The financial costs and benefits of sending a shirt overseas

In our ongoing series on the topic of Gifts-in-Kind (GIK) and how that resource fits into the broader work of community development, we recently posted Basic overview of World Vision’s strategy and structure and our U.S. GIK operations and responses to Response to GIK discussion and 100,000 reasons to love the Super Bowl. Continuing that conversation, today’s post covers the questions raised by a number of people, including Saundra Schimmelpfennig and William Easterly, on the financial costs and benefits of shipping shirts and the utility of those shirts to recipients.  Specifically we are addressing the following topics:

  • The cost of getting a shirt to a recipient
  • The value of a similar shirt in the recipient’s local clothing market compared with the costs for shipping a donated shirt
  • Whether the beneficiaries World Vision serves would rather receive the shirt or the cash equivalent to the cost of sending that shirt to them

Calculating the cost of getting a shirt to a recipient

In calculating the costs of managing GIK from the origin to the destination, we have categorized the components into groupings and have included both direct and indirect costs, including shipping, staff, warehousing and in-country transport. A few comments before looking at the numbers specifically:

  • Shipping costs vary widely depending on the destination and the items included in the shipment. In some cases, the costs are paid for by donors themselves. The shipping costs below are representative of actual costs for shipping shirts between October 2009 and September 2010 (World Vision’s fiscal year).
  • When GIK reaches destination countries, it is integrated into the local procurement supply chain and delivered as part of programmatic activities. In cases where costs are difficult to separate out for GIK, we have made conservative estimates.
  • We do not pay duty or other taxes for our shipments into recipient countries.

Cost breakdown of delivering a GIK shirt from a U.S. donor to a beneficiary overseas

The average cost for bringing a shirt from the door of a donor corporation based in the U.S. to the hands of a beneficiary in a destination country is about 58 cents. This cost is kept as low as it is through many cost reduction efforts including:

  • Having volunteers sort and pack the goods in our U.S. Distribution Centers
  • Receiving donated warehouse space for storing GIK in the U.S. and
  • Efficient and effective supply chain operations that maximize container utilization coupled with negotiated reduced shipment costs

In a related post, the blog “Good Intentions Are Not Enough” estimated the cost of shipping a shirt at $1.82 based on one of World Vision’s fundraising appeals, which stated that a donor’s gift will carry an impact of 11 times its face value. World Vision’s calculations for the 11 to 1 ratio include all GIK products. Products such as medicines, books, health supplies and other clothing like jackets, coats, and boots, are valued more highly than shirts and partly account for the difference between Good Intention’s estimate and our calculation for shirts.

Estimating the cost of a similar shirt in the local market

A quick survey of some of our staff overseas shows that the cost for medium-quality shirts ranges between $2-$3 (Myanmar) and $3-$8 (Mongolia) each. Comparing the World Vision GIK costs shown above and the most conservative estimate for local purchase of $2, there would be a difference of $1.42 per shirt. In this case, a person in need of the shirt would theoretically save $1.42 that could then be used to purchase other needed goods in the local market.

Assessing whether program beneficiaries would prefer shirts or the cash equivalent of what is spent sending shirts to them

The final question is more difficult to answer: if we asked someone in a developing country if they would like us to give them $0.58 or a shirt, what would their response be? The answer would depend on the individual’s economic preferences, which are likely based on their immediate needs.

World Vision’s community development model is to build long-term relationships in a community and to work with community members through the stages of development to reach a level of sustained well-being for children and families. Almost all of our staff members come from the countries where they work and, in many cases, they live in the communities they serve.  It is these people who are best placed to talk with children, parents, and community members to understand their needs. World Vision U.S.’ role is to then support these staff members and communities using the technical, financial, and material resources available to us. GIK is one resource in the system of development that allows us to meet targeted needs in the field and to free up scarce cash resources for other strategic uses.

Consider an example of how GIK, integrated properly, frees up cash for more strategic use: In 2009/2010 a dzud or severe winter storm hit Mongolia killing more than 6 million livestock. Eleven snow storms blanketed the country and temperatures fell to between -22 and -40 degrees Fahrenheit.  According to the Mongolian government, 8,711 herder households lost all of their livestock and 32,756 households lost more than 50 percent of their livestock. More than half a million people were affected.

The Mongolian government, World Vision, and other major international and local organizations coordinated their responses and attempted to find financial resources to provide relief to the most affected families. In the middle of the Haiti earthquake response, however, it was extremely difficult to focus donors’ attention on a distant crisis.

One international NGO provided a package of goods to 1,800 herder households that included two winter coats and two pairs of boots. The items, purchased with cash, consisted of coats and boots totaling approximately $75,000.  This purchase made up 17 percent of their overall supply cost for the response.

In comparison, as part of World Vision’s response, more than 2,000 of the herder families also received two winter coats and two pairs of boots provided through GIK donated by companies based in both the U.S. and Korea. In addition to these, World Vision provided the families a child’s sweater, t-shirts, soaps, and medical supplies, all from GIK. These GIK goods were shipped to Mongolia at an approximate total cost of $10,000. This freed up cash to also procure food, first aid kits, animal fodder, winter fuel, and micronutrients for the children.

World Vision has a long-term presence in many of the nomadic communities affected by the dzud and is working with herders on diversifying their incomes, starting savings accounts, and improving livestock management in order to increase the quality and value of livestock while decreasing the size of their herds. But these efforts take time. In this case, the critical need for basic supplies demanded an immediate response.

Thank you for the dialogue and the opportunity to discuss this issue with a focus on the needs of the communities where we serve. We welcome this conversation and look forward to continuing the dialogue. In the next post, we will explore how World Vision integrates resources, including GIK, into our overall relief and development programming.

Read our latest updates to this discussion GIK and development programming, Basic overview of World Vision’s strategy and structure and our U.S. GIK operations, and Response to GIK discussion.

Read more on the World Vision Blog about: Gifts-in-kind

    Comments

    In your mongolia, how long did it take to ship the coats and boots from the US? How immediate was this response?

    Z –
    In this case, World Vision had prepositioned these GIK goods in anticipation of a difficult winter so we were able to respond immediately after the needs assessment. In general, though, it usually takes about 60 days for supplies to reach Mongolia by ship, clear customs, and reach our office in Ulan Bator.
    Randall, International Programs

    Please tell me you haven't just compared the costs of transporting 100,000 shirts with the costs of buying a single shirt in the local market.

    Thanks for the post that really breaks down the costs to you to ship goods overseas. One cost that I don't see here is the cost to local traders from the "free" goods that are dumped into the marketplace. Have you analyzed the economic effect of traders and other businesspeople who had purchased clothing who now must compete with free items or who don't purchase because they know free items are available? There are losses here for employment, future investment, tax revenues, etc. that don't appear to be captured in your model. It would be great to know your opinion on this.

    thanks, Randall!

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