Factors Determining Transportation Cost:

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There are various factors or things which is affecting or determining the cost of transportation and it’s pricing in the transportation system. They can be categories in two types:

A] Product Related Factors.

B] Market Related Factors.

 

A] Product Related Factors:

1) Product Density:

It incorporates weight and space consideration. These are important since transport cost is usually quoted in terms of per unit of weight. Once the vehicle is full it is not possible to increase the amount carried even if the product is light.

Since actual vehicle labour and fuel expenses are not dramatically influenced by weight, higher density products allow relatively fixed transport costs to be spread across additional weight. In general attempt is to increase product density so that more can be loaded into the vehicle. Logistics manager attempt to increase product density, so that more can be loaded in a trailer to better utilize capacity. Increased packaging density can be allows more units of product to be loaded into a fixed cube of vehicle.

2) Stowability:

It refers to product dimensions and how they affect vehicle space utilization. Odd size and shapes as well as excessive weight or length do not slow well and typically waste space. Items with standard rectangular shapes are much easier to stow than odd shaped items. Particularly when goods are containerized, as the inner dimensions are 8’ x 8’, the cartons packed should be of such size that they utilize the maximum space available. Therefore it is good to have uniformed packaging which will improve your Stowability.

 

3) Handling:

If special handling equipment is needed for loading and unloading then the cost will automatically increased. The manner in which products are physically grouped together for transport and storage also affects handling cost.

4) Liability:

Liability is concerned to the value of product being transported. Higher the liability will result in grater cost because the cost of insurance will be increases suddenly.  Carriers must either have insurance to protect against possible claims or accept responsibility for any damage. Shippers can reduce their risks and transportation costs by improving protective packaging.

5) Volume:

The transport cost per unit of weight decreases as load volume increases. This occurs because the fixed cost of pickup and delivery as well as administrative costs can be spread over additional volume. The relationship is limited to the maximum size of the vehicle. The management implication is that small loads should be consolidated into larger loads to take advantage of scale economies.

 

B] Market Related Factors:

1) Competition:

Competition can be intra- mode (other carriers for the same mode, e.g. one road transporter against another) and inter mode (other modes of transport e.g. road v/s rail). Generally as competition increases the market will be more price sensitive and prices will reduces.

2) Distance:

It is a major influence on transportation cost since it directly contributes to variable cost, such as labour, fuel and maintenance. As distance of the transport increases, normally cost per unit distance is reduces. It is refer as economy of distance. It is a major influence on transportation cost since it directly contributes to variable cost, such as labor, fuel and maintenance. The cost dose not begins at the origin because there are fixed costs associated with shipment pickup and delivery of distance.

3) Lane Balance:

If there is equal product movement to and from for a particular market place then lane balance is there. If the inward movement of products to a market is much greater than outward movement from that market, lane imbalance is there. In such case back hauls costs will be added for the inward movement.

4) Seasonality of Product Movement:

Generally, if product movement is seasonal in nature then higher cost will be charged, because the movement is not consistent throughout the year.

Although the relative influence on transportation cost is generally weighted in the sequence presented, the precise effect of each factor may vary because of specific product characteristics. Logistics manager have a responsibility to understand these influences and manage product and shipment arrangement to minimize transport costs.

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