Factors Influencing Freight Costs

Factors Influencing Freight Costs

For companies that keep inventory, freight is one of the most significant costs of doing business. Companies that keep inventory consider freight to be one of the most important costs of doing business. The freight charges for transporting goods from the manufacturer’s facility to the customer’s warehouse may vary depending on a variety of factors. Transporting goods from the manufacturer’s warehouse to the company’s warehouse or from the company’s warehouse to the retail or customer site may incur costs. The cost of shipping may be billed before or after the goods are delivered. The shipping cost can be invoiced either before or after the cargo is delivered. We also wrote a detailed blog post about the factors that influence shipping rates.

Some of the factors that affect freight expense include:

(1) Fuel costs

Several shipping companies’ freight cost pricing models include fuel costs. Fuel costs are included in the freight cost pricing model by some shipping companies. The cost of road and sea shipping is determined by the fuel price, and the final cost charged to the customer must include the fuel price at the time of shipment. The cost of road and maritime shipping is determined by the cost of fuel at the time of shipping, and the final cost charged to the consumer must include the cost of fuel at the time of shipping.

If fuel prices are low, road and maritime transportation will be less expensive to use, and the savings will be passed on to the consumer as cost savings. However, if the price of fuel increases, road and maritime transport prices will increase, and the additional cost will be passed on to the consumer.

(2) Demand for freight

The cost of freight is also affected by the demand for freight services. During periods of high demand for shipping space, there will be a large volume of products for shipping, and users will compete for the limited space. As a result, shipping companies can command a premium for the limited space. When demand for freight services is low, shipping companies will lower their prices to compete for the fewer users looking to ship cargo.

 (3) Emerging events

Emerging events such as terrorism, piracy, and a rogue government can result in higher freight costs as shipping companies try to recoup losses. Costs may also rise as shippers choose longer shipping routes that provide greater security. To cover the increased risk, higher insurance premiums, and longer shipping routes, maritime shipping passing through pirate-prone shipping routes such as Somalia, for example, is forced to charge a higher cost.

Shipping companies may charge a higher fee when transporting cargo through areas prone to terrorism and criminal gangs in order to hire security or shift cargo to safer modes of transport in such areas.

(4) Government regulation

The government of some countries may implement a policy that directly affects shipping companies. For example, during certain times of the year, government officials may limit truck drivers’ maximum driving hours. This means that the cargo will take longer to arrive at its destination.

Shipping companies raise freight rates to compensate for potential losses. Shipping companies raise freight charges to customers to cover anticipated losses. Other government regulations that may have an impact on freight prices include a ban on night driving, emission tax legislation, and limits on the number of goods that trucks can transport. Other government regulations that may have an impact on freight costs include a ban on night driving, emission tax laws, limiting the amount of cargo that trucks can carry, and so on.