Logistics Companies: How to Know Which Routes Are Actually Profitable

Most logistics companies know their overall margin to the decimal point. Very few can tell you which routes earn it and which quietly destroy it.

Revenue per route is easy to pull. True profit per route is not, because the cost of serving a route is spread across fuel, labour, vehicle depreciation, depot handling, returns, failed deliveries, and the administrative tail of every shipment. Average those costs across the fleet and every route looks roughly the same. They are not.

Why Average Costing Hides the Losers

The standard approach allocates cost per kilometre or per shipment using a blended rate. A route that runs full trucks on motorways at night gets charged the same rate as one that crawls through urban centres with half-empty vans and a 20% failed-delivery rate. The first subsidises the second, and the blended margin looks healthy while specific routes bleed.

This is the classic whale curve problem applied to transport: a minority of routes generate the bulk of the profit, a large middle band breaks even, and a tail of routes destroys value. You cannot see the tail until you cost each route on what it actually consumes.

The Cost-to-Serve View of a Route

Time-Driven Activity-Based Costing (TDABC) builds the real cost of a route from the activities it triggers, not from an average. For logistics, the activities that drive cost typically include:

• Line-haul time — driver hours and vehicle time on the road, which depend on distance, traffic, and route density, not just kilometres.
• Stop handling — time per delivery or pickup, which varies enormously between a single pallet to a loading dock and ten parcels to residential addresses.
• Failed deliveries and redeliveries — the cost of a second or third attempt, which a per-kilometre rate ignores entirely.
• Depot and cross-dock handling — the sorting and consolidation time each shipment consumes before it ever reaches a truck.
• Returns and exceptions — the administrative and physical cost of reverse logistics.

Cost each of these by the time it takes and the capacity cost rate of the resource performing it, and the real profit of a route appears. Routes that looked identical on a per-kilometre basis separate by hundreds of euros per run.

What the Analysis Usually Reveals

When logistics operators run a proper cost-to-serve analysis for the first time, three patterns recur:

Low-density urban routes are often unprofitable. Many short stops, high failed-delivery rates, and slow driving time stack up against modest revenue per parcel. The route feels busy and productive, but the cost per delivery is far higher than the average suggests.

A few large-account routes carry the network. Full loads, fixed delivery windows, and predictable handling make them cheap to serve. They subsidise everything else, which makes them dangerous to lose and worth protecting in pricing negotiations.

Returns-heavy routes quietly erode margin. E-commerce routes with high return rates can look profitable on the outbound leg and lose money once reverse logistics is costed in.

From Insight to Action

Knowing which routes lose money is only useful if it changes a decision. The typical moves after a route-level profitability analysis are:

• Reprice or renegotiate the unprofitable routes, with a defensible cost figure behind the conversation.
• Redesign route density — consolidating stops, shifting delivery windows, or adjusting frequency to lift utilisation.
• Add surcharges for the cost drivers that actually hurt: residential delivery, failed attempts, oversized handling.
• Walk away from business that cannot be made profitable at any realistic price.

None of these decisions is safe to make on gut feel. Each one needs a route-level cost figure you can defend to a customer or a board.

You Do Not Need Perfect Data to Start

Operators often assume they need a telematics overhaul before they can do this. They do not. A first model can be built from existing route schedules, delivery counts, failed-delivery logs, and time estimates from operations managers. It will not be perfect, but it will be accurate enough to separate the profitable routes from the loss-makers, which is where the value is.