Transport cost

Transportation is one of the most visible elements of logistics operations. Transportation provides two major functions namely product movement & product storage. The major objective is to move product from an origin location to a prescribed destination while minimizing temporal, financial and environmental resource costs. Loss and damage expenses must also be minimized. At the same time the movement must take place in such a manner that meets customer demands regarding delivery performance and shipment information availability. Following are the essential elements of transportation to be taken into account: 1. Transport Mode The most critical decision is the selection of appropriate mode of transport. This fixes two basic elements of distribution function: 1. Transit time or time lapse between production and sale; 2. Level of transportation costs. There is an inverse relationship between transit time and transport cost the lower the transit time, the higher the transport cost. However, a decision that takes into account only one cost factor cannot be justified. An evaluation of the effect of transit time on other costs must also be considered. Unsold production represents a high cost, and the longer the transit time, the higher the level of unsold production. 2. Inventory Costs A first class service to clients often requires immediate delivery and, hence a higher level of inventory at the market centre. Economy, on the other hand, calls for minimum inventory. The level of output held in stock is dictated by1. Transit time: If the time lapse between production and sale is longer, the level of inventory becomes higher. 2. Sales pattern: If the pattern of sales is erratic, higher inventory levels are caused. 3. Production pattern: If the production pattern is erratic, higher inventory levels have to be maintained to prevent stock outs. Assuming that the sales and production patterns are largely fixed, the important variable, which can influence stock, levels in transit time. As transit time is reduced, the level of static stock can be reduced with accompanying stock reduction.

3. Transit Capital Capital can be released by changing the proportion of the total output in transit. This can be done by adjusting the transit time. As transit time is reduced, the quantity of goods in transit can be decreased with an associated reduction in transit inventory costs. By realizing the capital cost of transit inventory and goods in transit, capital commitments can be reduced, and more capital can be available for other purposes. 4. Obsolescence When a slow or erratic mode of transport is employed, a higher level of inventory is necessary to ensure continuous, prompt delivery to the customer. However, when designs change rapidly, obsolescence reduces the market value of the products in store. Rapid advances in technology bring about swifter technical obsolescence. Any goods in the pipeline realize a lower figure when new models are introduced by a company or its competitors. Air distribution can overcome this problem, and the effect of such obsolescence can be minimized. 5. Packaging The nature of packaging of a product is often determined by the mode of its transport. E.g. Because of the dry conditions of carriage, short transit times and minimum handling, air cargo generally requires much less packaging than other forms of long distance transport. Goods dispatched by air may require only a dust cover or even no cover at all. In some cases, savings on the packaging of sophisticated products may more than pay for the actual transport charges. Less packaging may lead to other advantages too. These include lower unpacking costs and lower chargeable weight for freight. 6. Insurance Insurance risks are based on transit time as well as the possibility of damages en route. With faster transit times, skillful handling, substantial reduction in damage and greater security in transit, insurance premiums tend to fall substantially. 7. Breakages Cost of breakages is an important factor in any cost benefit analysis. Because breakages may be indemnified by insurance companies, the true cost of damage to cargos can easily be overlooked. In the first place, the vulnerability of various products sent by different modes is reflected in the insurance premium. To high premiums must be added the clerical work involved in establishing claims, making replacements and the loss of customers goodwill. The replacements themselves will be subject to the same hazards and premiums will require further documentation. Therefore, only that mode of transport must be selected which substantially reduces real damage in transit. This calls for a selection of the routes which are more direct and which avoid transshipment. Handling equipment must also be more sophisticated. Containers can be used by shippers for door-to-door transportation, thereby avoiding all handling of goods by the carrier.

8. Pilferage Many expensive administrative problems associated with breakages also apply to pilferage. This problem is reduced for example, when door-to-door containers are used, a fact which is again reflected in lower insurance rates. 9. Deterioration In many surface cargos, deterioration may be avoided only by complicated and expensive packing to counteract mechanical shock, exposure to weather or unfavorable temperature etc. Some cannot be stored at all, except at great expense, and others deteriorate slowly.Deterioration can be costly in terms of packing, stock losses and expensive conditioning in store. It can only shut the door on many distant markets. A high speed of transport and the frequency of services can overcome many of these problems. 10. Transport Costs Transport can be divided into 3 phases: 1. Delivery to docks, airport or railway station. 2. Transport from one terminal to another. 3. Delivery from the terminal to the consignees place.

Mode of transport
Businesses rely on transportation to receive goods from their suppliers as well as deliver orders to their customers. The type of transport your business uses will depend on a number of factors:

The products you sell (eg perishables or non-perishables) Supplier production lead times Product availability Customer lead times Source of supply (eg UK or abroad) Customs and Excise rules (eg duty or quarantine) Volume You can use one method for all your transportation needs or a combination. Here are the main types, and their advantages and disadvantages:

Air
Airfreighting is commonly used by businesses for the delivery of goods from distant suppliers. This mode of transport is useful to deliver products with short lead times, fragile goods and products that are not bulky. Products in high demand and in short supply may also be airfreighted in order to meet customer demands. The bulk/value ratio will be a determining factor.

Advantages

Fast delivery, usually between 24 and 48 hours Customer is not kept waiting for order fulfilment Reduced lead time on supplier Improved service levels

Disadvantages

Flight delays and/or cancellations Customs and Excise restrictions Cost

Sea
Sea transportation is used by businesses for the delivery of goods from distant suppliers. Most sea transportation is conducted in containers which vary in size. Goods can be grouped into a container (LCL) or fill a container (FCL). Sea tankers are used for bulk shipments of loose goods such as oil, grain and coal.

Advantages

Ideal for transporting heavy and bulky goods Suitable for products with long lead times

Disadvantages

Longer lead/delivery times Bad weather Difficult to monitor exact location of goods in transit Customs and Excise restrictions Could be costly

Rail
Businesses use rail transportation for the delivery of a wide range of goods including post, coal, steel and other heavy goods.

Advantages

Fast delivery Capacity Cost effective Safe mode of transport Reliable

Disadvantages

Subject to unforeseen delays Reliance on rail freight operators timetable Suppliers/customers are not always located near a rail freight depot and delivery to/from the depot can be costly and time consuming

Road
A very popular mode of transport used by suppliers and businesses to deliver orders. Many transport companies provide scheduled delivery days and next day delivery services, depending upon your needs. Goods can be packed/grouped in box vans or in containers which are also used for sea transportation.

Advantages

Cost effective Fast delivery

Ideal for short distances, national or mainland Europe Ideal for transporting perishables (eg fruit and vegetables) Easy to monitor location of goods Easy to communicate with driver Ideal for sending by courier shortages to customers

Disadvantages

Transport subject to traffic delays Transport subject to breakdown Goods susceptible to damage through careless driving Bad weather Driving regulations can cause delays