Reasons Global Shipping Costs Will Continue to Rise
This is a guest post by John Nicks.
The pandemic triggered many changes in various industries all across the world. One of the most affected areas is shipping costs. As the prices go up, the fierce competition forces companies to expand and provide more capacity to their clients. A situation that was unimaginable just a year ago is now treated as the new normal. While shipping companies and their clients hope for a change for the better, there are many reasons global shipping costs will continue to rise.
The Shipping Costs Continue to Rise at a Rapid Pace
One of the major things disrupting international shipping now is that the costs are going up at a steady pace. Even though there was a surge in prices during 2020, the current costs have tripled since last year. Freight rates or different routes do not affect this change, and the price increase is constant across all of the industry.
By following the chart, I can only conclude that this trend will continue for the next year at least. There is no sign of short-term relief, and the increase in demand accompanied by the lack of capacity does not help the situation either.
The Imbalances Caused by the Pandemic Play a Significant Part in the Shipping Costs Increase
Ever since the pandemic started, there has been a gradual build-up of various imbalances that have caused this situation. The demand went up, and the production lines could not keep up with the lockdown. Furthermore, the erratic opening of the borders only added to the imbalances in the industry. Companies had to cut the capacity on major routes to deal with the shortage of empty containers.
After a year of the pandemic, the global demand is recovering strongly, and competition between companies intensifies, which only favors the shipping cost increase.
The Lack of Alternatives to Ocean Freight Pushes the Prices Even Higher
Standard modes of transportation, such as via air or train, are now very limited when it comes to capacity. Ocean freight is the most used way of transport, and that kind of monopoly pushes the prices up. Due to an increase in demand, the shipping costs of household items saw a jump from 5% to 20%. Since there is no way to absorb increases on this scale, a logical conclusion is that the prices will only go up. Otherwise, the situation will cause product availability issues.
Unbalanced Recovery Causes More Disturbances
While some countries have bounced back and are exporting way more goods than before the pandemic, other countries struggle to get back on track. This is yet another one of the reasons global shipping costs will continue to rise. Unless we see a balance in how shipping operates between all countries, there will be no drop in the shipping costs anytime soon.
Furthermore, the delay of the peak season for the last year means that we will have different peak predictions for 2021. While it will start earlier, it may also end sooner than expected, resulting in a drop in volume. This only adds to the import-export imbalance the US is currently experiencing.
Are There Any Indications That the Shipping Costs May Drop at Some Point?
Due to all of the reasons why global freight shipping costs will continue to rise, there are no current indications of the change for the better. While it is not possible to affect the overall shipping costs, it is good to know that there are ways to reduce them. If companies focus on shipping outside of peak season and do less frequent shipping that includes more products, that could be a good strategy to reduce some of the shipping costs. Companies now need to focus on finding workarounds until we can say that the situation with the shipping costs going up is slowly fixing itself.
Reasons Global Shipping Costs Will Continue to Rise Explained
All of these reasons why global shipping costs will continue to rise are a clear sign that there is a difficult path in front of us. Companies now need to focus on finding workarounds until we can say that the situation with the shipping costs going up is slowly fixing itself. Even though there is a plan to ease the situation by increasing the capacity of new containers, it is not something we can expect to happen before 2023. Even with that plan in motion, the harsh reality is that there are high chances that the shipping freight rates remain at higher levels and become the “new normal”.
This was a guest post by John Nicks.
John Nicks is an economist with over 15 years of experience. He is focusing all of his knowledge on analyzing the economic crisis caused by the COVID-19 pandemic, and through freelance blogging, he aims to help companies bounce back from business losses.