5 Fundamental Concepts of Warehousing Pricing

Why do companies rent warehouse space and how much does it cost?

Most companies do not have an anticipated requirement of space or labor, while the volume of products differentiate for many diverse reasons - the season, the economy, the trendiness of a product, etc. Instead of investing a massive amount of capital to build a warehouse, companies choose to use 3PLs to be their warehousing partner because they can offer transnational rates that are variable where distribution costs coincide with their revenue streams.

For example, think of a parking garage - you can pay hourly, daily, monthly, or yearly. The amount of time you stay is what you are charged for taking up the space for that time period. As you can see, the price for hourly versus daily and monthly are going to greatly differ. With warehousing pricing, the concept works the same, but you pay for the service as they are needed.

It would be great if getting warehouse storage pricing was the same as going to a mass merchandiser and getting the same price at every location in the United States, right? Unfortunately, warehousing pricing doesn't work that way, but it is a very smart idea for shippers to be knowledgeable regarding pricing. This way, you will get an accurate quote by providing as much detailed information as possible. 

Different 3PLs have varying pricing methodologies so they do not always account for the costs the same way, which makes it difficult for a direct comparison of the companies' pricing. This post will show you exactly what goes into warehousing pricing by 3PLs and how you lower your rate by the way your product is stored and handled.

Warehousing pricing depends on the amount of space and time it takes to perform certain tasks. But, this can get complicated. Tasks can be performed with or without automation, with or without computer systems, with or without engineered process flows - all of these things affect the time aspect of pricing. And products can be stored in different ways – unstacked on the floor, stacked several levels high on the floor, or in racks as high and as deep as the building and business profile will allow. The storage method will dramatically impact space required and ultimately, the storage rate. 

Detailed information is required to determine how much space and labor will be required.This is why it is critical to be as detailed as possible when getting a quote because then it will be very accurate. Lets get into the pricing detail and then we will discuss ways to reduce costs on your quote.

Factors that go into pricing

1. Movable Unit Size - also known as pallet size. This could be a slip sheet pallet, a roll, a bale, etc., as there are many different ways to package and store products.
2. Stack Height and Racking - does your product have the ability to be stacked on top of one another? How many can be stacked on top of the other? What type of racking does your product require? selective storage racking, individual pallet racking, drive-in racking, two-deep racking, push-back racking, etc.
3. Dimensions of Product - how large are your products and how much space do they take up?
4. Weight - how much does your product weigh? Are there weight capacity requirements that limit stacking?
5. Number of Inventory Turns per Year - The higher the inventory turnover, the better since a high inventory turnover typically means a company is selling goods very quickly and that there’s demand for their product. Low inventory turnover, on the other hand, would likely indicate weaker sales and declining demand for a company’s products.