In international trade, selecting the best way to deliver your goods overseas is just as important a part of the process as making and selling them. The cost of transportation and the time it will take to get the goods to market have a direct influence on both profitability and customer satisfaction.
Here is an overview of the main factors to consider when deciding how to get your goods to your customers.
How quickly do you need your goods to reach their destination? Generally speaking, the faster the mode of transport, the more you pay for the privilege. This may be determined by the nature of the goods, for example if they are perishable or fragile, or by the customer’s expectations. Air cargo is usually the quickest mode of transportation although you need to transport the goods to the terminal and deliver from the airport to the customer.
Cost is obviously one of the biggest considerations. Not only does it affect your profits, it will impact on market attractiveness of your products (the higher your costs, the bigger impact on your break even point). There are certain trade offs to be had to secure cheaper costs. For example, sea freight is usually cheaper than air cargo but will take longer. Make sure you account for all costs involved (see Taxes, Duties and Hidden Costs below).
The transportation you use may be determined entirely by distance. Very long distances will have to be delivered by air or sea. Much shorter distances may only be practical by road or rail. In some European countries Waterways are a good alternative to the road network – it may be worth exploring.
If your products are large, heavy, or transported in large quantities they may not be suitable for air or rail transport and may have to be transported in containers as sea freight or by road. Transporting in large volumes may limit the mode you can use but offer you more negotiating power on price.
Smaller, lighter products may be more suited to air transportation and smaller items, sent individually or in small quantities, could simply use a small parcel service or courier.
This also impacts on the cost of the freight as it is measured by either the volume of the cargo or the weight depending on which is larger. In rare cases freight rates could be determined by value if your cargo is small but valuable, this applies to some pharmaceuticals and rare elements etc.
Security is obviously a significant consideration, especially if you are exporting high value items. Road transportation can be very secure, as this can often be the single end-to-end mode of transport. Air cargo is also very secure.
There are often factors involved in transporting goods overseas that are uncontrollable. Weather conditions, industrial action, traffic, breakdowns, infrastructure, geo-political factors etc can all cause delays. Each mode of transport will be affected in different ways, so you need to understand the potential implications of each.
This is the area where costs can escalate. In addition to any carrier costs, you must ensure that you understand the local taxes (our VAT equivalent) and duties (derived from the agreed tariff code and WTO or FTA) that apply to your goods and the countries you are exporting to. Remember that there may be additional charges at airports, ports and road borders. Also take into account fuel costs as they appear as surcharges as in dollars which lead to currency fluctuation costs. Make sure there is a clear agreement between yourselves and your customers regarding who is responsible for what costs (this should be formalised by using Incoterms® 2020 see our section on this).
The environmental impact of different modes of transport is not just an ethical issue, it’s a cost issue as well. Levies are imposed on those that damage the environment, making them more expensive. Choosing greener options, such as rail or road, are therefore cheaper than air transport which is a big contributor to climate change.
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