NATIONAL LOGISTICS COSTS
Logistics costs are an important factor affecting the competitiveness of both firms and
nations. Firms can enhance their market competitiveness by reducing their logistics costs,
thus lowering the total costs of goods and services. Greater market competitiveness of a
nation’s firms can then give rise to greater national industrial competitiveness on a global
scale. From the perspective of government policy, however, effective cost reduction in the
national logistics system can be accomplished only by identifying individual components.
Consequently, the calculation of individual logistics cost components has been critical to
nations in their efforts to make appropriate policy decisions.
TRANSPORTATION COST
Total transportation costs include costs for both primary and secondary transportation.
Primary transportation is the movement of finished goods from plants and vendors to
warehouses. Primary transportation costs include costs for replenishment movement from
plants or distribution centres to other plants or distribution centres, and inbound freight on
purchased finished goods movement to plants or distribution centres for resale. Secondary
transportation is the delivery of finished goods to customers. Secondary transportation costs
include payments to carriers, pickup allowances, truck or rail equipment and operations costs,
and freight allowed. Freight may originate in plants, distribution centres or terminals.
Transportation costs include costs for all modes, including trucking, rail transport, water and
oil pipeline, and both international and domestic airfreight transport, as well as freight
forwarding and shipper-related costs. The freight transportation costs in the Cass report account for
the largest portion of logistics costs. These estimates are based on the annual Transportation in
America report published by the Eno Transportation Foundation. Of total transportation costs,
trucking costs continue to dominate the United States business logistics system, accounting for
more than 80 per cent share of the nation’s freight billing. Shipper-related costs include the loading
and unloading of transportation equipment, as well as traffic department operations.
INVENTORY CARRYING COSTS
Inventory carrying costs include the cost of money (opportunity or interest), ad
valorem taxes, insurance and shrinkage. Following extensive research and analysis, Cass
Logistics set this level at 18 per cent in 1974, when it started the Database. The figure still
represents a reasonable measure of the cost of carrying inventory, although there have been
many arguments for both lower and higher figures. Inventory carrying costs include those
costs that vary with the level of inventory stored. They can be categorized into the following
four groups:
1. capital costs 2. inventory service costs 3. storage space costs 4. inventory risk costs.