In this paper, the authors studied a comprehensive study of national physical distribution costs used here was originally developed by J. L. Heskett(1962) and modified in Korean context by Oh-Kyung Kwon(1997). Using this method the authors calculated national physical distribution costs in Korea from 1984 to 1996. Unlke the major industrialized countries, national physical distribution costs in Korea showed continuous increasing trend in every senses. Using this time series data on physical distribution costs, we analysis the inefficiencies in the physical distribution and figured out the sources of these inefficiencies. The major sources of increasing physical distribution costs in Korea were (1) increasing traffic congestion measured by number of automobiles per road-kilometer, (2) increasing real wages, and (3) high interest rates. Especially, alternatives adopted by firms facing increasing traffic congestion were buying more vehicles, which in turn caused more serious congestion ever. This inefficient cycle in physical distribution area should be cut somehow in order to restore national competitiveness of Korean frims by reducing physical distributins costs.