Logistics Know How

Transportation costs in the supply chain and their significance

As a small or medium-sized company you have to assure that your operational costs do not exceed a certain level, especially during transportation. In this article we explain which costs are relevant for the transportation of your cargo and how we can help you to keep an overview of them.

26 November 2020

by Maik Schulze, Customer Engagement Manager

There are different costs when it comes to transportation. And we know it can be difficult to know all different kind of costs. You must pay attention to the different costs. That’s why we have listed the most important ones for the transportation of your goods:

Transport price per item: An important key figure is often the transport price per item. This is firstly impacted by the type of transport you use to get your goods from A to B. The transport price per item is significantly higher when transported via air than via sea. At Twill, we transport your cargo from warehouses of production to the location of your delivery. With that, we do not only take care of ocean transportation but also inland and customs services. Transportation costs might not be the main driver for your logistics decisions, but we encourage you to take them into consideration when looking at the bigger picture.

Production costs: Production costs contain the production site, staff, raw materials and infrastructure among others. They are easier to identify and quantify.

Transaction costs: These costs quantify the management and organisation of your activities. They are harder to identify as they can be hidden costs. Taking into account the cost blocks to be allocated here and considering that these costs are incurred even before you have generated $1 turnover, this can be a fatal error in your calculations. And there are other costs linked to transaction costs: In the following you will find 4 possible cost blocks that can be assigned to transaction costs:

  • Costs of Initiation: These costs refer to researching costs, looking for needed information.

  • Costs of Agreement: Costs which are connected to negotiations and contracting.

  • Costs of Control: Ensure standards of quality, quantities, prices, compliance.

  • Adjustment costs: These costs refer to conflict resolutions, implementation of changes with regard to prices, qualities, etc.

Costs of capital: Another important cost factor are the costs of capital. Depending on the setup, this can play a major or a rather minor role in your company. With our partner MODIFI you can get the working capital your business needs to thrive in uncertain times. There are two set-ups: transport-intensive vs. warehouse-intensive.

  • Transport-intensive: This means you have high transportation costs but low storage costs.

  • Warehouse-intensive: This means you have high storage costs but low transportation costs.

Both can make sense, but the costs of capital are often underestimated with warehouse-intensive set-ups. Costs of capital are the reflection of the costs of your stored goods. Since this capital is tied up and therefore cannot be invested profitably, they are opportunity costs.

A simplified calculation with the following assumptions can help you to understand these costs

You´ve got 5.000 articles of a product in stock that are sold in one month.

  • Initiation Stock level: 5.000 items

  • Final Stock level: 0 items

  • Average stock: 2.500 items

  • Value per item: 15 $

  • Average Costs of stock: 37.500 $

  • Rate of interest: 2,8 %

  • Amount of days per month / per year: 30 / 360

Costs of capital per month = ((37.500 $ x 0,028) x 30 days) / 360 days = 87,50 $

By applying this simple calculation to your entire product range and to one financial year, surprisingly high amounts can be calculated. These costs are recorded under your floating capital.

Let us handle your logistics – and know the costs of transportation upfront

In the transportation industry there can be unforeseen costs such as weather conditions or port strikes. You have to be aware of such costs which you might not have included in your overall calculation. Moreover, if you’re shipping your cargo across the sea, you want to know that you won’t lose money if your cargo is damaged or lost. This is why Twill offers Value Protect, giving you peace of mind that your cargo is protected during the transportation with us.

Additionally, we provide you with daily rates but also with monthly fixed rates. Monthly fixed rates give you the security of knowing your costs within a given period of time – limiting changes and variations of costs.

Finally, you will realize that the price of transport is rarely the only decisive factor in determining the cost of your entire supply chain. If you feel like you need help to identify the costs of transportation and get your cargo moving, read our FAQs or feel free to contact us. At Twill we are here to support you and your logistics with our 24/7 support in more than 30 languages and over 150 countries. We provide you with an intuitive platform and a cargo loading guarantee. So you can take your business from local to global.

Want to start shipping your freight with Twill?

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