Have you tried placing a shipping order torestock your inventoryin the last six months? If you did, you probably had a heart attack when you saw how much it would cost.
International shipping rates are at all-time highs. Along the China-EU shipping lane,TIMEreports: “Transporting a 40-foot steel container of cargo by sea from Shanghai to Rotterdam now costs a record $10,522, a whopping 547% higher than the seasonal average over the last five years.” Between Asia and North America,Bloombergreports that “contract rates…are coming in around $2,500 to $3,000 for a 40-foot container—25% to 50% higher than a year ago…” And between China and the UK,the cost of shipping has gone up by over 350%in the past year.
The question remains: why is shipping so expensive in 2021? The primary reason for the sudden spike in the price of shipping is the world’s ongoing nemesis: COVID-19. The pandemic affected global supply chains in 2020, and shipping prices reflect that. With prices estimated to remain at these levels until 2023, both ecommerce businesses and other small businesses should consider diversifying theirfulfillment optionsto reduce shipping costs in the near term.
In this article, we’ll break down the key factors that led to the current rise in shipping prices and ways in which businesses can mitigate their shipping costs.
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There’s a Global Shipping Container Shortage
The Suez Canal Accident Had a Significant Impact
Major Ports in China Are Facing New COVID Threats—Leading to Further Delays
How Can Companies Mitigate Their Shipping Costs?
There’s a Global Shipping Container Shortage
After the world went into global lockdown in response to COVID-19, China reopened its economy faster than the US and Europe. However, the shipping containers China needed to ship manufactured goods were stuck in those two regions. This led to a shipping container shortage for China.
In January, Mark Yeager of Redwood Logisticscommented: “There are about 180 million containers worldwide, but ‘they’re in the wrong place.’”
According toTriton International, orders for new containers were canceled in the first half of last year due to the pandemic, and estimates in April show that Chinese shipping container manufacturers have been producing only 2-3 weeks’ worth of supply in the market as they try to catch up.
Every spot on an available container in China has a massive price surcharge to reflect the heightened demand in the market.Prices for new containersare now “$3,500 per cost equivalent unit(CEU, a measure of the value of a container as a multiple of a 20-foot dry cargo unit) versus $1,800 per CEU in early 2020 and $2,500 per CEU in late 2020.”
The Suez Canal Accident Had a Significant Impact
In March 2021, the shipping vesselEver Givengot stuck in the Suez Canal and blocked the entire waterway for a week. This accident caused shipping charges to shoot up even more.
Although the Canal isn’t blocked anymore, the blockage caused delays for ships that were on their way to their destinations. Ports are already dealing with delays in berthing and dispatching cargo ships—further delays from incidents like these put more pressure on freight rates.
Major Ports in China Are Facing New COVID Threats—Leading to Further Delays
If a shipping container shortage and a freak shipping accident weren’t enough, COVID-19 case spikes continue to be a threat around the world, including in theUSAandJapan.
This latest uptick has been linked to the Delta variant, which originated in India and was detected in early June in Guangdong province in China, which is a hub for24% of China’s total exports.
Over 100 positive COVID-19 cases have been reported in Guangdong cities, likeGuangzhouandDongguan, and the Chinese government has instituted lockdowns to contain this recent outbreak, which affects shipping within China and to and from the country.
All of these delays have a significant impact on waiting times at ports. In Yantian port in Shenzhen, waiting times for vessels to berth have jumped from0.5 days to 16 days.
How Can Companies Mitigate Their Shipping Costs?
Businesses aren’t at the mercy of ocean shipping companies—they can choose a different mode of transport, add new manufacturing hubs, or even handle delivery themselves where possible.
Typically, air freight options are faster butmuch more expensivethan ocean freight options. But since the price of ocean shipping is at an all-time high, air freight may currently be a more viable shipping option for your business. Apparel retailers likeLevi Strauss and Tommy Hilfigerare choosing air freight to mitigate their costs.
Even though you may not save too much money with thisshipping method, your inventory is guaranteed to reach you much sooner, which means you can deliver to your customers faster.
Move your manufacturing locations
China is the global manufacturing powerhouse, but it’s now become the global shipping bottleneck. The ongoing crisis is a lesson that businesses shouldn’t be entirely reliant on one country for their manufacturing needs and should instead move their manufacturing locations to mitigate risk.
Look at outsourcing your manufacturing outside China, preferably closer to your primary markets. One viable manufacturing alternative to China is Vietnam. A2017 reportshows that labor wages in Vietnam for that year were $2.55/hr, while they were $5.21/hr in China.
Go for in-house or self delivery where you can
If you have local manufacturing operations or your customers are close to your site of manufacturing, consider going for in-house orself-deliveryof your products.
In-house deliveryrequires more capital up front to set up your own delivery infrastructure, butit’s cheaper in the long run because you’re not beholden to shipping price fluctuations. It’s not just ocean freight; third-party logistics providers (3PLs) that offer multi-modal logistics likeFedExandUPSare constantly increasing their shipping rates, which affects your bottom line.
You might not be able to completely take over your delivery process right away. On-demand courier services likeGoSharehelp you deliver pallets and less-than-truckloads (LTLs) quickly without having to invest in your own delivery fleet. By working with them, you can refine your internal processes to make a smoother transition to a full in-house delivery model.
When you go for in-house delivery, you need a system that can help you manage your delivery operations. OptimoRoute does just that:
Plan and schedule deliveries up to five weeks in advancewith OptimoRoute’sWeekly Planning feature. You can plan routes for hundreds of orders in seconds by simply uploading your delivery addresses and your delivery requirements—OptimoRoute’s system takes care of the rest.
Customize your routes by balancing workloadsfor each of your drivers. You’ll be able to ensure that each of your drivers has a similar number of orders or hours in the field.
What if your delivery routes span multiple days? OptimoRoute offersMulti-day Long-haul Routesfor these situations.
Live Tracking gives you visibility into exactly where your driver is throughout their delivery. You can see if a member of your team is delayed or has run into issues in the field.
On your customer’s end, OptimoRoute offers a number of features that upgrade their delivery experience.
Delivery time windowsalign your routes with your customer’s preferred hours of delivery.
Realtime Customer Notificationsinform them where their delivery is via email and text.
Proof of Deliverygives them confirmation that their delivery has arrived at their location.
Shipping Prices Aren’t Getting Cheaper—It’s Best to Be Prepared
INGestimates that new container capacity won’t bring shipping prices down until 2023. So as a small business, you need to think about the long-term health of your business and act accordingly. It’s important to keep you customers satisfied to maintain a high level of trust.
To improve customer trust in your business, check outthis article.
If you choose to go the self-delivery route, OptimoRoute is here to make the transition easy for you. Our logistics management software is easy to use, and it’sfree for 30 daysto help you get started!
It is estimated that freight rates will be corrected and will drop by 30-40% in 2022. The fact that freight rates drop is good news, especially for importers. However, it is highly unlikely that they will drop back to the 2019 level.
Shipping companies are reportedly passing on costs incurred by holding containers at ports for longer through extra fees. Companies must then either absorb the increase in costs or pass it on to consumers, which might make their price points uncompetitive.
Where Have all the Containers Gone? The container shortage began during the early days of the coronavirus. Shortly after the WHO declared COVID-19 to be a pandemic and manufacturers shuttered factories in response, many containers normally used to ship manufactured goods stopped moving.
Unfortunately, shipping in 2022 has been severely affected by massive delays. These problems are due to several factors, including increasing trade tensions between the U.S. and China and the dwindling qualified workforce to operate the ships. Global supply chains have had a rough time since 2020.
Negotiating lower shipping rates is typically as simple as establishing a relationship with the account manager of each of these shipping carriers and asking if you can discuss a discounted shipping rate for your account.
USPS is the cheapest shipping for U.S. small businesses: Especially with Shippo. For shipments from the United States, the United States Postal Service (USPS) is likely your best bet for cheapest shipping.
Experts are now saying that it will be at least the first quarter of 2022 before shipping lead times will stabilize. Why will it take so long? There are three major reasons, says journalist Rachel Premack, who has reported extensively on the crisis for Business Insider.
And to make matters worse, experts are predicting that things are about to get worse, and they may not get better until 2023. Surprising no one, it all started with COVID-19.
What's Behind the Global Supply Chain Crisis? Supply chain problems emerged during COVID-10 lockdowns due to shifts in demand, labor shortages and structural factors.
The primary reason for this increase is the world's nemesis: COVID-19. The pandemic has destroyed the global supply chain since 2020. And the recent rise in shipping prices is a direct reflection of that.
Chinese products are inexpensive due to mass production and low labor costs which get shipped all around the world. In the past, China has made a huge investment in building required infrastructure such as electricity generation, ports, highways, etc. to increase productivity.
Shipping rates are still falling, in another sign that a global recession may be coming. Freight rates have continued to fall as global trade volumes slow as a result of shrinking demand for goods, the latest data from S&P Global Market Intelligence showed.
While in September 2021, it cost over $20,000 to ship a container from China to the United States West Coast, in June 2022 the prices is half that at $9,500.
Divide the total transportation costs by the total sales on the transported products to determine the percentage costs for transportation. Include all transportations costs in this equation, such as payroll for transportation staff, fuel use, insurance costs and maintenance costs.
Not only is it possible to negotiate these contracts, but it's also vital. Businesses can negotiate special rates with UPS or FedEx based on their specific shipping habits and needs. With UPS and FedEx, you'll most likely be dealing with small parcel shipping, typically considered any packages under 70 pounds.
The prices may depend on the route but, on average, UPS overnight shipping solutions are cheaper than the ones offered by FedEx. Both services are performed by air, and the shipper can opt for delivery by 8:00, 10:30 or by the end of the day.
How Do Most Small Businesses Ship Goods? Ground shipping is the most common way for most small businesses to ship their goods. The major carriers in the United States used by most small businesses to ship their goods are the United States Postal Service, UPS, FedEx, and DHL.
2-3 day shipping typically works best with USPS Priority Mail. While FedEx and UPS Ground services offer similar delivery times, USPS typically offers the lowest rates. If a package weighs over 7 lbs or so, though, UPS and FedEx start offering more competitive rates.
FedEx offers the best rates for B2B shipments as one of their specialties is business deliveries. They also offer the most reliable and economical service for shipping documents such as contracts in their FedEx envelopes. For shipping out items of higher value, UPS is the best choice.
Shipping rates are still falling, in another sign that a global recession may be coming. Freight rates have continued to fall as global trade volumes slow as a result of shrinking demand for goods, the latest data from S&P Global Market Intelligence showed.
The bill passed through Congress on June 13, 2022, putting an end to empty shippers while driving the extremely high cost of containers down. “From China to the U.S. West Coast, if we compare the beginning of January 2022 to now, the container cost rate has come down 63 percent,” says Brazil.
It usually takes 12 to 18 months for high container costs to reach consumer prices, The New York Times reported. That lag can leave prices soaring well into 2023, and there's little sign the supply-chain mess is improving.
Summary of the 2022 Postage Rate Increase (implemented January 9, 2022): Domestic Shipping: Priority Mail Express will see a rate increase of 4.3% for Commercial Base (online postage) in 2022, with rates will starting at $23.50 (previously $22.75).
39% of brands say shipping and manufacturing delays and shipping costs will continue to be a top supply-chain-related challenge over the next 12 months. A global pandemic, war conflict, and port delays have caused worldwide supply chain problems.
“Container rates from China to the US have been above $10,000 for 10 months. The average price of a 40-foot container from China to US west coast ports increased from $1,500 in early 2020 to more than $20,000 in September 2021. The rate began to decline to $15,000 starting 2022,” the agent explained.
Freight denotes commercial purposes. The shipping of goods can be done for either commercial or personal purposes. Shipping is generally considered to be more expensive than freight since it is cheaper to transport goods in bulk than in smaller amounts.
Cargo shipping crisis originated in China and disrupted the supply chain in logistics. The impact of the pandemic saw log jams, blank sailings, port congestion, and container shortages. These put the industry at a standstill. As economists anticipate, this crisis is far from over.
While in September 2021, it cost over $20,000 to ship a container from China to the United States West Coast, in June 2022 the prices is half that at $9,500. This rate is still 4x higher than in June 2020 when container shipping rates from China to the United States was around $2,500.
These pressures will continue to drive down container costs in the short- and mid-term, according to Container XChange analysis, which shows that U.S. container prices have declined as much as 30% in the past two months along both coasts, and by as much as 50% at some ports compared to 2021.
Demand for shipping space is still high but perhaps not reflecting falling consumer demand. When will it catch up? Possibly by the beginning of 2023. Gardner predicts eastbound ocean freight rates will decline sharply in early 2023.
A combination of factors has led to the higher shipping costs, with soaring demand amid stimulus packages the key. Saturated ports and not enough ships, dockworkers and truckers has aggravated the situation. Easing of restrictions after the second Covid wave is another contributing factor.
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