Total Cost of Ownership

How do you calculate the total cost of ownership of your logistics packaging in 2025?

Summary

8 minutes reading time

Thijs Canjels

Business Innovation Manager

Thijs Canjels is Business Innovation Manager at Faes and specializes in packaging management and supply chain optimization. In his blogs, he shares insights on efficiency improvements, cost savings and the strategic role of packaging in modern supply chains.

What are the hidden costs in your packaging logistics strategy?

When determining packaging costs, many companies look only at the purchase price, but the hidden costs often have a much greater impact on your total expenditure. These invisible cost items can increase your TCO by 40–60% if you do not include them in your calculations. The most underestimated cost is transport damage. When products arrive damaged, this leads not only to direct replacement costs, but also to administrative processing, additional transport, and possibly even production delays. For high-value technical or medical equipment, these costs can quickly run into thousands of euros per incident. Another hidden cost is inefficient use of space. Packaging that is not optimally designed for your products takes up an unnecessary amount of volume. This directly translates to higher transport costs, more storage space and a larger carbon footprint. This can be a significant cost, particularly for international shipments. Return logistics are also often overlooked. With single-use packaging, the investment is lost after a single use. With reusable packaging, you must factor in collection costs, cleaning, inspection and possible repairs. These costs can amount to 15–25% of total packaging costs. Finally, waste disposal costs are becoming increasingly important. With rising environmental levies and stricter regulations, the costs of processing packaging waste are increasing. By 2025, these costs are expected to be 30% higher than in 2023, which has a significant impact on your TCO calculation.

How does reducing DOA affect the total cost of ownership of packaging?

Dead On Arrival (DOA) refers to products that arrive damaged at the customer’s premises. Reducing DOA has a direct and measurable impact on your packaging TCO. Every percentage point reduction in DOA translates into substantial cost savings and improved customer satisfaction. The direct costs of DOA are significant. When products arrive damaged, you not only have to replace the product, but you also incur costs for returns, additional administration and re-shipping. For high-value technical equipment, these costs can amount to 3–5 times the value of the product itself. Even more significant are the indirect costs of DOA. A damaged product leads to dissatisfied customers, potential reputational damage and even the loss of future orders. These costs are harder to quantify, but have a major impact on your bottom line. Research shows that a customer who has had a DOA experience tells potential customers about this negative experience on average 2.3 times. Investing in protective packaging that minimises DOA can significantly reduce warranty claims. This has a direct positive effect on your operational costs and customer satisfaction. Particularly in sectors such as defence, medical technology and high-tech, reliable delivery is crucial for your reputation and customer relationships. Well-designed packaging that prevents DOA also improves operational efficiency. Less time spent handling claims and returns means more time for core activities. This leads to a lower TCO and higher productivity within your organisation.

Which financial parameters are crucial for an accurate TCO calculation?

An accurate TCO calculation requires you to take all relevant financial parameters into account. The most crucial parameters are purchase costs, service life, maintenance costs, operational expenditure, residual value and circular potential. The purchase costs form the starting point of your TCO calculation. This includes not only the direct purchase price of the packaging, but also additional costs such as design, engineering and any tooling costs. For bespoke packaging, these initial costs may be higher, but they often lead to lower costs over the lifecycle. The service life is a key parameter that determines the period over which you spread the costs. Sustainable packaging with a longer lifespan may be more expensive initially, but results in a lower TCO when amortised over several years. Example: a premium transport case costing €500 with a lifespan of 5 years effectively costs €100 per year, whilst a cheaper option costing €200 that lasts only 1 year ultimately works out more expensive. With reusable packaging, maintenance costs are a key factor. This includes cleaning costs, inspections, repairs and replacement of parts. A practical formula for this is: Annual maintenance costs = (Number of usage cycles per year × Cost per maintenance) + Annual inspection costs Operational expenditure includes all costs incurred whilst using the packaging. These include labour costs for packing and unpacking, transport costs, storage costs and administrative costs. These can be calculated using the formula: Annual operational costs = (Labour costs + Transport costs + Storage costs) × Number of usage cycles per year Finally, the residual value and circular potential are playing an increasingly important role. Packaging that still has value or can be recycled at the end of its life cycle reduces your TCO. This parameter is becoming increasingly relevant due to the growing focus on sustainability and the circular economy.

When is investing in premium packaging solutions financially viable?

Investing in premium packaging solutions is financially viable when the total costs over the product’s lifespan are lower than those of cheaper alternatives. The break-even point determines when the higher initial investment is recouped through savings on other cost items. The risk-value ratio is an important consideration. The more valuable or fragile your product, the more likely premium packaging is to be financially justifiable. For high-value products, even a small reduction in transport damage can justify the investment. Suppose you ship €500,000 worth of products annually with an average damage rate of 3%. If a premium packaging solution can halve this rate, you save €7,500 annually in direct damage costs. The frequency of use largely determines whether premium packaging is cost-effective. With reusable packaging, the rule is: the more often it is used, the quicker the return on investment. A practical calculation for this is: Break-even point (in number of usage cycles) = (Cost of premium packaging – Cost of standard packaging) ÷ (Cost per cycle for standard – Cost per cycle for premium) Operational efficiency also plays a role. Premium packaging is often more user-friendly, leading to time savings when packing and unpacking. These time savings translate directly into lower labour costs. If premium packaging saves 2 minutes per cycle at an hourly rate of €40, this already yields a saving of €133 per 100 cycles. Finally, customer retention is a factor that is often underestimated. Premium packaging contributes to a professional image and reliable delivery, leading to higher customer satisfaction and retention. If an investment in better packaging results in retaining just one major customer, this can already justify the additional costs. At Faes, we see that companies investing in high-quality industrial packaging solutions often recoup their investment within 12–18 months through lower damage rates, improved operational efficiency and a longer service life for the packaging. By taking all aspects of TCO into account in your decision-making, you make informed choices that not only reduce your direct costs but also contribute to a more sustainable and efficient supply chain.

Frequently asked questions

How do I start implementing a TCO calculation for our logistics packaging?

Start by gathering all cost data: purchase costs, transport costs, damage rates, return logistics and waste disposal costs. Next, create a simple spreadsheet model into which you can enter this data. Involve various departments such as logistics, finance and quality control in the process to gain a complete picture. Start with a single product line as a pilot and later expand this to your entire packaging range.

What are the most common mistakes when calculating the TCO for packaging?

The most common mistakes are underestimating hidden costs such as transport damage and return logistics, failing to factor in labour costs for handling, and ignoring the actual lifespan of packaging. Future cost increases (such as environmental levies) are also often overlooked. Another common mistake is failing to quantify indirect costs such as customer satisfaction and brand image, which can have a significant impact on your bottom line.

How do I measure the ROI of an investment in premium packaging solutions?

Measure the ROI by first conducting a baseline assessment of your current situation: document damage rates, handling times, transport costs and customer satisfaction. Then implement the premium packaging solution and monitor the same parameters for at least 6–12 months. Calculate the total savings (reduced damage, lower labour costs, etc.) and divide this by your investment to determine your ROI. Don’t forget to include qualitative improvements, such as increased customer satisfaction, in your evaluation.

What role does sustainability play in the TCO calculation and how do I anticipate future regulations?

Sustainability affects your TCO through waste disposal costs, environmental levies and future regulations. Anticipate this by monitoring Extended Producer Responsibility (EPR) legislation and including CO2 taxes in your long-term calculations. Consider adding a ‘sustainability premium’ to your TCO model for non-sustainable options, based on expected future costs. Invest in circular packaging solutions that are reusable or fully recyclable to minimise future costs.