How logistics works: carriers, forwarders, warehouses, ports and the last mile
The players between a factory and a customer, how each earns money, the units the industry uses, and the metrics that matter.
Industry brief, with a one-minute summary: Logistics and shippingKey takeaways
- Logistics companies sell the movement and storage of other companies' goods.
- Freight rate: the price to move one container (or one kg) on a route. Spot rates change weekly; contract rates are fixed for months.
- Utilization (or load factor): the share of a ship, plane, truck or warehouse that is filled.
- Transit time and schedule reliability: how long a shipment takes and how often it arrives on time.
Key idea
Logistics companies sell the movement and storage of other companies' goods. Some own heavy assets (ships, planes, ports, warehouses) and live or die by how full those assets are. Others own few assets and earn a margin by organizing the movement. Know which kind you are looking at.
- Door-to-door journey
- Shipper (cargo owner)The company that owns the goods, for example a clothing brand
- Freight forwarderBooks space, handles customs papers, organizes each step; often owns few assets
- First mile truckingFactory to port
- Origin port and terminalLoads the container onto the ship
- Ocean carrier (shipping line)Moves the container by sea
- Destination port, customs and inland transportUnloads, clears customs, moves by truck, rail or barge
- Warehouse or distribution center (often run by a 3PL)Stores, picks and packs orders
- Last mileDelivers to the shop or the consumer's door
| Player | How it makes money | Main costs | What decides profit |
|---|---|---|---|
| Container shipping line | Freight rate per container on each trade lane | Ships (owned or chartered), fuel, port fees, containers | Freight rates and how full the ships are; very cyclical |
| Freight forwarder | Margin between what it charges the shipper and what it pays carriers, plus service fees | Staff, IT, offices; buys capacity from carriers | Volume handled and margin per shipment; few assets |
| Port and terminal operator | Fees per container moved, plus storage and other charges | Cranes, yard, labor, long concessions from governments | Volume through the port and productivity |
| Contract logistics (3PL) and warehousing | Fees per pallet stored, per order picked, or cost plus a margin | Rent, labor (the largest), equipment, IT | Labor productivity and how full the warehouse is |
| Parcel and last mile | Price per parcel | Drivers, vans, sorting hubs, fuel | Drops per route (density) and failed deliveries |
| Free zone operator | Rent for land, warehouses and offices, plus service fees | Land development, utilities, admin | Occupancy and the trade flowing through the hub |
So-what
Asset-heavy players (shipping lines, ports) care most about utilization. Asset-light players (forwarders) care most about volume and margin per shipment.
Units matter. A TEU is a twenty-foot equivalent unit: one standard 20-foot container. A 40-foot container (an FEU) counts as two TEU. The largest container ships carry more than 20,000 TEU. Freight rates are usually quoted in USD per 40-foot container on a route, such as Shanghai to Rotterdam. Air freight is priced per kg, and trucking per km or per load.
Key metrics, in plain words
- Freight rate: the price to move one container (or one kg) on a route. Spot rates change weekly; contract rates are fixed for months.
- Utilization (or load factor): the share of a ship, plane, truck or warehouse that is filled.
- Transit time and schedule reliability: how long a shipment takes and how often it arrives on time.
- Port productivity: crane moves per hour, and how long a ship waits and stays at berth.
- Dwell time: how long a container stays in a port yard, or goods stay in a warehouse.
- Cost per order (warehouse) and cost per drop (last mile).
- Failed delivery rate: the share of last-mile attempts that do not reach the customer.
- Order accuracy and on-time in full (OTIF): orders delivered complete and on time.
A 14,000 TEU ship leaves Singapore carrying 5,000 forty-foot containers and 1,200 twenty-foot containers. What share of its TEU capacity is used, as a decimal?
A freight forwarder owns no ships. How does it mainly make money?
Sources for this lesson (1)
- Recognized public explanations of case-interview concepts and frameworks
My notes on this lesson
0 of 5,000 characters. Saves automatically.
Try the 2 remaining checks and drills above to complete this lesson (0 of 2 done).
Spotted something wrong or out of date? Report a mistake. We check every report and correct the page.