.Divide the Numbers By Size

After calculating the square foot area, you need to divide it by bay or locker. For example, the bay area is 250 square feet. But you have 500 square feet of goods. So you need to divide your goods into two bays.

How are Warehouse Costs Calculated? 

The costs vary based on different warehousing costs. You can see the different types of costs listed here.

Space Costs

You can calculate the storage space according to the rate after calculating the storage space. Some companies charge the storage space cost by square feet, cubic feet, or bay.

Base Rental Rate

The rental rate would be calculated annually or monthly cost. This cost will not change due to the warehouse space used. So, it is a fixed cost in the warehousing cost. Some landlords will offer discounts if you rent yearly. These rates vary by location, so I try to choose cheap warehousing spaces. 

Estimated Operating Expenses

Operating expenses include Triple Nets (NNN) or Common Area Maintenance (CAM) costs. The total cost generally is property taxes and insurance. It also includes the typical area maintenance cost like cleaning or repairs.

Additional Warehouse Cost

Additional warehouse costs included the utilities used in the warehouse. Water, electricity, janitorial, and maintenance services are part of the expenses. You could consider switching to LED lighting for your facilities.

Reasons for Increased Warehousing Costs 

Many reasons cause the increase in warehousing costs. Let’s see what they are.

Real Estate Availability 

In 2019, the Covid-19 pandemic caused the low availability of warehouse space. So there is a scarcity of spacing. In the USA, only 4% of warehouses were available. Yet, in those cases, I choose distant warehousing far from big cities. These are usually dark storage houses which are perfect for my long-term warehousing. 

With the low warehouse space, the rent price and the warehousing cost will increase.

Increased Labor Costs

The labor costs usually take up to 40%-60% of the budget. The wages were reported to be increased by over 11%. There was also the Great Resignation with workers quitting their jobs. 

The labor shortage caused increases in wages. With the increase in wages, the costs of warehousing will increase too.

Increased Cost of Building

Some companies might build new warehouses to solve the scarcity problems rather than invest in buying a warehouse. The prices of building materials increased by around 19%. 

When the new building is more expensive, the landlord will charge more. It will then increase the warehousing cost.

Increased Lead Times

Lead times are the time that inventory stays in the warehouse. If it stays longer, the price will increase. 

With the global logistic turbulence, there are fewer workers. So the workers could not pick and pack as fast as before. It will lead to the inventory staying in the warehouse. The warehousing price will then increase. 

Ways to Reduce Warehouse Costs 

There are ways to reduce warehouse costs with improvements.

Inventory Visibility

Most companies overlook inventory visibility with other responsibilities. But if the workers know where the inventory is stored, it will be easy to pick and pack. With the reduction of lead times, you can cut the warehousing cost.

Storage Optimisation

The most common way to reduce cost is storage optimization. You can adjust the physical structure, warehouse flow, product placement, and retrieval methods. 

As a result, the flow of the inventory will be effective. The efficiency of an optimized storehouse can help you save the warehousing cost. I choose small packages with less light branding material. It reduces the dimensional weight of my packages. 

Theft Prevention

Theft can cause you to lose money. But if you use prevention, you most likely can avoid losses. You can consider prevention with specific systems applications. It includes the schedule of workers or storage checking.

Cross Docking

Cross-docking helps in saving money as it cuts down the middle man. It can send the products directly to the customers. 

You would not need a middle man for the delivery. It can cut the pathway cost and, subsequently, the warehousing cost.

Effective Slotting

Slotting is where you categorize and organize your inventory. By optimizing the process, you can boost the productivity of the warehouse. When productivity increases, it will help you save budget.

Optimize Picking Process

The picking process takes much time, especially in giant warehouses. The workers need to take a lot of time to retrieve the products. 

You can optimize the picking process by reducing the time taken. Besides, it would help if you stocked according to urgency. Ensure to store the popular products in the nearer zone than slower ones. My main inventory is in fulfillment centers & my excessive stock is in distant warehouses. 

Benchmarking

Benchmarking helps you to know the issues in your warehouse. If you do a benchmark, you can rectify the warehouse process. They will streamline the workers to keep on track. Customers will be happy, and it increases your profit.

FAQs

What’s Next

In short, you will incur many expenses in a warehouse. It includes operations, administration, wages, and maintenance services. They are crucial to ensure efficient warehouse operation. 

You need to understand such expenses to avoid losses in your business. Still, there are ways to reduce them, even with outsourced services. By planning them well, you can optimize your profit better.

I hope this article shares all you need about warehouse costs. If you have any inquiries, do not hesitate to contact us on our service pages.