D117/0307/2017

KENDI SHARON

BACHELOR OF ECONOMICS AND STATISTICS

ASSIGNMENT: DISCUSS FACTORS THAT INFLUENCE TRANSPORT COST IN KENYA

Factors that influence transport cost are;

1. Fuel costs

The cost of maritime and land transport and even air transport is highly related to the price of fuel since
they use fuel as their form of energy for propulsion. When the price of fuel goes up, carriers are required
10 to increase their prices or otherwise take some losses. The rising costs of fuel affect the whole industry in
that if it costs more for the freight carrier to transport goods, the shipper is charged more to transport
those goods to make up for the increased costs

2. The labor market for commercial drivers

If the wages increase and competition among carriers for truck drivers can have an upward impact on the
15 costs of transportation. When older drivers retire, carriers may struggle to find operators for their
vehicles. Recruiting new drivers as an exercise that may be difficult, tough and requires a different class
of driver license which takes longer to be certified.

3. Government regulation

The transportation industry is no exception when it comes to government regulations. Regulation directly
20 impacts the freight industry, for example, governments often sets maximum driving hours for commercial
operators like of current the imposement of curfew. As regulations increase, trucking companies are
forced to increase shipping costs in order to avoid losses. The Kenyan governments uses the National
Traffic and Safety Authority to impose its regulations and the transportation industry feels the impact
because this regulatory authority takes drivers off the road which increases costs since it lowers lead time

25 4. Vehicle capacity

Some trucking companies operate an older, smaller fleet. While these trucks are readily available because
they are many, due technological change and inventions, the latest and newest trucks have been designed
to maximize storage space which allows a truck to split space even further. This implies that if a company
uses older vehicles the transport cost will be high while one that has the latest vehicles in its fleet, it will
30 lower the cost of transportation

5. Nature of product
 The nature of a product in transport can be determined by the required packaging, special handling,
bulkiness and perishability. For example, the cost of transporting coal is low that that of transporting
fruits or fresh flowers as it requires rudimentary storage facilities and can be transshipped using
rudimentary equipment. There are goods that require higher safety for example when shipping a vehicle.
5 Such goods need to be insured while shipping them and these insurance costs rises the transport costs.
Also when it comes to passengers, they require comfort and amenities especially if travelling over long
distances like from Nairobi to Mombasa. These amenities have a cost which increases transport costs

6. Infrastructures and modes

The efficiency and capacity of transport modes and terminals have a direct impact on transport costs. For
10 example, poor roads will cause higher wear and tear to vehicles so requiring maintenance after every trip.
These frequent repairs raise the transport cost. Also poor infrastructure will imply delays.

7. Competition

This is all about the levels and stiffness of competition in the environment that transportation takes place.
Transport services taking place in a highly competitive environment transport cost is lower as compared
15 on where the market is oligopolistic or monopolistic

8. Demand for freight

Pricing in transport depends on the volume of product being shipped by operators. If the capacity is
limited, operators will sell limited space at a premium and this will increase transport cost

9.Security

20 This mainly occurs differently according to the type of goods being transported. The higher the value of
the goods the higher the risk of theft and robbery and therefore you will require to hire professional
security guards to protect your goods and this will higher the transport cost

10. Insurance

Its a Kenyan government regulation that all vehicles must be insured. You may require extra insurance
25 apart from the basic that the government requires and this extra insurance will depend on the mode of
transportation you are using or the type of goods being transported and this will make a significant
contribution to the cost of transportation.

30