Transportation provides time and place utilities - at a cost. But the cost is less than the value added to products by moving them or there is little reason to ship in the first place. Transporting can help achieve economies of scale in production.
If production costs can be reduced by producing larger quantities in one location, these savings may more than offset the added cost of transporting the finished products to customers. Without low-cost transportation, both within countries and internationally, there would be no mass distribution as we know it today.
Transporting costs may limit the target markets a marketing manager can consider. What really interests customers is that shipping costs increase delivered cost. Transport costs add little to the cost of products that are already valuable relative to their size and weight. But transporting costs can be a large part of the total cost for heavy products of low value - like many minerals and raw materials. Here are nine examples of such products, with their respective transporting costs as a percent of selling price in ( ):
- Sand and gravel - (55%)
- Bituminous coal - (42%)
- Cabbage - (38%)
- Iron ore - (20%)
- Manufactured food - (8%)
- Chemicals and plastics - (6%)
- Factory machinery - (4%)
- Electronic equipment - (3%)
- Pharmaceuticals - (1%)
Government often plays an important role in the development of a country's transportation system - including its roads, harbors, railroads, and airports. And different countries regulate transportation differently, although regulation has, in general, been decreasing.
Until the 1980s, for example, the U.S. government had a lot of control over transporting. Government agencies approved routes, what services could be provided, and rates. Because rates were regulated, carriers typically did not compete on price. And some carriers were approved to carry some products but not others.
All of this caused higher prices and much waste. For example, the rules required a carrier that took Cummins diesel engines from the Midwest to California to use an extra long route going out - and to make the return trip empty. Other carriers took California vegetables to the Midwest - and they too went home empty.
Today, most of the rules in the United States (and in many other countries) have been relaxed. For example, as part of their move toward unification, most European countries are dropping their transporting regulations. The tunnel constructed under the English Channel is a dramatic example of the changes that took place. The "chunnel" allows trains to speed between England and the rest of Europe.
As regulations decreased, competition in the transportation industry increased. As a result, a marketing manager generally has many carriers in one or more modes competing for the firm's transporting business. Or a firm can do its own transporting. So knowing about the different modes is important, and this will be taken up in my succeeding articles.
Abstract: Transporting is the marketing function of moving goods. While it can be costly, and that governments may influence it, transporting aids economic development and exchange.
