international physical distribution costs

The commerce in the world it’s a fundamental part for every nation thanks to this the

countries can develop themselves, generate jobs and attract strong currencies like the

American dollar but currently the high freight cost is threatening the international

distribution. During this essay it is going to be explored the advantages of the freight cost

reduction and the disadvantages of the high freight cost.

First of all, the freight cost is very sensitive to the oil price in consequence if the oil price

increases the international ship prices soar, currently this cost could be 500% the cost of the

2019 cost, paraphrasing the UNCTAD (2021) “The tariff for the rout Shanghai – Europe was

lower than one thousand dollars for 2020, to June 2021 the average tariff is around 7395

dollars)

The freight cost is a determinant in the international commerce because is one of the many

variables that put price to the goods that are imported or exported according to solunion

(2021) “some routes have seen multiply the price by five in comparation with the last three

years. This soar in the prices also affect the final price composition” if the companies cannot

ship their goods and cannot reach the market thanks to the high freight cost the final

consequence is a soaring in the final price related to a disparity between the demand and offer

finally the productor lost incentive to export this don not means that stop exporting, reduce

his participation in the international commerce because it lost the attractive.

Continuing with the benefits of a low freight cost, first, the cost reduction help to identify the

process that are not effective and could generate a soar in the cost, for example inefficient
routs may provoke delays and this is translate in additional cost but with cost reduction the

enterprise can spend more time identifying these not effective processes, another benefit

promotes savings and investing, the saving that come from the freight reduction could be

invested in another important areas like implementation of mobile technologies , acquisition

of new vehicles, capacitation for the employees among other investments.

Last but not least low cost for the freight is translate in lower prices to the final client this

incentive the demand because now is more cheaper buy international goods like oil, and raw

material, the offer because is more cheaper transport the goods to international markets and

this incentive the productor, but it is necessary to understand that despite a lower cost in the

freight helps to reduce the tariff barrier also have negative results as Jonathan Lynn said: “the

fast fall in the freight cost reflects a reduction in the shipping services demand and affect in

a negative way to the developing countries.

Conclusion

As we saw the freight is an important variable for the cost configuration in the international

markets therefore is very sensitive in relation to the international oil price, when the freight

cost is high could affect the chain supply and soar the goods prices but when it is low promote

the enterprises enter the international market, but low process in the freight has consequences

to the developing countries reflecting a reduction in the shipping services.

Bibliography

https://unctad.org/es/press-material/las-altas-tarifas-de-los-fletes-ensombrecen-la-

recuperacion-economica
https://www.reuters.com/article/negocios-transporte-costos-onu-

idLTASIE4A31US20081104

https://www.solunion.es/blog/subida-fletes-internacionales/