Logistic Costs Breakdown

Logistic Costs Breakdown

Generally, logistics costs include
1) Transportation costs
2) Inventory carrying costs
3) Labour Costs
4) Customer service costs
5) Rent for storage costs
6) Administration costs
7) Other costs

Logistics costs are defined differently by different companies. Some companies do not account interest and depreciation on inventories as logistic costs. Others include the distribution costs of their suppliers or the purchasing costs. In some cases, even the purchase value of the procured goods is included in the logistic costs. So, there is no generic definition of this term but every company needs to define the logistics costs for itself and the KPI’s it will be tracking to lower the costs.

Generally, companies have to do a trade-off between cost and performance while managing logistics costs. This is because the lowest cost transportation may not be the fastest and hence higher costs need to be incurred to provide higher on time delivery and performance. Also, logistics costs is also a function of the type of goods that need to be transported. The mode of transportation for a perishable good will be different from an imperishable good.

Total logistic costs reveal much about the locational dynamics of logistics activities, particularly distribution centers, since they indicate the weight of most important factors. Transportation costs remain the dominant consideration as they account for about half of the logistic costs. Inventory carrying costs are also significant with a share of about one fifth of total costs. They include the costs of holding goods in inventory (capital costs, warehousing, depreciation, insurance, taxation, and obsolescence) and are commonly expressed as a share of the inventory value. Labor costs involve the physical handling of goods, including tasks such as packaging and labeling. Customer service encompasses receiving and processing orders from customers.

Under such circumstances, distributors are willing to pay higher rents to take advantage of a logistics site that offers co-location with an intermodal terminal since this strategy enables them to reduce transportation costs, such as drayage, as well as improve their time responsiveness (lead time). Therefore, while transportation costs remains the most important element of logistics costs and its friction, non-spatial components such as inventory carrying and labor costs, are significant components that will influence locational choice depending on the supply chain.

Source: Establish, Inc. / HWD & Grubb & Ellis Global Logistics.THE GEOGRAPHY OF TRANSPORT SYSTEMS