Factors That Affect Transportation Costs Essay

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Updated: Feb 28th, 2024

Introduction

One of the main tasks of financial management is to control the targeted expenditure of financial resources. Of particular importance is the creation of a mechanism for effective cost management, the improvement and planning of the cost system, the search for ways to reduce them, and the achievement of transparency in financial results. In a crisis, this issue is highly relevant when each enterprise develops its anti-crisis measures, for example: reducing the level of production costs, forced vacations, declaring downtime, reducing employees, and more.

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In addition, one of the conditions for increasing the company’s profitability is the determination of an economically reasonable level of cost in terms of variables and constants, as well as the maintenance of a unified methodological approach to accounting, formation, planning, and analysis of the level of income and expenses. The transportation costs are highly dependent on the current state of three main factors, which are agency costs, usage costs, and community costs.

Agency Cost/Operators Facility Costs

Capital Costs

Capital costs are among the primary factors influencing transportation costs through agency expenditures. Budgeting in a transport company is one of the priority areas of company management and is the leading technology of financial cost planning. Cost management is the main tool in organizing the production activities of any transport company (Okdinawati, Simatupang, & Sunitiyoso, 2017). The costs of the provision of transport services form its capital cost.

They are reimbursed in each production cycle from the proceeds received. At constant prices and different fees for the provision of services, under similarly equal conditions, the size of the profit of the transport company and the level of profitability depends. A prerequisite should be the repayment of expenses. The cost of the final service is affected by the loss of acquiring materials, depreciation of fixed assets, labor costs, expansion and modernization of the enterprise, social programs, and many other needs due to the income received from the sale of services and other activities. Moreover, profitability is a prerequisite for the sustainable existence of a transport company.

Fixed Facility/Operating Costs

Regular operating costs are another key element of agency costs. All actions taken by the management of the company should be carried out with the awareness of the risk they have suffered, in which the accuracy of the calculations is strategic. Making a profit, the transport company has the opportunity to pay for its obligations, expand the list, improve the quality of services provided. Enterprises that are strictly guided by the implemented cost accounting system are profitable and successful in modern market conditions. All operating costs incurred are reflected in the cost of the services provided.

The management of the transport company should keep abreast and measure the amount of cost and profit received from the sale of services (Sinha & Labi, 2011). After conducting such a comparative analysis, the picture is clear: either the company chose the right economic policy or not. The positive dynamics of profit and profitability will indicate the correctly planned financial plans for the transport campaign.

Operators Usage Cost

Vehicle Operating Cost (Gas)

The most important cost of a vehicle’s operation process is its fuel expenditure. The cost level of the transport company provides an assessment of the degree of efficiency of using not only financial resources but also the fuel consumption process as a whole. The economic ability of the transport company is a regulator of the costs incurred in the production process and certain results from its financial and managerial activities. Positive for the actions of the transport company is an increase in the volume of services provided while reducing its cost (Guajardo & Ronnqvist, 2015). It is the increase in efficiency, the desire to get the maximum result at minimum cost, which is a component of the economic progress of the transport company.

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Facility Usage (Licenses, Permits)

Transportation costs also include the expenses on various certifications, such as permits and licenses. For the most accurate accounting of the costs of the transport company, the management raises the question of the correct choice of the most justified option for grouping costs, both by economic elements and cost items, such as permits. The grouping of the expenses by industrial parts is carried out in transport companies by the uniformity of their commercial content. Economic analysis in the cost management of a transport company involves a review of the dynamics of all costs for the provision of transport services (Tsao, Zhang, & Chen, 2015). In turn, this will allow the company management to determine changes in the cost capacity of the enterprise.

Delay and Travel Costs

Moreover, there are a number of time-restraining and out-of-schedule factors that directly impact transportation costs, such as delays and travel costs. For the purpose of effective accounting and planning, the analysis of direct and indirect costs at the transport company should be carried out regularly. This should be done in order to identify possible reserves to reduce costs for individual cost items (Okdinawati et al., 2017). The separation of the expenses into direct and indirect will allow management to keep records and form the full cost of transport services. The wider the list of services provided by the transport company, the higher the indirect costs.

Community Costs

Air Pollution Costs

Currently, the development of the environmental crisis has generated a number of problems associated with the deterioration of the quality of the human environment. These problems continue to develop as a result of industrialization and urbanization of a person’s lifestyle, depletion of energy and raw materials. This leads to the destruction of many species of plants and animals, to the negative genetic consequences caused by environmental pollution. The influence of transport on environmental pollution and its role in urban air pollution is noted in many works by many authors.

For a long time, industrial enterprises, which were sources of sulfur dioxide, nitrogen oxides, and soot emissions into the environment, were considered as the main atmospheric pollutants in large cities (Qu, Bektas, & Bennel, 2016). Transport is an important environmental problem today, largely polluting atmospheric air, soil, water, plants, and agricultural products, which is one of the powerful sources of accumulation in heavy metals, plant and animal life. Transport pollutes the environment with emissions of exhaust gases, soot, aerosols.

Noise Pollution

Noise pollution is an excess of the natural level of the noise background or an abnormal change in sound characteristics: frequency, sound power, etc. Noise pollution leads to increased fatigue of humans and animals, lower labor productivity, and physical and nervous diseases. Thus, noise pollution is an annoying noise of anthropogenic origin, disrupting the vital activity of living organisms and humans (Qu et al., 2016).

The main source of noise pollution is vehicles – cars, railway trains, and airplanes. Thus, these inconveniences incur a certain cost on the transportation conducting unit. The main role in the formation of budget indicators is assigned to departments and services of the enterprise, which, according to the budget policy, are called responsibility centers. Guided by financial rules, responsibility centers plan costs, both in the short term and long-term. The budgeting system helps to identify reserves, which makes the work of the entire transport campaign more efficient. Transport companies, strictly following the implemented cost accounting system, in modern market conditions, are profitable and successful.

Other Environmental Costs

Furthermore, there are a number of additional environmental costs associated with transportation optimization. At transport enterprises with a complex organizational structure, there is a special cost structure in the direction of increasing the share of indirect costs in it. This, in turn, complicates the process of allocating indirect costs to their facilities. In this case, it becomes necessary to use the distribution coefficients of indirect costs. A positive effect of cost management at the transport company is expected with a systematic approach to solving these problems (Guajardo & Ronnqvist, 2015). With the successful use of the cost management system at the transport company, it is possible to determine the most profitable investment opportunities, reduce unproductive costs, and identify available resources to reduce costs.

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Conclusion

In conclusion, one of the main problems of the management of the transport company is the problem of the cost management process, which is influenced primarily by agency costs, operator usage costs, and community costs. To ensure a high income, it is necessary to identify cost centers and profit centers at the transport company and organize a system of interaction between them. To do this, it is required to approve the internal prices for transport services and services that the enterprise units provide to each other. Profit centers can be units of the transport company, in which it is easy to compare costs with the proceeds.

The cost centers of a transport company are, for example, accounting, the department of the chief power engineer, and the department of expertise and control. In the above units of the transport campaign, it is difficult to determine the result of their participation in the cost system.

References

Guajardo, M., & Ronnqvist, M. (2015). A review on cost allocation methods in collaborative transportation. International Transactions in Operational Research, 23(3), 371-392.

Okdinawati, L., Simatupang, T. M., & Sunitiyoso, Y. (2017). Multi-agent reinforcement learning for value co-creation of Collaborative Transportation Management (CTM). International Journal of Information Systems and Supply Chain Management, 10(3), 1-12.

Qu, Y., Bektas, T., & Bennel, J. (2016). Sustainability SI: Multimode multicommodity network design model for intermodal freight transportation with transfer and emission Costs. International Journal of Production Research, 16(1), 303-329.

Sinha, K. C., & Labi, S. (2011). Transportation decision making: Principles of project evaluation and programming. New York, NY: John Wiley & Sons.

Tsao, Y. C., Zhang, Q., & Chen, T. H. (2015). Multi-item distribution network design problems under volume discount on transportation cost. International Journal of Production Research, 54(2), 426-443.

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IvyPanda. (2024) 'Factors That Affect Transportation Costs'. 28 February.

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IvyPanda. 2024. "Factors That Affect Transportation Costs." February 28, 2024. https://ivypanda.com/essays/factors-that-affect-transportation-costs/.

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IvyPanda. "Factors That Affect Transportation Costs." February 28, 2024. https://ivypanda.com/essays/factors-that-affect-transportation-costs/.

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