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Transportation absolutely does affect the cost of producing a product. Why do you think that so many steel mills were located at Pittsburgh, Birmingham, Bethlehem, etc. It was so that they could be close the the sources of the raw materials needed to produce the steel. It is far less expensive to pay for shipping for one ton of steel than it is to pay for the shipping of twenty tons of ore, five tons of flux, and 5 tons of coke. Those mills that located around the great lakes did so because of very inexpensive shipping available with the lake boats and so elected to be close to the customers. <br /> <br />The same is true for oil refineries. The majority of them are in Texas and Louisiana because that is where much of the crude oil is produced. One gallon of crude makes significanly less than one gallon of gasoline, diesel or any other product. It is less expensive to ship the smaller amounts of the finished product than the crude that went into them. Those refineries that are on the East and West Coasts are either near smaller fields of crude production or are located at deep sea ports to use supertankers which deliver very inexpensively. <br /> <br />Transportation is another consumable just like electricity, natural gas, or waste disposal that must be carefully managed to keep the costs in control. Any manufacturer that does not pay close attention to thier transportation costs will be out of business very quickly.
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