Freight Cost Optimization for CPG Brands: How to Reduce Shipping Costs Without Sacrificing Service
Freight is typically 3–8% of revenue for CPG brands — and one of the most negotiable cost lines in your P&L. Here is how to systematically reduce it.
Freight costs are one of the most significant and most controllable cost lines for CPG brands. Unlike ingredient costs (which are largely driven by commodity markets) or co-packer costs (which are driven by labor and overhead), freight costs are highly negotiable and highly optimizable through operational changes.
The Four Levers of Freight Cost Optimization
1. LTL vs. FTL Optimization
Less-than-truckload (LTL) shipping is typically 2–3x more expensive per pound than full truckload (FTL). The break-even point is usually around 10,000–15,000 lbs or 6–8 pallets — above this, FTL is almost always cheaper. Many brands default to LTL out of habit even when their shipment volumes justify FTL. Review your top 10 lanes by volume and calculate whether consolidating shipments to FTL would save money.
2. Carrier Negotiation
Most small CPG brands pay list rates for LTL shipping. Carriers offer significant discounts (30–60% off list) to shippers with consistent volume and predictable lanes. To negotiate effectively, you need 12 months of shipping data showing your volume by lane, weight class, and frequency. Present this data to 3–4 carriers and ask for their best rate on each lane. The competitive tension between carriers is your primary negotiating leverage.
3. Freight Audit
Studies consistently show that 2–5% of freight invoices contain billing errors — incorrect weight class, wrong fuel surcharge, duplicate charges. A freight audit process (either manual or through a third-party audit service) recovers this money. Third-party freight auditors typically work on a contingency basis (50% of recovered amounts), making this a zero-cost initiative.
4. Packaging Optimization
Dimensional weight pricing means carriers charge based on the larger of actual weight and dimensional weight (length × width × height / 139 for UPS/FedEx). Reducing package dimensions — even by 10–15% — can drop you into a lower dimensional weight tier and reduce per-shipment costs by 15–25%.
Freight as a Percentage of Revenue by Channel
| Channel | Typical Freight % of Revenue | Who Pays |
|---|---|---|
| DTC (parcel) | 8–15% | Brand (or consumer) |
| Amazon FBA (inbound) | 1–3% | Brand (inbound to Amazon) |
| Natural retail (UNFI/KeHE) | 2–5% | Brand (freight to DC) |
| Conventional grocery (direct store delivery) | 3–7% | Brand |
| Club stores | 1–3% | Brand (to DC) |
Frequently Asked Questions
Should I use a freight broker or book directly with carriers?
Freight brokers add a margin (typically 10–20%) but provide access to a wider carrier network and handle the logistics of finding capacity. For brands shipping less than $50,000/year in freight, a broker is often more cost-effective because you do not have the volume to negotiate good direct rates. Above $100,000/year in freight, direct carrier relationships typically save money. Between $50,000–$100,000, it depends on your lanes and how much time you want to spend managing freight.
How do I include freight in my COGS calculation?
Outbound freight (to distributors, retailers, or customers) is typically classified as a selling expense, not COGS. Inbound freight (from suppliers to your warehouse or co-packer) is part of landed cost and should be included in COGS. The distinction matters for gross margin calculation — including outbound freight in COGS will understate your gross margin relative to industry benchmarks.
Freight costs built into your true COGS
Guidance captures freight invoices and allocates shipping costs to the correct products and lots — so your COGS reflects the true cost of getting product to your customers.
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