We often discuss supply chains but not much data has a total chain perspective. That’s why the analysis included in the energy use and cost in freight transport chains (ECOTRA) study to be published soon is remarkable.
The study was commissioned by the Institute for Prospective Technological Studies (IPTS) of the European Commission and undertaken by a consortium led by Trasporti e Territorio (TRT).
The results vary by product but it is evident that the significance of transport cost on the supply chain depends on several factors including raw material prices, added value, production costs and the extent of the distribution network.
High values of transport intensity (per weight of final product) are a consequence of low transport costs and the widening of markets for both supply and distribution.
The unit costs of the upstream and downstream segments are mainly influenced by modal choice. While upstream there is an appreciable share of maritime transport, downstream cost is dominated by the price of road transport and its related variables – average load, vehicle used and shipment size.
Figures vary when considering the weight of products. Transport intensity is higher in the textile sector and lower for low value goods such as tomatoes and biscuits. The study concludes that transport, though perceived as a relevant cost factor, is not considered critical. But that may change in the future.
In fact, past trends confirm that transport intensity grows as a function of falling transport costs in real terms. Changes in industrial practices by relocating production to low-wage countries also confirm that, as transport services are only a part of increasingly complex supply chains, distribution has become a smaller component of the cost of goods.
But total transport costs have risen in the supply chain and this trend can be expected to continue for two reasons. First, transport intensity will rise because of the further development of overseas transport and outsourcing. Second, unit transport costs will be influenced by variations in oil prices and regulation. Overall, transportation costs are expected to growth by up to 12 per cent by 2015.
Silvio Beccia is a Supply Chain Consultant