Modes
Ocean, rail or air: how to actually calculate the mode choice
Rate per kilo is a poor criterion. What matters is the cost of frozen capital, the risk of a stock-out and the full landed cost per unit on the shelf.
Published 6 min read
The question «which is cheaper» is almost always framed wrongly. Cheaper on freight does not mean cheaper overall. The right question is: which scheme delivers the lowest full landed cost per unit, accounting for the cost of money and the risk of lost sales.
Three numbers you must calculate
- Freight and related charges per unit — the easy part, everyone counts it.
- The cost of money in transit: purchase value × your cost of capital × transit time. On a 100,000 dollar consignment at 20 % a year, every ten days in transit costs about 550 dollars.
- The cost of a stock-out: the margin you will not earn if goods arrive after the demand peak. For seasonal categories this often exceeds the freight itself.
| Criterion | Air | Rail | Ocean |
|---|---|---|---|
| Door-to-door transit | 2–6 days | from 18 days | 35–45 days |
| Relative cost | ×5–6 | ×1.5 | ×1 |
| Minimum lot | from 5 kg | from 1 m³ | from 2 m³ |
| Predictability | high | medium | medium |
| When it pays | stock-outs, season, high-value goods | regular purchasing | volume, low margin |
The practical answer: split the flow
Mature importers almost never pick a single mode. The working pattern is 70–80 % of volume on rail as the base flow, with 20–30 % on air as a buffer for demand peaks and urgent SKUs. Ocean joins for large homogeneous consignments where timing is not critical.
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