Distribution cost definition
/What is Distribution Cost?
Distribution cost involves those expenses related to the transport of goods. This cost covers various stages in the supply chain, from warehousing and transportation to handling and packaging. The distribution cost for a business can be substantial when the units shipped have a high cubic volume, goods are perishable, or when customers are located in distant areas.
Distribution cost management is critical for companies to remain competitive, as high distribution costs can reduce profit margins. Strategies to optimize distribution costs include consolidating shipments, choosing efficient transportation routes, and automating order processing.
Examples of Distribution Costs
Distribution costs may include the following:
Packaging and handling. Includes the costs for packing products securely, as well as the labor required to handle goods during transit and storage.
Transportation costs. Includes expenses for moving goods by air, sea, rail, or road. This is often the largest part of distribution costs and can vary greatly depending on fuel prices, distance, and the mode of transportation.
Warehousing costs. Includes the charges for storing goods in distribution centers or warehouses. This includes rent, utilities, and labor costs for managing inventory.
Insurance costs. Includes the premiums paid to protect goods against damage, theft, or loss during transit or while in storage.
Customs and duties. In international shipping, distribution costs may also include customs fees, import duties, and taxes.