Contract Logistics & Warehousing – Pricing & Costing Mechanisms

3PL Logistics Service Providers are many in the market. There are players from Multi National background, regional players, local companies and individually managed business organizations.

Warehousing business, on the other hand, can flow through warehouses, consolidation and merging centers, finished goods stocking points, forward locations, raw material warehouses, JIT/VMI operations, Bonded warehouses, in plant warehouses, etc. depending upon the business requirement.

In this section of the article, we proposed to cover pricing mechanism aspects of a small warehouse like a consolidation center or finished goods flow through warehouse that need not be dedicated to the buyer alone and can be a shared facility.

Normally the bigger operations involving inventory management etc. are considered stand alone facilities and costing is worked out for the entire project, and this part of discussion is not covered under the scope of this article.

Normally in the Finished goods supply chain or raw material supply chains, there would be a need for a warehouse facility en route to the plant or the markets. These warehouses can be consolidation centers or merging centers in case of finished goods where different components of the order or finished goods are brought in from various locations, merged and dispatched to the next leg of the network. In case of raw material supplies, there can be a consolidation center at a country level where all shipments from several buyers are consolidated and shipped out as a container load.

Such kinds of warehousing requirements may not call for dedicated facilities. Normally the 3PL service provider who manages the freight will have warehouses that are used as shared or common facilities. In few cases public warehouses are also used by the buyers as the case may be.

General cargo warehouses or shared facilities and public warehouses are warehouses that house cargo of various clients. Depending upon the clients requirements, materials can be stored per day, week or month, etc. Inventory held of each customer may not be very high.

Storage Space

Storage and space options provided by the 3PL in such cases can vary with the client’s nature of the business. In a country consolidation center, where multiple shipments are stored and consolidated, the buyer may contract a fixed space on square foot basis with specified number of locations.

In another case of a merging center, the buyer may not contract fixed space and pay on transaction basis.

Public warehouses normally rent out space in terms of per pallet storage.

Pricing

1. Fixed Price: In cases where the buyer contracts a fixed space, the costing model will be based on a fixed fee per month including cost of space, resources, infrastructure, etc.

   Even in Fixed Fee model, there are many variations in pricing models.

2. Transaction based pricing model: Wherever there is no fixed space allocation, the transactional pricing models are in vogue. Variable pricing models are many. Some of the usual methods of pricing are - Per pallet price, per unit or Kg -volumetric weight /volume price, per transaction price including price per inward, per shipment, etc.

   Normally in transactional pricing model, the buyer’s requirement will be minimum and does not call for any specific or dedicated investments. The 3PL provider normally uses his general or public facility and recovers his total cost of investment and operations on the volume or transactions.