42
The Cost of Being Landlocked
the total logistics costs (transport, overheads, and inventories), Bowersox (2005) and Ojala, Kitain, and Von Weizsäcker (2005) show a widening logistics gap between industrialized and developing countries. Although logistics costs as a percentage of gross domestic product (GDP) fell from 15–20 percent in the early 1980s to less than 10 percent in industrialized countries due to better supply-chain management and reduced inventory holdings, in developing countries, logistics costs as a share of GDP can be over 30 percent (with figures for emerging economies usually being 15–20 percent of GDP). Typically, the cost of hedging unreliability is expressed in equivalent days of inventory. It depends on several factors, such as the time value attached to cargo, the lead transit time and its variability, and the cost to the operator of a break in the supply chain (for example, the cost of a stock-out or of setting up alternative logistics). Box 4.1 details the main ways of determining the value of time.
Box 4.1
Assessing the Value of Time There are three main ways of assessing the value of time for shipments: (a) estimating direct costs linked to inventories (expressed in cost per day per 20-foot equivalent unit, or TEU); (b) estimating the value of time from models incorporating the impact of time on trade flows; and (c) estimating the value derived from the choice of a more expensive transport for faster service. For supply-chain analysis, (c) is the most appropriate, but the choice depends significantly on the type of goods and option (c) is not always applicable. In any case, (a) is appropriate for modeling trade flows, particularly containerized trade flows. (a) In the context of a supply-chain model, the value of time is an operational concept: the cost of ownership of goods in inventories. There are essentially two distinct inventories: (1) inventory in motion for goods in transit and (2) inventory in owners’ warehouses before processing or distribution. In both cases, the costs include financial charges, obsolescence, and loss of damaged or stolen goods. Inventory costs also include the fixed costs of warehousing at destination. Moving inventory costs also include the cost of vessels (container rental, deposit costs, demurrage charges, and terminal and storage facility costs). These charges do not exactly evolve pro rata temporis, but they may increase with time, (continued)