Factors Influencing Freight Cost

The logistics manager has to achieve objectives of freight cost reduction, speed and reliability in delivery. However, the freight cost is influenced by the following factors.

1. Volumes

With the economies of scale, the cost of operations is distributed over large volumes resulting into lower per unit cost of cargo movement. For example, a 9-tonne loading capacity truck will have the same cost components of fuel consumption, loading and unloading charges, employee cost etc., for the distance covered, irrespective of whether the truck is fully or partially loaded.

2. Distance

The variable cost is directly proportional to the distance covered by the vehicle irrespective of the load carried. It includes fuel and maintenance cost. However, the relationship is not linear because of the fixed cost element such as employee wages, loading and unloading charges, which are irre­spective of the distance travelled (Table 8.3).

3. Product Density

The freight cost depends on the weight per unit volume of the product. It includes two variables of weight and volume. A 2-axel 9-tonne capacity truck has a limitation on the volume for low-density products such as cotton bales, wood, plastics etc. In such cases the freight cost per unit weight is found to be relatively higher (Table 8.4).

Similarly for high-density products the limitations are on weights, which should not exceed the allowable payload of the vehicle. In such cases, the truck is partly loaded with respect to the avail­able loading space on the vehicle.

4. Product Shape

The size and shape of the product (Figure 8.3) pose difficulty in handling and also affect the speed of its movement. Very big and odd-sized products require special arrangements for loading, unloading and towing. For heavy payloads, vehicles with long trailer are deployed for movement. The operating charges for such special vehicles are obliviously much higher because of higher operating cost, slow movement of the vehicles, and in special cases the requirement of escorts to accompany them. The large size chemical processing steel vessels, heavy-duty electrical transform­ers, long and odd-shaped steel products attract higher transportation charges.

5. Product Handling

For handling the heavy as well as odd-shaped cargo, special material handling equipments are deployed. These equipments are not available at loading or unloading points because of very low frequency (at the time of project installations only) of usage. Hence, these equipments have to be organized specially. This adds to unit transportation charges of the product.

Due to urgency of delivery and reluctance from shipping lines to carry the equipment, the consignee decided to move the consignment by air. Most airlines refused to accept the consignment. With perfect cargo movement solution, AFL Cargo Division, Pune (but after much persuasion and through combina­tion of some airlines) delivered consignment on schedule at the desired site without damage and also with cost saving to Hitachi.

6. Product Type

The products such as fruits, food items and certain pharmaceutical formulations require special temperature and humidity conditions for storage and transportation. These products need to be transported through refrigerated vehicles, costing double and having operating cost three to four times than that of a normal vehicle. The products susceptible to explosion, evaporation, damage or theft require special transportation arrangements such as specially constructed vans or box con­tainers. These products attract additional transportation charges.

7. Market Dynamics

In Indian context, the goods transportation business is in the hands of transport agents. The rates are fixed by the agents and not by the truck owners, except in case of very large fleet owners who operate across the country through their marketing infrastructure. However, depending on demand and supply of trucks for cargo movement to a particular destination, the freight rates are fluctuating. If more vehicles are available, there is cutthroat competition amongst the truck opera­tors to get the business. Also the rates charged are sometimes below cost level. For hazardous and problematic routes, the rates are on the higher side to cover the risk.

Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.