Transportation fundamentals

Transport moves goods between every stage of the supply chain, and it trades speed against cost. The main modes, roughly from cheapest and slowest to fastest and dearest:

• Sea: huge volumes at the lowest cost per tonne, but slow and port-dependent.
• Rail: efficient for heavy goods over long distances, such as cement, steel and containers on dedicated freight corridors, but needs road legs at both ends.
• Road: flexible and door to door; it carries most freight in India.
• Air: fastest and most expensive; used for urgent, light, high-value goods such as phones, medicines and spare parts.

Road freight is bought in three main sizes:

• FTL (full truckload): you hire the whole truck; cheapest per unit if you can fill it.
• LTL or PTL (less than or part truckload): you share a truck with others; you pay more per unit but less in total for small shipments, and it’s slower because of extra stops and handling.
• Parcel/courier: single boxes through a carrier’s network, used for e-commerce.

A few factors drive freight cost: distance, weight and volume (light, bulky goods fill a truck’s space before its weight limit), lane balance (if trucks return empty, someone pays for the empty return or “backhaul”), fuel, tolls and waiting time, and service requirements such as delivery windows or temperature control.

Faster modes cost more freight but less inventory: goods spend less time in transit and smaller safety stocks are needed. The right mode balances both, not freight alone.

Weight, volume and chargeable weight

Carriers charge for whichever limit a shipment uses up first. For parcels and air freight this is formalized as volumetric (dimensional) weight: length × width × height in centimetres, divided by a factor set by the carrier (5,000 is common for courier services). A 60 × 40 × 40 cm box weighing 8 kg has a volumetric weight of 96,000 / 5,000 = 19.2 kg, so it is charged as 19.2 kg. Light, bulky products pay for air.

Full truck or part load?

A part load is priced per kilogram; a full truck at a fixed price per trip. If part loads cost ₹8 a kg and a 9-tonne truck costs ₹30,000 for the trip, the break-even is 30,000 / 8 = 3,750 kg. Above that weight, hiring the whole truck is cheaper, even if it leaves half empty, and it is usually faster too, with no intermediate stops or handling.

What a truck trip costs

Because so much cost is fixed or per day, idle trucks and long waits at docks are expensive, and carriers price that risk into their rates.

The empty trip home

A carrier who drives Mumbai to Delhi loaded and returns empty has to recover the cost of both legs from the loaded one. Lanes with plenty of return freight (backhaul) are cheaper; lanes where trucks usually come back empty are dearer. Shippers who can offer return loads, or combine lanes into round trips, get better rates.

Three economies of transport

• Economies of scale: cost per tonne falls with shipment size (full truck against part load, a train against trucks, a large ship against a small one).
• Economies of distance: rates per kilometre fall with distance, because loading, unloading and paperwork are spread over more kilometres. That is why rail and sea compete best on long hauls.
• Economies of density: a carrier with many shipments in an area can fill vehicles and plan routes more efficiently, which is the basis of parcel networks and milk runs.

India’s logistics push

Logistics costs have long been a competitiveness concern for India. A 2023 study by the National Council of Applied Economic Research estimated them at roughly 8–9% of GDP. Policy responses include:

• National Logistics Policy (2022) and PM Gati Shakti, a national master plan for coordinated infrastructure planning across ministries.
• Dedicated freight corridors: the Eastern and Western corridors give freight trains their own tracks, with double-stack container trains on the Western corridor.
• Digital systems: GST and the e-way bill removed state border checkpoints, and FASTag electronic tolling cut waiting at toll plazas.
• Multimodal logistics parks, coastal shipping and inland waterways, to shift heavy flows off roads.

These change the cost and reliability of each mode, so mode choices made a few years ago may no longer be the best ones.

Choosing partners

Companies rarely run all their own transport. 3PLs (third-party logistics providers) supply transport and warehousing services; 4PLs manage the whole logistics network on a company’s behalf, coordinating several 3PLs. Freight forwarders arrange international shipments across modes and handle documentation.