Are You Prepared for Rising Freight Rates?
The masks are coming off, and the pandemic seems to be receding in many parts of the globe, but it would be a mistake for business owners to get too comfortable. Rising freight rates are going to be a challenge for any business that has a supply chain. Some predictions have suggested that before the year is up, the average freight rate could go up by 23 percent.
In fact, the way things are looking, higher freight rates and a stretched-to-the-limits supply chain could be a factor for at least two more years. If that got your attention, and you’re concerned about how your supply chain costs could affect your cash flow and profit margins, here’s how rising freight rates could impact your business.
If many of your goods move by trucks, the news isn’t good. In early May, for instance, the seven-day average line-haul rate for dry vans was $2.27 a mile (dry vans, for those not familiar with the term, are those are the giant trucks you see on the freeway that could squash your car if you were to bump into one). If $2.27 a mile doesn’t sound like much, consider that a year earlier, when the pandemic was only a couple of months old but very much a problem, the seven-day average line-haul rate was $1.32.
Making things more complicated is that most companies are scheduling out shipments well in advance.So, if you want to have something loaded on a truck later in the year, the trucking companies are going toquote prices based on what they think it will cost them to haul goods later in the year; not right now.Because logistics are getting more complicated and expensive, the prices you’re quoted will probably be even higher.
It’s not always going to be that way, of course, but as long as the pandemic continues to ravage parts of the world, and a truck driver shortage isn’t helping matters either, finding the cheapest truckload price is going to be a challenge for business owners.
As you probably know, LTL stands for “less than truckload” shipping. The news isn’t any better here either. Rates have climbed 5 percent to 6 percent in recent months.
There are a lot of reasons for this. First, there is simply more demand than ever for deliveries to come as fast as possible, at a time when logistics are more complicated than ever. This also makes that “last mile delivery” — getting a product from a transportation hub to a home or business, often by car or delivery van — more expensive than ever.
Inflation also plays a role. Real estate costs go up, and trucking companies must pay for their headquarters like any other business. Trucks become more expensive, which also factors into pricing.
None of this means that you’re going to need to pay top dollar for LTL shipping, but if you want to pay less, you’re going to have to research your supply chain— more.
Export and Import Costs
Ocean freight rates are starting to make shipping by truck seem pretty reasonable. Some vessels have doubled their ocean freight rates from a year ago.
A lot of this is being driven by the pandemic, but in ways that most people probably wouldn’t guess. About a year ago, when the pandemic was in full force, shipping rates were pretty low, and then there were regulations that affected how much sulfur could be emitted from ships. Many companies – frustrated by the low shipping rates – didn’t want to spend the money on expensive upgrades to release less pollution, so they shrank their fleets.
Now it’s a year later, and the demand is there, and more ships are being built, which will help rates go down — eventually, but not now.
That isn’t to say, incidentally, that the pandemic didn’t have a direct role in ocean freight rates. There are approximately 50,000 commercial cargo vessels around the world. Landlubbers don’t think about it much, but on those vessels are people who can get COVID-19 — and if you get the coronavirus on a ship, chances are, most of your colleagues will soon get it, too (think of the cruise industry at the beginning of the pandemic and how passengers were affected).
So, the pandemic and social distancing — not easy to do on a ship — also had a direct impact on slowing down the shipping industry. Random incidents, such as when the Suez Canal’s marine traffic was blocked by a ship last March for six days, haven’t helped logistical matters either.
The bottom line? Just because the pandemic seems to finally be easing, it doesn’t mean a business’s transportation frustrations are easing. Far from it. Many people around the world are, thankfully, getting less sick, thanks to the vaccines. But it may be a while — and take a lot of TLC on your part — before your supply chain can be diagnosed as healthy.
Nexterus Helps Companies Navigate Freight Rates
Nexterus takes advantage of its 70+ years of supply chain experience, inclusive of our vast network, relationships, and technology. We are taking a strategic and scientific approach, understanding where carrier partners across all modes of transportation need freight and of what kind/quantity, thus giving the carrier freight they desire, and giving our clients a reliable, cost-effective shipping option.
Don’t let market disruptions sideline your business. Learn more about how you can partner with the supply chain experts at Nexterus to address your supply chain challenges and keep your company on the road to success. Connect with Nexterus today to see how we can help you manage your supply chain needs.