What Factors Impact Warehousing Costs?

For those tasked with managing logistics budgets, “What will it cost?” is the question looming over every business decision — and warehousing is no exception.?

Warehousing services are not one-size-fits-all. Each business approaches its warehousing provider with a unique set of needs; together, they tailor a package of services that will best address those requirements.?

This means that warehousing costs aren't one-size-fits-all, either. Prices can vary widely and depend on a multitude of factors, from the location of the warehouse to the commodity type to specific storage and handling requirements.?

Understanding the factors at play can help shippers plan their logistics strategies more effectively, optimize their warehousing budgets, and make more informed decisions about their warehousing services and providers.

At Anderson Trucking Service (ATS), we understand that all cargo is unique, and so are its storage requirements. Our decades of expertise have given us a deep understanding of warehousing costs and the factors that drive them.

In this article, we’ll break down the six most influential factors that affect warehousing pricing. By the time you’ve finished reading, you’ll be prepared to seek out warehousing solutions that will help you optimize your supply chain and get the most value from your budget.

• What are warehousing services?
• How much does warehousing cost? Factors to considerLocationDurationVolume and space requirementsStorage requirementsHandlingSeasonal demand

What Are Warehousing Services?

Warehousing refers to the secure storage of goods in the short- or long-term. Warehousing can include a range of services, from simple storage to complex inventory management, value-added services like packaging and labeling, and even order fulfillment.

There are many different types of warehousing facilities, from budget-friendly public warehouses to climate-controlled storage for sensitive goods.?

Depending on the provider, warehousing may also include distribution services. Distribution goes hand-in-hand with warehousing, as goods are held in warehouses until they are needed for distribution.

Distribution services include activities like picking and packing orders, managing returns, and the transportation of goods to their final destination.

For many companies across a variety of industries, warehousing services are fundamental to ensuring goods move efficiently through their supply chain seamlessly.

When optimized for a business’s needs, budget, and operational goals, the right combination of warehousing services can help shippers minimize delays and reduce costs.???

How Much Does Warehousing Cost? Factors to Consider

Due to the sheer variety of services under the warehousing umbrella, warehousing costs vary significantly and are unique to each business’ needs.?

Like so much in the world of shipping, your warehousing costs will depend on several factors — some of which may be out of your control.

To manage these expenses effectively, it’s essential to understand the key drivers of cost in these areas. Let’s break down six of the most influential factors to be aware of as you consider your warehousing budget.

Location

It may surprise you to learn that the location of a warehouse is perhaps the most significant factor affecting the cost of storing goods within.

Prices for warehousing and distribution services may be relatively standard across the industry, but location — more specifically, the real estate costs, employee wages, cost of living, and taxes in each location — does directly impact storage costs.?

In fact, higher real estate costs are the single biggest cost factor affecting storage pricing in certain areas such as California.?

Zooming in even further, a warehouse’s proximity to major cities and/or transportation terminals like ports, airports, or railways also impacts costs.?

The further away a warehouse is from these centralized hubs, the more expensive they’re likely to be.?

Each warehouse will have pros and cons to its usage; shippers should ask themselves what conveniences, benefits, or savings they are willing to give up (or compromise on) and which are non-negotiable.

Duration

“How long will you need storage?” is the first question a good warehousing partner asks a new customer — and it’s among the most critical as it relates to that customer’s costs.

Most warehousing providers offer tiered pricing based on storage duration with discounts for long-term commitments and higher rates for short-term or temporary storage.?

Depending on the provider’s core competencies and capabilities, they may prioritize shorter terms over long-term contracts or vice versa.?

Some warehouses also charge additional fees for inventory that remains in storage beyond a certain time frame, referred to as "dwell time" charges.

Shippers must carefully plan their inventory flow to minimize storage time and avoid unnecessary costs. Effective inventory management, forecasting, and demand planning are essential to finding the right in-out cadence and avoid paying for unused storage capacity.

Related: 4 Indicators of an Unhealthy Supply Chain [+ How to Make Improvements]

Volume and Space Requirements

Along with duration, the amount of space required to store a shipper’s goods (and how efficiently it will be used) can significantly impact costs.?

Warehouses typically charge based on square- or cubic-feet occupied. Rates can vary depending on whether the goods can be stacked, as with palletized or crated freight, or if they will require specialized racking.

Higher volume, faster inventory turnover, and efficient space utilization can lead to lower costs per unit, as warehouses often offer discounted rates for bulk storage.Likewise, smaller volumes, slow turnover, or inefficient stacking can result in higher costs.?

Some facilities also charge based on pallet positions or the number of "picks" required, which can add to the overall costs if operations are not streamlined.

When you begin requesting quotes for warehousing services, be sure to provide as many details about your freight and its storage needs as possible.?

If you know how much space will be needed at any given time, that’s great! Other specifics, like how your commodity is packaged, the average number of pallets per inbound shipment, piece count and weight per piece, and inbound/outbound volumes will also go a long way toward getting you a quick, accurate quote.?

In some cases, you may not have many details about the shipment you need to store. This is a common issue, one that experienced warehousing partners deal with often.?

It’s not a dealbreaker — just provide as much information as you have. A good provider will do their best to evaluate the facts and provide as accurate a quote as they can given what they know.?

With that said, be advised that the quote you receive will be subject to change as you and your provider learn more about what the shipment will require.?

Storage Requirements

In the world of warehousing, not all goods are stored equally. Of course, all freight should receive the same high-quality service, but some commodities call for specific storage requirements beyond the basics.?

These different storage conditions can influence warehousing costs accordingly. As such, if your inventory includes sensitive or regulated goods, expect to pay more for storage.?

Perishable goods, like fresh produce and certain pharmaceuticals, need climate-controlled environments, which are more expensive to maintain.

Likewise, hazardous materials need specialized handling and storage, which can drive up costs due to the additional compliance requirements, insurance, and safety measures.?

Warehouses equipped with advanced climate control, ventilation systems, or enhanced security for high-value items typically charge premium rates.?

If you’re in the process of calculating your projected warehousing expenses, be sure to keep these elements in mind.?

And remember: A warehouse offering state-of-the-art storage amenities will likely cost more overall than one that does not — even if you will not be taking advantage of those features for your freight.

Handling

In a perfect world, shippers could snap their fingers and their cargo would appear safe and sound in the warehouse of their choosing. Another snap, and the cargo arrives instantly at its final destination.?

Unfortunately, that’s not our reality (though modern-day technological advancements have brought us much closer to living that dream!). Shipments of all shapes and sizes require various degrees of handling — which comes at various costs,

Handling costs cover the labor and equipment required to load, unload, move, and manage goods within the warehouse.?

The level of handling required depends on the type of goods, the level of service needed (think pick and pack vs. bulk handling), and the complexity of the operation. In general, the more “touches” a shipment requires, the more a shipper will pay.

Handling costs can also be influenced by value-added services like repackaging, labeling, kitting, or assembly. Warehouses that offer these services may charge additional fees based on labor time, materials used, or the complexity of the task.?

As you prepare your warehousing budget, consider:?

• How much handling does your commodity require?
• Are there many steps for a warehouse worker to take before your goods are ready for outbound transportation, or is it a simple, streamlined process?
• Does your commodity require repackaging, kitting, or assembly??
• How much, if any, customization is required??

Your answers to these questions should help you determine what percentage of your budget should be allocated to handling costs.?

Seasonal Demand

Finally, wise shippers will spare a thought for the impact of seasonal demand on their warehousing costs.?

During peak periods, such as the holiday season or back-to-school time, demand for warehousing space and services increases.?

This often leads to higher prices, as warehouses may implement surge pricing or peak season surcharges to manage this increased demand.

Shippers can mitigate these costs by planning ahead and securing warehouse capacity well in advance of peak seasons.?

Some businesses also explore alternative warehousing solutions, such as temporary or pop-up storage options, to help them weather seasonal demand fluctuations without committing to long-term contracts.

But it’s not just warehousing space that sees an increased demand over these periods. Shippers’ inventories ebb and flow with the seasons, too — which means your space requirements in November may be very different from your requirements in February.?

If you are in an industry that experiences dramatic changes in on-hand inventory needs seasonally, be sure to let your provider know about those expectations up front, before any contracts are drawn up.?

This will help ensure you select a provider that can capably scale up and down with your seasonal inventory needs — and that there are no surprises when the bill comes due.

Make Informed Warehousing Decisions

For many shippers around the world, warehousing costs amount for no small portion of their overall logistics budget. And rightly so: these services can be critical to keeping supply chains chugging along efficiently and effectively.

While your warehousing costs will ultimately be unique to your business, your commodity, and your needs, it pays to have a thorough understanding of the most influential factors that affect warehouse pricing.???

Warehouse location, term length, commodity volume and space needs, storage requirements, handling, seasonal demand — these factors and others all impact the way a warehouse provider sets their rates.?

Taking an analytical approach to these factors as they relate to your needs will help you set a realistic warehousing budget and maximize the value of those dollars wherever possible.?

Whether you’re a small business looking to optimize your warehousing costs or a large enterprise managing a complex supply chain, a strategic approach to warehouse selection and services can provide a competitive advantage and drive efficiencies of both time and money.?

Feeling ready to start requesting quotes from your top-choice warehousing partners? Check out our article on Requesting a Warehousing Quote: What Shippers Need to Know.

It lays out all the shipment details you’ll want to have on hand before you make that call or send that email. As a bonus, it also provides our expert tips on how to vet warehousing providers and streamline the RFQ process overall.