Your P&L says you're profitable. But is the data hiding a problem?

Most logistics operators can tell you their total revenue and overall margin. Fewer can say with confidence whether their biggest customers are genuinely profitable.

This is a common structural problem experienced by many in the industry. The way costs are recorded in logistics businesses, by cost centre, depot or division, was traditionally designed for financial reporting rather than operational decision-making. It shows what was spent, but not where it was incurred, why it arose or which customers and activities drove it.

The result is an illusion of profitability.

The blended average trap

When costs are combined across a network, the aggregate numbers can look reassuring. Margins appear healthy and performance seems solid.

But beneath this blended view a different picture can emerge. Some customers generate disproportionate cost, some lanes are serviced below their true cost-to-serve and some service levels are priced on assumptions that don't reflect operational reality.

A high-volume e-commerce client generating millions in revenue may, once the full cost of failed deliveries, re-attempts, customer service and specialist handling is allocated, prove to be one of the least profitable accounts. A lane that appears efficient at network level may be eroding margin once fuel, tolls, empty running and indirect depot costs are properly attributed.

You won't see it in your standard management accounts. By the time it becomes visible, the damage is done.

Decisions made on incomplete information

This isn't just a reporting problem. It also impacts on decision-making in key areas. For example:

• Pricing teams are setting tariffs based on benchmarks and judgement rather than actual cost-to-serve.
• Commercial teams are renewing major contracts without clear visibility of profitability.
• Finance is producing forecasts based on averages that conceal variation at shipment, customer and lane level.
• Operations teams are focused on efficiency KPIs i.e. on-time delivery, vehicle utilisation and sort productivity without visibility on whether their work is flowing through to margin.

Everyone's working hard but the data isn't giving them the full picture.

Why logistics is uniquely difficult to cost

This costing challenge is particularly acute in logistics because of the industry's structural complexity. Costs are shared and incurred at the same time across customers, lanes, product types and service levels. A single sortation hub might process thousands of shipments from dozens of clients in one shift, while linehauls vehicle carry freight for multiple customers on the same run. Indirect costs such as depot overheads, IT and sales still need to be allocated, yet many systems can't do this accurately at shipment level.

Add in the volatility of fuel costs, driver availability, subcontractor rates and seasonal volume swings and the task of maintaining an accurate, up-to-date view of true cost-to-serve can become enormous (and manual).

The cost of not knowing

The irony is that the companies most in need of accurate cost visibility are often those under the greatest margin pressure. Rising fuel and labour costs, aggressive price competition and increasing regulatory demands are already squeezing profits. And no logistics business can afford to lose additional margin through decisions made with incomplete data.

A logistics operator that knows its true cost-to-serve at shipment and customer level can benefit by:

• Pricing for profit, not just volume.
• Identify and act on loss-making accounts before they become a serious problem.
• Negotiate contracts from a position of strength.
• Optimise its network based on evidence, not assumptions.

Operators with this capability have a structural advantage over those that don't.

Over the coming weeks, we'll explore the obstacles preventing logistics businesses from achieving accurate, actionable cost visibility. And what it takes to overcome them. From pricing without reliable data, to the hidden cost of major customers and the limits of ERP-led reporting, we'll review the challenges finance, commercial and operations leaders need to face.

The illusion of profitability can persist for a long time. The strategic cost of this illusion emerges when it goes unchallenged.

Photo by BP Miller on Unsplash