APPENDIX 2
Details on the Supply Chain Model
The three portions of total logistics costs in transit are as follows: C
=
Freight transportation costs +
Other logistics costs
+
Delays hedging costs
Fees paid for actual transit transportation services to truckers or rail operators Transit overheads + administrative costs per shipment Translated in equivalent inventory cost
Notations The transit chain is broken into steps. Some are transport-related (moving goods between borders); many are not (container storage in the port terminal, transit documents, customs processing and warehousing at the operator’s facilities). For simplicity, we consider one mode of transport in transit. The various elements are defined as follows:: O A
= =
Tmean
=
S
=
Transit overheads Administrative costs of organizing transit operations: internal costs or costs paid to logistics providers (for example, to arrange small shipments) Average lead time (days) of transit operation, for instance: Ex Ship to consignee (imports) Shippers to free on board (exports) Average time (days) between identical shipments required by the level of demand for such shipment (replenishment cycle) 83