Source: Establish, Inc. / HWD & Grubb & Ellis Global Logistics.

Logistic Costs Breakdown

Total logistic costs reveal much about the locational dynamics of logistics activities, particularly distribution centers. Transportation costs remain the dominant consideration as they account for about half of the logistic costs. Inventory carrying costs are also significant with a share of about one fifth of total costs. They include the costs of holding goods in inventory (capital costs, warehousing, depreciation, insurance, taxation, and obsolescence) and are commonly expressed as a share of the inventory value. Labor costs involve the physical handling of goods, including tasks such as packaging and labeling. Customer service encompasses receiving and processing orders from customers.

Under such circumstances, distributors are willing to pay higher rents to take advantage of a logistics site that offers co-location with an intermodal terminal since this strategy enables them to reduce transportation costs, such as drayage, as well as improve their time responsiveness (lead time). Therefore, while transportation costs remains the most important element of logistics costs and its friction, non-spatial components such as inventory carrying and labor costs, are significant components that will influence locational choice depending on the supply chain.