The Need for a Revised Conceptual Framework
33
It is therefore necessary to develop a robust concept to tackle all these elements in an assessment of logistics costs. Supply chain literature already provides the conceptual framework to separate logistics costs deriving from the sequence of transit operations and to subsequently assess the impacts of facilitation, regulatory, or investment measures. Expanding on a model initially proposed by Baumol and Vinod (1970), we take the perspective of a consignee or shipper in the landlocked country of destination or origin. This end user supports costs directly or through fees paid to agents such as freight forwarders or transport operators. Figure 3.2 and table 3.2 summarize the operational chain of responsibilities in transit. The total logistics cost C supported by the shipper or consignee is broken down in three homogeneous categories. Table 3.3 provides a snapshot of how the various transit performance bottlenecks impact the three components.
Figure 3.2
Operational Responsibilities and Costs
(1) transportation costs transporter (2) other logistics costs (overheads)
freight forwarder shipper or consignee (3) hedging costs
Source: Authors.
Table 3.2
The Three Components of Total Logistics Costs
C
(1) Transportation Costs
=
+ (2) Other Logistics Costs
+ (3) Delayed Hedging Costs
= Fees paid for actual transit transportation* services to truckers or rail operators = (a) Transit overheads: fees, procedures, facilitation payments. + (b) Fixed costs of shipments = (a) In-transit moving inventory costs (costs of goods maintained on the road while already paid for, for example, cost of average transit time) + (b) Induced costs to hedge unreliability plus inventory and warehousing costs or to shift to a faster, more expensive mode of transportation
Source: Authors. * Transportation costs include transportation fees while logistics costs also include overheads and inventories costs.