A. Economies of Scale
•Transportation cost per unit of weight decreases when the size of the shipment increases i.e. shipments that utilize the entire vehicle’s capacity like truck load (TL) cost less per kg than less than truck load (LTL) shipments.
•Fixed costs in transportation include administrative costs of taking transportation order, time to position the vehicle for loading or unloading, invoicing and equipment cost.
•It costs as much to administer a shipment of 1 kg as it does to administer a 1000 kg shipment.
B. Economies of Distance
•Transportation cost per unit of distance increases at a decreasing rate as distance increases. Also called “Tapering Principle”
•For instance, a shipment covering a distance of 800 kilometers will cost less than two shipments of same combined weight covering 400 kms.
•Fixed expenses incurred to load and unload the vehicle get spread over more kilometers resulting in lower overall per kilometer charges.
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