Composition of Logistic Costs

Composition of Logistic Costs

Source: Establish, Inc. / HWD & Grubb & Ellis Global Logistics.

Logistics costs are the summation of all expenditures undertaken to make available a good or a service to the market, mainly the end consumer. 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 remain the most important element of logistics costs and their friction, non-spatial components such as inventory carrying and labor costs are significant components influencing locational choice depending on the supply chain.