Factory production is ramping up again, but shipment is getting increasingly complicated and will likely remain that way through 2021. High demand for a limited supply of ships and containers, pandemic-stricken ports, and an unprecedented rush for goods are all at issue.
On Thursday, weekly Freightos rates from China to the West Coast stood at $6,297 per FEU. And from Shanghai to Rotterdam, it now costs 547 percent more to ship a than the seasonal average used to be over the past five years, reports Drewry Shipping.
Overall, freight shipments across the board are at least three times higher than usual …
So why is the cost of shipping goods skyrocketing, and will these prices remain?
Demand Increases Only to Meet Shipping Bottlenecks
Now that vaccine distribution is progressing, many factory laborers are back to work and economies churning again. Many goods that have been scarce for months are now available, and many consumers’ pockets are feeling looser now that an end to the pandemic seems in sight.
However, alongside this rush to move goods, shipping companies are seeing shortages in containers, ships, and dock-workers. Ongoing-pandemic related delays, closures, and widespread unpredictabilities persist, so e-commerce companies are feeling anything but “back to normal.”
As e-commerce giants like Walmart and Amazon rush to restock, COVID outbreaks in Yantian and other ports are disrupting and delaying shipping and causing major bottlenecks. New cases in countries like Thailand and Vietnam are also causing unexpected delays, as each country experiences the pandemic in their own time and context.
Blank sailings have also increased. Throughout the pandemic, steamship lines canceled sailings in tandem with decreasing demand. Now that demand is back, shippers remain skeptical about whether demand is here to stay.
Many ports and sailings continue to be skipped altogether, according to Ice Transport. Additionally, many shippers are adding container retention surcharges, bumping rates up even further.
The unpredictability of pandemic-impacted supply chains continues to exhaust many e-commerce brands. But there are a few strategies you can implement to help mitigate some of the uncertainty.
What You Can Do to Manage Shipping Costs
Many of the usual rules for international freight no longer apply. What was once inexpensive to ship now costs more in shipping than its profitability value.
The costs of shipping products like coffee beans, anchovies, children’s toys, lumber, and, really, anything manufactured in China is driving up the costs of goods for the foreseeable future.
- Compare shipping quotes and modes of transportation.
One thing you can do to manage shipping costs is solicit quotes from multiple companies and strategize which mode of shipping is most cost effective for a certain product. Ocean freight, for example, is billed at a flat rate regardless of weight.
A small product that is dense and heavy would be more appropriate for ocean freight. And take into consideration the costs of warehousing for a given shipping mode. Airport warehousing costs, for example, are often less expensive than seaport warehousing.
Size and clunkiness are also important factors in shipping. Awkwardly shaped yet lightweight products that were once cheapest to ship by air are now more expensive to ship due to an increased overall demand for airfreight shipping.
Now is the time to focus on selling more uniformly shaped or smaller goods that can be shipped more efficiently. A product that typically has high profitability but is inconvenient to ship may not be as profitable right now.
- Prepare for delays and budget for the unexpected.
Since freight rates look like they are here to stay at least through the rest of this year, good foresight and planning may buffer some of the impacts of supply chain instabilities. In some cases, contracting annually with container lines may help you secure lower spot rates.
However, many companies are not contracted for 2021 and may not benefit from this strategy until next year. Since there is so much, it may be best to budget for high shipping costs this year. From the looks of it, every e-commerce company will have to do so until economies and pandemic conditions truly stabilize.
- Source locally, and tell your customers.
One of the most obvious ways to cut shipping costs is to ship closer and ship less. If you sell a product that could be sourced locally, consider shortening your supply chain to fit it within national borders.
This could also, of course, be a costly move due to higher labor prices and issues with economies of scale. Still, it may be worth looking into given the fact that current freight rates may reduce profitability to near nothing. Furthermore, local buyers can be more reactive and easier to communicate with than buyers overseas.
If you make the switch to local, consider explaining this to your customers in your advertising or social media campaigns. Consumers are generally aware of the global impacts of the pandemic on production. But more significantly, they want to invest in local economies and products.
A Futerra survey discovered that 96 percent of people feel that their own actions (such as ethical buying) can make a difference; 88 percent reported they want brands that can help them do so. If you do not communicate to consumers that you are making the switch to sourcing locally, they will not recognize their purchase as an investment in their local economy.
Overall, freight rates are red-hot, but so is e-commerce …
Now more than ever, consumers are moving their shopping online. Recent months have seen unprecedented modifications to how e-commerce does business, but these changes are not all for the worse.