What are the logistics costs? The problem of logistics costs in Vietnam

In the import and export of goods, logistics costs play a very important role. If the logistics costs are low, trade facilitation will create added value and improve the competitiveness of import and export goods. In addition, the index of logistics costs will assess the development of a country's trade. Let experts of LEC Group find out carefully about this issue!

What are the logistics costs?

Logistics costs include:

Transportation costs: account for 1/3 to 2/3 of distribution costs.
Capital opportunity cost: the minimum rate of return that the company makes when it does not invest in inventories but for another activity.
Cost of preservation of goods: including warehouse rent, storage of goods, taking goods in and out, damaged goods, insurance for goods.

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The formula for calculating logistics costs

In all markets, the price of goods (G) delivered to consumers must always be guaranteed at a minimum and offset the following (C) costs:

G ≥ C1 + C2 + C3 + C4 + C5

Inside:

C1: cost of production of goods. This is the basis for determining the EXWORK selling price.
C2: the expense of marketing activities.
C3: transportation costs.
C4: Cost of capital opportunity for inventories.
C5: cost of goods preservation.

Thus, logistics costs will include: Clog = C3 + C4 + C5.

1. C3 transport costs:

C3 transportation costs account for a large proportion, accounting for 1/3 to 2/3 of distribution costs. Although currently, the transport industry has had technological solutions such as transporting goods by containers, building new vehicles and equipment with high capacity, organizing multi-modal transportation, etc. However, cost Transportation is constantly increasing due to the escalating fuel prices.

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Because of this reason, manufacturers must apply many measures to reduce transportation costs. One of the most commonly applied solutions is to increase the ability to use equipment, tools, and means of transport by designing products and packaging goods. This will help increase the proportion of cargo.

2. The capital opportunity cost for C4 inventories:

The opportunity cost of capital for C4 inventories is the minimum rate of return that the company earns when it does not invest in inventories but for another activity.

The formula for calculating C4 is as follows:

C4 = (qikv) t [(1 + r) t-1] (2)

Inside:

qi: the number of products for a shipment.
kv: the capital norm for a unit of product. This level of capital depends on production technology.
t = 1 ÷ m: number of time units subject to an annual interest rate of inventories (month or year).
r: interest rate payable for the loan.

C4 will depend on the capital market, production technology and volume of supplies and products stored. If r is fixed and kv is fixed, then C4 is proportional to qi, that is, how many times small qi is how many times small C4 and vice versa.

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Compared to the past, when the market is limited, the number of products produced is small, interest rates are low, manufacturers often do not care much about this cost. Currently, when the consumer market is expanded, the number of products from which increased, loan interest rates are high. This cost accounts for a significant part of the total cost related to inventory.

Because of this reason, manufacturers are required to have appropriate solutions to reduce this cost. And this solution is to reduce the volume for one production and delivery (qi) down.

3. Cost of preserving goods C5:

Goods preservation expenses include expenses for renting warehouses and storing goods, bringing goods into or out of damaged warehouses, damaged goods, and insurance for goods. The formula for calculating C5 is as follows:

C5 = qi.Tbq.glk + qi.k.g + Cbh (3)

Inside:

Tbq: storage time in the warehouse of qi shipment.
glk: the average cost per unit of goods stored in a day.
k: rate of loss or damage to inventory.
g: the value of inventory.
Cbh: insurance cost for warehouse shipment.

The problem of logistics costs in Vietnam

The general situation of logistics costs in Vietnam is mainly in the following two factors: not focusing on the role and weak infrastructure.

1. Not focused on the role of logistics costs

At present, many companies in Vietnam have not really seen the crucial role of logistics in reducing business costs. In fact, logistics is closely associated with marketing, production, inventory, transport, and distribution.

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However, many companies have improperly arranged departments and its functions make management discrete. This requires forming a separate division for logistics/supply chain. To help these department managers be able to work closely with other functions.

2. Weak infrastructure

Our country currently has over 17,000 km of asphalt roads, more than 3,200 km of railways, 42,000 km of waterways, 266 seaports and 20 airports. However, the quality of the transportation network is not synchronized. Even in many places, technical standards are not guaranteed to be safe in traffic.

Although our country has 266 seaports, only about 20 seaports can be used for international import and export of goods. Most of these ports cannot handle normal container ships. The main reason for this is the lack of equipment and experience in container handling.

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In addition, in Vietnam, air transport is not popular. Mainly used by mode of transport by road. However, our road system can not be used in transporting heavy goods because of the narrow road, the technical quality is not high and the transport capacity is low, traffic congestion occurs frequently.

On the other hand, many industrial parks have been built. But there is no road system yet. Or it is located too far away from the seaport system, leading to high freight costs.

Above is all the sharing of logistics costs from LEC Group experts. If you need to find a professional logistics service provider at a reasonable cost. Please contact us from today to receive the best support!

LEC GROUP

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