(Transportation Management Article - Continued)
Cross believes distribution centers built or leased within the direct property of these inland ports can offer substantial overall savings in many cases due to lower drayage costs, even if the lease rates are higher.
For example, The Allen Group has worked to develop a flat drayage cost of $100 from Union Pacific’s intermodal hub in the Dallas Logistics Hub to any warehouse facility also in the park– a rate that may soon fall to $75.00.
While Cross obviously has a vested interest, he says he sees companies often being attracted to slightly lower lease prices per square foot outside the park, but not fully or adequately considering the impact of drayage costs on the total cost. Either they just aren’t looked at in detail in the analysis, or companies make a decision based on current goods flow, which may have little offshore container traffic today, but which could surge for a company quickly if it expands its offshore or global sourcing programs.
SCDigest believes that last point is especially important. A low level of inbound ocean containers would mean drayage costs differences between site options have little impact on total site logistics costs. But if imports rise substantially, making containers a significant part of the total inbound goods flow, what seemed like the best choice at the time might not seem so smart later.
Companies can often use estimate drayage costs to compare total effective lease prices for DCs. For example, consider facility A, which has a lease cost of $3.85 cents per square foot for a 300,000 square foot DC, and brings in 5000 containers a year at a drayage cost of $125 per container.
As shown in the table below, its effective cost considering both elements is $5.91 per square foot. Another DC site with the same square footage and container flow, but with a lower lease cost of $3.50 per square foot but drayage costs of $150 per container is actually the more expensive choice ($6.00 per square foot).
Lease Cost/Square Foot |
Total Drayage Costs |
Drayage Cost/Per Square Foot |
Total Effective Costs per Square Foot |
$3.83 |
5000 X $125 = $625,000 |
$625,000/300,000 = $2.08 |
$3.83 + $2.08 = $5.91 |
$3.50 |
5000 X $150 = $750,000 |
$750,000/300,000 = $2.50 |
$3.50 + $2.50 = $6.00 |
Obviously, this is a simplistic analysis, and there are other cost and non-cost factors to consider, but companies need to ensure current and future/potential drayage costs are fully considered in any economic analysis.
Have you seen drayage costs being poorly considered in site selection decisions? How have you balanced facility, drayage, speed and other factors in considering site locations? Let us know your thoughts at the Feedback button below. |