When to use air, ocean, truck, and rail?
While an Excel model could be tricky the conceptual way to think about air versus ocean freight includes:
- Calculate the dimensional weight versus physical weight
- Price the cost of freight for both air and ocean
- Factor in the leadtime savings of reducing ~20+ days. This includes the cost of product times the cost of capital (assume 10%) times number of days 20/365.
- The cost of capital or another factory may need to be added if you expect the sales price to decrease while holding the inventory.
- The more expensive the inventory cost the more likely air freight may make more sense.