Freight Transport and Costing Systems 1. Reasons for Freight Transport

Freight transport plays a vital role in supply chains by enabling the movement of goods from producers to consumers. Key reasons for using freight transport include:

1. Freight Transport and Costing Systems
1. Reasons for Freight Transport
Freight transport plays a vital role in supply chains by enabling the movement of goods from
producers to consumers. Key reasons for using freight transport include:
Market reach: Access to regional, national, or global markets.
Inventory management: Just-in-time deliveries reduce warehousing costs.
Customer service: Timely delivery improves satisfaction.
Specialized cargo handling: Transport of perishable, hazardous, or oversized goods.
2. Modes of Freight Transport
Common modes used in freight transport include:
Road Freight: Flexible, door-to-door delivery, ideal for short to medium distances.
Rail Freight: Cost-effective for bulk and long-distance haulage.
Air Freight: Fast but expensive; suitable for high-value or urgent cargo.
Sea Freight: Economical for international and bulk shipments.
Intermodal Freight: Combines modes (e.g., rail + road) to optimize efficiency.
3. Vehicle Costing in Freight Transport
Understanding costs is essential to making efficient, profitable transport decisions.
A. Vehicle Standing Costs (Fixed Costs)
These costs are incurred regardless of vehicle use:
Depreciation (loss of value over time)
Insurance
Licensing and permits
Vehicle financing (loan repayments or leasing fees)
Garage or storage costs

2. B. Vehicle Running Costs (Variable Costs)
These depend on usage and trip characteristics:
Fuel consumption
Driver wages
Maintenance and repairs
Tyres and consumables
Tolls and parking fees
4. Whole-Life Costing (WLC) / Life-Cycle Costing
Whole-life costing evaluates the total cost of owning and operating a vehicle over its entire
life, not just the purchase price.
Components:
Acquisition cost (purchase/leasing)
Operating costs (fuel, maintenance, etc.)
Resale or disposal value
Downtime costs
Environmental and compliance costs
Why it matters:
It helps transport companies make long-term, cost-effective decisions about which vehicle types
to invest in.
5. Vehicle Cost Comparisons
When comparing vehicles for freight operations, key considerations include:
Fuel efficiency
Payload capacity
Maintenance history and costs
Reliability and downtime frequency

3. Lifespan (years or mileage)
Environmental performance (CO₂ emissions)
Tools like Total Cost of Ownership (TCO) calculators or fleet management software can support
these comparisons.
6. Main Types of Costing Systems in Transport
A. Job Costing
Used when costs are calculated for a specific delivery or job.
Suitable for contract or one-time shipments.
B. Process Costing
Averages costs over multiple deliveries or routes.
Suitable for regular, repeat services.
C. Activity-Based Costing (ABC)
Allocates costs based on activities (e.g., loading, driving, idling).
More accurate and detailed; helps identify inefficiencies.
D. Standard Costing
Predetermined costs used for budgeting and performance comparison.
7. Wastage in Freight Transport
Cost inefficiencies or "waste" in transport operations include:
Empty running (deadhead miles)
Underutilized capacity
Poor routing
Idle time and delays
Fuel wastage
Unplanned maintenance/downtime

4. Reducing these inefficiencies increases profitability and sustainability.
8. The Total Transport Operation: Cost View
To understand the total cost of transport operations, consider:
Cost Category Examples
Fixed (Standing) CostsInsurance, depreciation, licensing
Variable (Running) CostsFuel, wages, repairs, tolls
Indirect Costs Admin, IT systems, planning staff
Environmental CostsEmissions charges, sustainability investments
Opportunity CostsLost revenue due to delays or inefficiencies