A responsive and cost-effective transportation network is crucial to an effective logistics management. An economical transportation network not only reduces cost across a supply chain but also improves the customer service levels. Transportation cost is inevitable across the supply chain, and therefore an organization has to ensure that the mode of transport chosen will be cost effective and not drain the profits of the business (Sindi, & Roe, 2017). Also, the transportation network should be modeled in such a way that the goods and/or services reach the consumer in time. There are several factors that affect transportation costs incurred by any organization. The factors range from fuel prices to mode of transport among others.
The Fuel Prices
Fuel prices tend to fluctuate constantly. Economic crisis tends to push the cost of fuel upwards, and this would in effect raise transportation costs. For instance, a threat of war in the oil-producing countries would see the increase in the cost of crude oil. This means that the final price of the final products of crude oil would increase. The machinery used in the various modes of transport depends on fuel as the source of propelling power. A rise in the fuel prices would, therefore, mean that the transportation costs would be increased to cover for the extra fuel costs incurred. Also, if the organization has its own transport means such as trucks, they would be required to increase the transport costs financial allocations to meet the new fuel prices. Irrespective of the mode of transport used, the increase in fuel prices would result in an increase in transportation costs. However, if the fuel prices fall, the cost of transportation would also lower, and this would be a benefit to the business.
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The Modes of Transport
Another critical factor that affects transportation costs is the mode of transport. Several factors are considered when choosing a mode of transport and key among them is the transportation cost. Others include the nature of goods and the transit time for the goods. The nature of goods will determine the transit time required. For instance, perishable goods such as flowers require a fact mode of transport such as air while durable goods such as machinery can be transported through the water (Miljkovic,2018). Also, the bulkiness of the goods will determine the mode of transport chosen. Road or water transport would be most appropriate for bulky goods while air transport would be convenient for light goods. The distance to be covered also determines the mode of transport to be chosen. Air transport would be appropriate for long distances as compared to water transport. Transportation costs depend on the mode of transport chosen. Air transport, for instance, is relatively more expensive than rail transport. The convenience to the customers and other factors such as security should all be considered when choosing a mode of transport.
Packaging Costs
Prior to the transportation of goods, they must undergo packaging to ease the transportation process. This means that the business would have to acquire the necessary packing materials. Also, the business would require human labor to help in the packing process. Packing ensures the safety of the goods in transit but also escalates the volume and weight of goods. The whole process would cause an increase in the overall transport costs since the greater the weight and volume of the goods, the higher the transportation costs. Also, employing human labor to do the packing would increase the costs of transportation.
Labor Costs
Labor is a vital component of an efficient transportation network. Labor is required in almost all the aspects of the transportation process. For instance, if a business has its own trucks to transport goods through transport, they would need to hire truck drivers to drive the trucks. Also, they would need to hire labor force to assist in the packing and loading of the goods onto the trucks for transport. The hiring of this labor would lead to an increase in transportation costs.
Inventory Carrying Costs
Inventory carrying costs can add significantly to the overall transportation costs. This is because the goods being transported should tally with the goods held in the inventory. For this reason, goods being transported for very long distances and probably are perishable or fragile would require special storage facilities when on transit. This is to ensure that the goods received by the consumer are in the same condition as released by the business. Also, after arrival at their destination, some goods may require to be stored for some time until when their owners come to collect them. This necessitates the use of warehouses where the goods are stored for some time (Tran, Haasis, & Buer, 2017). The storage may also be necessitated by factors such as payment of customs duty and clearance and release of the goods by the customs to their owners. These storage costs may increase the overall transportation costs of such goods.
Insurance Costs
The nature of goods on transit may necessitate the business to take an insurance cover against risks such as theft, damages, and loss (Miao, & Fortanier, 2017). For instance, transportation of expensive goods such as luxurious vehicles would compel the organization to take an insurance cover against a risk such as the theft of goods in transit. Also, damages are almost inevitable while loading and offloading goods hence it would be prudent for the organization to take an insurance cover against damages of goods on transit. The insurance costs would vary depending on the value and nature of the goods being transported. Either way, insurance costs would increase the cost of transportation costs.
Weight and Volume of Goods on Transit
The weight and volume of goods affect the mode of transport chosen. The high weight goods will generally cost an organization more in terms of transportation costs than low weight goods. Also, the distance that the goods will be transported affects the method of transportation. Long distances will increase transportation costs since inventory costs will also increase (Suganya, & Sivakumar, 2018). Also, the means of transport will depend on the distance to be covered, and fact means of transport such as air would be suitable for long distances.
Security Costs
The value of the goods on transit may require an organization to hire security for the goods. For instance, businesses that deal with precious metals and minerals may be obliged to acquire security for the goods while being transported. This would help to reduce the risk of theft and robbery of these high-value goods. Hiring professional security services can be quite expensive hence the overall transportation costs would escalate.
A cost-effective transportation network would have to factor in all these factors that affect the transportation costs. The most convenient, efficient and cost-effective mode of transport has to be chosen to ensure that the business optimizes on its profits.
Works Cited
Lam, J. S. L., Lun, Y. V., & Bell, M. G. (2018). Risk management in port and maritime logistics.
Miao, G., & Fortanier, F. (2017). Estimating Transport and Insurance Costs of International Trade.
Miljkovic, D. (2018). Transportation costs and trade for differentiated agricultural products. Handbook of International Trade and Transportation, 259.
Sindi, S., & Roe, M. (2017). The Evolution of Supply Chains and Logistics. In Strategic Supply Chain Management (pp. 7-25). Palgrave Macmillan, Cham.
Suganya, M., & Sivakumar, V. (2018). A STUDY ON FACTORS INFLUENCE THE SELECTION OF MULTIMODAL TRANSPORT. PARIPEX-INDIAN JOURNAL OF RESEARCH, 7(5).
Tran, N. K., Haasis, H. D., & Buer, T. (2017). Container shipping route design incorporating the costs of shipping, inland/feeder transport, inventory and CO2 emission. Maritime Economics & Logistics, 19(4), 667-694.
