Transportation companies are essential to the supply chain since they quickly deliver incoming materials and ship finished goods to customers. Though some operate with their own transportation fleet, most small to medium-sized manufacturers rely on external transportation companies, which means most have been faced with significantly increased land and air freight costs and challenges that began during the start of the COVID-19 pandemic.
Now, 20 months since the start of the pandemic, the struggle continues for manufacturers.
It is common knowledge many products and services have gone up in price. Shipping increases, while less widely publicized, are a significant cost to manufacturers who receive and send products to customers. Several factors are driving this inflation:
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The price of No. 2 diesel fuel is at its highest since 2014 and is projected to continue climbing.
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An increase in online shopping has caused less efficient shipping.
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An increase in discretionary income has fueled more product purchases that require shipping.
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Labor availability and rising compensation costs have left the transportation industry struggling to ship as efficiently as they did pre-pandemic.
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Cost of lumber, which is the primary material for shipping pallets, has soared.
Here are some other recent factors that have played into the rise in shipping costs:
The Shipping Container Shortage
When the world began slowly opening back up after the global lockdown, China’s economy reopened much faster than the US and European economies. Because these two regions have the majority of the worldwide shipping containers, this created a shortage in China, where they were most needed.
According to an article from American Shipper, because of this shortage and heightened demand in the market, spots on available containers in China have a massive price surcharge. In fact, new containers are going for $3,500 per cost equivalent unit (CEU), as compared to $1,800 per CEU in early 2020 pre-pandemic and $2,500 per CEU in late 2020.
The Significant Impact of the Suez Canal Accident
When the shipping vessel Ever Given got stuck in the Suez Canal in March 2021, the entire waterway was blocked for a week. Since then, average freight costs of shipping charges shot up even higher than they already were.
According to Hellenic Shipping News, the incident cost international trade between $2.2 billion and $3.9 billion due to delays it caused. Even though the Suez Canal is no longer blocked, the incident caused delays for other ships using the canal to deliver products to their destinations, which caused significant strain on ports dealing with dispatching and docking the cargo ship delays.
Further Delays at Major Ports in China
Until the Delta variant emerged as the new primary strain of SARS-CoV-2, many parts of the world seemed close to recovering from the pandemic.
First identified in India, the Delta variant was detected in China's Guangdong province in early June 2021. Guangdong province is a hub for nearly a quarter of China’s total exports. When the Chinese government instituted lockdown measures to contain the outbreak, a significant portion of China’s shipping activity was negatively affected.
Even though the number of people infected with the Delta variant is trending downward across the globe, delays at ports in Yantian and Shenzhen continue to be significant. Wait times for vessels to berth are up to nearly 16 days.
Actions to Take to Offset Freight Costs
Supply chain disruptions and freight rates are unavoidable. However, there are cost-saving initiatives manufacturers can take, besides utilizing a freight cost estimator, to balance out these costs:
Plan ahead.
Planning shipment services as far in advance as possible will help ensure carrier availability and allow you to research the best rates. Remember that costs can fluctuate quickly, so reserve a pick-up or delivery date as soon as you find an attractive price.
Consolidate shipments.
As we mentioned, CEU is significantly higher than normal. If you can manage to ship entire truckloads, the price tends to be easier to source and favor the shipper. To do this, find customers or vendors who have flexible shipping dates and can ship entire truckloads. Additionally, some carriers provide discount shipments if ship dates are flexible.
Consider the packaging you use.
While commodity prices across the board — including plastic and steel — are rising, returnable packaging is becoming an option to save on packaging costs. Some companies are even replacing wooden pallets with plastic pallets and steel racking to offset the price of lumber.
Establish partnerships.
When working with your transportation vendor, consider them your partner rather than just a necessary asset. Considering a transportation company as a long-term vendor can help increase savings and help prioritize your shipping schedule.
Find Balance with SRM’s Strategic Procurement Sourcing
A lot of setbacks have come up in the global supply chain over the past few years.
That’s why the consultants at SRM have worked diligently with our clients to approach losses by looking for cost savings under each unturned rock. Working in collaboration with your internal team, we will implement a sourcing strategy that moves beyond a traditional procurement strategy to find the cost savings that you might be leaving on the table.
Ready to take the next step toward finding balance in the current uncertainty? Request a consultation with one of our specialists today.
