In any kind of trade, especially international, the mode of transportation is an important factor. It influences not only the cost of the shipment but also the profit margin of the trader who has to pay for the transportation. Hence, it is necessary that the buyer and the seller pre-decide the mode of transport and factor in an estimated cost for the same in their trade contract.
To ensure that you and your business partner choose the right mode of transportation, it is important to take the following factors into consideration.
Note: In international trade, specifically to and from India, air and sea are the main modes of transportation, hence in this article, we will be drawing a comparison only between these two modes.
1. Cost of Transportation: As mentioned above, cost is one of the main factors in deciding the mode of transportation as it impacts the total cost of the shipment and the profit from trade. It is important to note that along with the actual freight charges, cost of transportation also includes transportation insurance, handling charges (at various points of loading and unloading), and cost of inland transportation (if applicable). So if we’re to go by this one factor, then sea transport which happens to be the cheapest mode of transportation, will be the ideal choice.
For example: An exporter is supposed to export 20 tonnes of pomegranates to Malaysia. He is given a time of 25 days to complete the order. Given the perishable nature of cargo and the time stipulations, he thinks that it would be better and safer to use air transportation. So he decides to ship 1 tonne every day by the chosen airline. But, the estimated cost of the shipment ends up cutting into his profit margin, making air transport unfeasible.
He then explores the sea route, and finds that he can ship the complete quantity in one go from Mumbai, using a 20 TEU Reefer Container (refrigerated containers used for shipping perishable cargo), with a transit time of 10 days. The estimated cost by this method reduced by one-fifth of the estimate for air transportation.
After going through the costing and other formalities for finalising the mode of transport, he informs the importer that he would be using sea transport for this shipment. The importer also agreed as it would save him the time and effort to go and collect one shipment every day.
While in this case, sea transportation worked out and also turned out to be a feasible method, it may not always be the case.
Cost is an important factor in deciding the mode of transportation, but it is not the only factor. There are other factors also that need to be looked at so as to choose the best mode of transportation for the goods that need to be transported. They are:
2. Cost of Goods: Cost of the goods being transported is a also a deciding factor when selecting the mode of transportation. If the goods being transported are low-value goods then, it is preferable to go for sea transportation as it is the cheaper mode of transportation.
3. Type of Goods: The weight and size of the cargo is also an important factor in selecting the type of transportation. If you’re dealing in heavy machinery, break bulk, dry bulk, machinery spare parts, marbles and stones, and other heavy material then it is preferable to go for sea transportation.
If you’re trading in small but valuable low weight materials like gems and jewellery, medicines, other medical products and emergency supplies then air transportation is a safer option.
4. Nature of Goods: When deciding the mode of transportation, it is necessary to take into consideration the nature of goods – time-sensitivity, perishable or non-perishable, hazardous or non-hazardous, and the transportation rules regarding these products in the trading countries.
5. Importer’s Requisitions: As mentioned above, the mode of transportation, especially for goods that qualify for both the modes of transportation, should be decided in agreement with the importer so as to ensure that the trade is completed successfully.
6. Urgency: There are some goods that simply cannot be transported by air. But, for goods that can be transported by either means of transportation, the urgency of requirement is another factor that comes into play while deciding the mode of transportation. Here, if the requirement is urgent, then air transportation is a better choice, and if there is ample lead time then sea transportation would be a better option. At times, especially in case of bulk orders, exporters can also look at splitting the cargo – they can send some quantity by air to ensure that the immediate requirement is met and the rest by sea.
Sometimes it may happen that the cargo that you’re trading in will fall into more than one of the above categories. For example – the cargo can be perishable and bulky. Or it can be non-perishable, but time-sensitive.
In such cases, for selecting the mode of transportation, it is always best to take into account the factor which could affect the saleability of the cargo or negligence of which could violate any clause or requirement of the contract because of which the importer may cancel the contract or refuse to take delivery of the cargo.
To further guide you in choosing the right mode of transportation, here’s a brief snapshot of both the modes of transportation. Pick and Choose Wisely!
When in doubt consult with your service providers (shipping line, forwarder, air line, ect.,) for feasible options! Or simply register with Cogoport and get access to transparent and competitive spot rates for sea freight or speak to our customer service team to get the best feasible solution for your shipment.