Transportation charge refers to the cost of storage and care of physical products, including physical storage, insurance, interest rate futures, and opportunity costs. Freight forwarding examples include grain storage facilities and insurance coverage. Any cost related to proper maintenance of the product is considered a transportation charge.
Sometime referred to as transportation cost, a transportation charge has to do with the charges associated with the storage and care of physical products. This cost of caring for physical products can include such important factors as physical storage, insurance, interest rate futures generated by the products, and opportunity costs. In addition to these typical costs associated with caring for a product, other additional charges may also be included in the total charge.
An illustration of how freight forwarding works can be found in the grain example. Since grain is a valuable product that is subject to decay, it is often necessary to take measures that extend the useful life of the asset. One of the central means of preserving grain is physical storage in a silo or other facility that helps minimize the impact of temperature and moisture on grain. This means leasing or building the storage facility, as well as installing systems that will keep the grain in optimal condition.
Along with the physical facilities that protect the grain, there is also the need to plan for some form of protection in case the silo is damaged or the weather controls fail. This often comes in the form of insurance coverage. Premiums paid to maintain grain insurance qualification are part of the total charge.
The resources that go into caring for a commodity are often generated by assuring investors that they are willing to cover the costs. Meanwhile, those resource investments are often generated with the expectation of a return. This return is usually in the form of interest earned on the invested funds. Any interest paid to investors is considered part of the cost of maintenance.
Essentially, any other cost that can be directly related to the proper maintenance of the product can be properly identified as a transportation charge. As long as the basic product generates enough revenue to cover all associated costs and still generate a net profit, the product is generally considered worth retaining. However, once a product stops covering the full charge, investors typically choose to withdraw support and pursue other opportunities.
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