Carrying Cost

Carrying Cost refers to the various expenses incurred by a company for holding assets such as inventory or accounts receivable, including storage fees, insurance premiums, interest on tied-up capital, spoilage, and risk of price reduction due to obsolescence. In foreign trade, it is commonly used to evaluate inventory management efficiency, the cost of tied-up capital under letters of credit or credit sales terms, and cost accounting when choosing trade terms such as FOB and CIF. Use cases include: calculating safety stock levels, comparing the hidden costs of different payment methods (e.g., T/T vs. D/P), and deciding whether to accept a buyer's request to extend payment terms. Note: Carrying cost is usually estimated as an annual percentage of inventory value (e.g., 15%-25%) and must be distinguished from Ordering Cost, which is the expense incurred each time an order is placed; in contrast to Stockout Cost, carrying cost emphasizes the price of 'holding more.' Foreign trade practitioners should incorporate it into Total Cost of Ownership (TCO) analysis to avoid focusing only on purchase unit price while ignoring capital tie-up and storage costs.