A movement between location A and B involves three cost components in the assessment of the related transport costs.
- Transactions costs are related to resolve the setting of the movement, including legal costs and insurance. For international movements they can be significant as issues related to currency exchange as well as custom duties have to be considered.
- The friction of distance represents how many units of distance can be traded per unit of cost, which indicates how much effort (time, energy, etc.) must be made to insure that a movement takes place. Distance is considered to be the simplest attribute for such a purpose, but when international transportation is involved the change in jurisdiction is also an important component of the transport cost.
- Shipment implies the physical characteristics of the transportation process and the efforts that must be made to make a passenger or freight unit transportable. The higher the level of massification of the units, the lower the transport costs (economies of scale). Additionally, freight must be prepared for transport, such as packaging, palletizing or stuffing into a container.