Sources of transportation costs

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Sources of transportation costs

The following are the main components of variable transportation costs as understood in Network Optimization:

Variable Transportation Cost. Average cost to ship product.
Variable Cost Basis. Method for calculating the cost to ship a unit of product. Basis values include quantity, distance, time, and combinations such as weight-distance.
Shipment Size. Size of a product shipment. The Shipment Size is applied when the Variable Cost Basis uses distance or time. You can specify the unit by which Shipment Size is based (weight, volume, quantity). Keep the following in mind:
- If your Shipment Size is expressed in Weight, a Product Unit Weight of 0 is invalid when calculating transportation costs. The cost will use the Shipment Size rather than Unit Weight.
- If your Shipment Size is expressed in Volume, a Product Unit Volume of 0 is invalid when calculating transportation costs. The cost will use the Shipment Size rather than Unit Volume.
  Errors are logged in the ErrorLog.text file.
Distance. Distance traveled in product shipping. You can specify the distance unit of measure, such as miles or kilometers.
Transport Time. The time required to travel from Source to Destination. You can specify the time unit of measure, such as hours or days.

These components combine, based on the Variable Cost Basis, to determine the overall shipping costs.

Other columns can impact the transportation cost, including the following:

Fixed Shipment Cost. Fixed cost per shipment made.
Shipment Rule. Determines how Shipment Size is handled in terms of applying the Fixed Shipment Cost.
Fuel Surcharge. Incurred in addition to the normal transportation cost.

Keep in mind that you can populate these values in the Transportation Policies table, the Modes table or both. If columns are populated in both, the values from Transportation Policies override those in Modes.

Cost basis types

These are the Variable Cost Basis types which require different data elements to calculate transportation costs. The average unit transportation cost, as defined in the table below, is multiplied by the flow to determine the flow transportation cost for the intersite and customer flows:

Type	Information Required	Shipment Size UOM	Formula for Average Unit Transportation Cost (cost for 1 unit of flow)	Description
Quantity	Variable Transportation Cost, Units of Flow		Variable Transportation Cost	Cost to ship 1 Quantity unit of product
Weight	Variable Transportation Cost, Product Unit Weight, Units of Flow		Variable Transportation Cost * Product.Unit Weight	Cost to ship 1 Weight unit of product
Volume	Variable Transportation Cost, Product Unit Volume, Units of Flow		Variable Transportation Cost * Product.Unit Volume	Cost to ship 1 Volume unit of product
Distance	Variable Transportation Cost, Distance Traveled, Size of Flow	Quantity	(Distance * Variable Transportation Cost) / Shipment Size	Cost to ship per distance unit
		Weight	(Distance * Variable Transportation Cost) / (Shipment Size / Product.Unit Weight)
		Volume	(Distance * Variable Transportation Cost) / (Shipment Size / Product.Unit Volume)
Time	Variable Transportation Cost, Transport Time, Size of Flow	Quantity	(Transport Time * Variable Transportation Cost) / Shipment Size	Cost to ship per transport time unit
		Weight	(Transport Time * Variable Transportation Cost) / (Shipment Size / Product.Unit Weight)
		Volume	(Transport Time * Variable Transportation Cost) / (Shipment Size / Product.Unit Volume)
Quantity-Distance	Variable Transportation Cost, Distance Traveled, Units of Flow		Variable Transportation Cost * Distance	Cost to ship per unit per distance unit
Weight-Distance	Variable Transportation Cost, Distance Traveled, Weight of Flow		Variable Transportation Cost * Product.Unit Weight * Distance	Cost to ship per weight per distance unit
Volume-Distance	Variable Transportation Cost, Distance Traveled, Volume of Flow		Variable Transportation Cost * Product.Unit Volume * Distance	Cost to ship per volume per distance unit
Quantity-Time	Variable Transportation Cost, Transport Time, Units of Flow		Variable Transportation Cost * Transport Time	Cost to ship per unit per transport time unit
Weight-Time	Variable Transportation Cost, Transport Time, Weight of Flow		Variable Transportation Cost * Product.Unit Weight * Transport Time	Cost to ship per weight per transport time unit
Volume-Time	Variable Transportation Cost, Transport Time, Volume of Flow		Variable Transportation Cost * Product.Unit Volume * Transport Time	Cost to ship per volume per transport time unit

As this information is typically determined per product, the volume and weight shipments only need to know the variable cost and the cost basis, while all other types require the weight or volume, the quantity, and the distance traveled per product.

You can use stepwise costs for Variable Transportation Cost if the Variable Cost Basis is quantity, weight or volume. For a distance-based Variable Cost Basis, such as Quantity-Distance, the stepwise cost is not automatically multiplied by the Distance. If you want to use stepwise costs with a Variable Cost Basis that includes Distance, such as Quantity-Distance, you must multiply the unit cost by distance manually, then enter this value for the Variable Transportation Cost. In the case of grouped policies that involve a distance-based Variable Cost Basis, you may want to create an input pipe with the costs already factored for distance.

If your Shipment Size is weight-based, the Unit Weight in the Products table must be greater than 0. Similarly, if the Shipment Size is volume-based, the Unit Volume in the Products table must be greater than 0. If not, Network Optimization will apply a high cost to the policy to prevent it from flowing for “free”.

Special cost basis considerations

To calculate the transportation costs for a basis other than those in the six main Variable Cost Basis types, these four main components are not enough information.

Distance costs are determined by using the distance traveled within the shipping lanes, while fixed costs are determined using a per-shipment basis. It is important to consider the following: The Fixed Shipment Cost is created as an integer variable for lanes on which fixed cost is applied. These additional integer variables can result in increased solving time and memory use.

It is important for Network Optimization to be able to approximate the number of shipments in order to incorporate these costs correctly. This is done by taking the number of units shipped, calculating the volume and weight of the units, determining the number of trips are necessary to handle that flow, and then calculating the costs necessary.

Last modified: Wednesday May 15, 2024

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