Cost Allocation

Cost allocation in freight is the process of assigning transportation expenses to the entities that generated them. When a shipper moves a consolidated load carrying orders for three different customers, the total freight cost needs to be divided – accurately and defensibly – among those customers. The same logic applies when allocating costs across product lines, facilities, regions, or business units.

Allocation methods vary by complexity. Simple approaches divide costs evenly or by weight. More sophisticated methods factor in cube utilization, pallet positions, miles per stop, or the actual rate differential between shipping an order standalone versus consolidated. The right method depends on the business – a CPG shipper allocating freight to retail customers for trade spend calculations needs a different approach than a manufacturer allocating inbound freight to production cost centers.

Accurate cost allocation directly affects strategic decisions. If a shipper can't see that one customer's order profile drives disproportionate freight costs – frequent small orders to remote locations, for example – they can't price their products correctly or have an informed conversation with that customer about order minimums. Poor allocation masks true cost-to-serve, leading to margin erosion on accounts that look profitable on paper but aren't once freight is properly assigned.

Dynamic allocation requires shipment-level cost data and the ability to slice it across multiple dimensions simultaneously. Shippers still running allocation in spreadsheets often discover they're weeks behind and working with approximations rather than actuals.