Though certain aspects of the economy have begun to bounce back from the COVID-19 Pandemic, the same cannot–unfortunately–be said about the logistics and ocean freight industry. Supply chain slowdowns, staffing shortages, and other ongoing challenges are forcing carriers to charge higher prices for ocean freight, driving up current sea freight rates throughout the logistics marketplace and contributing to a 22.4% increase in total logistics costs in 2021. In addition, according to a recent report from the World Trade Organization, “...operational disruptions, including pandemic-related shutdowns of major ports as well as other disruptions, have put logistic systems under further stress and increased trade costs uncertainty.”
For businesses facing volatile logistics costs, accurate budgeting becomes an impossibility. This volatility and lack of visibility can affect a business's logistical operations. They can ultimately impact the customer experience–often exacerbating a problematic situation by adding falling revenues to the challenge of international freight costs.
But by thoroughly examining the causes behind these rising ocean freight shipping costs, businesses can develop an understanding of their expenditures and find better solutions to face rising costs head-on.
What’s Behind the Rise in Oceanfreight Costs?
While much of the increase in global freight costs can attribute their roots to the COVID-19 Pandemic, many of the problems increasing costs have spread well beyond their origin. Ultimately, the logistics industry's large-scale issue is supply and demand. According to the Wall Street Journal, “With high shipping demand still far outweighing tight capacity across the freight sector, industry experts say transport operators have the leverage to raise prices when negotiating new contracts.”
With margins tighter than ever, and with some logistics providers predicting “...double-digit growth in contract rates for 2022,” per the Wall Street Journal, businesses large and small need to know the details surrounding higher ocean freight costs and rates.
- High Fuel Costs: The average cost of VLSFO (Very Low Sulfur Fuel Oils) at top ports reached a $263-per-ton premium in 2022; according to reporting from FreightWaves, ocean freight businesses are paying the price for higher fuel costs. Sky-high fuel prices and inefficiencies in routing mean that shippers are spending more on gas than ever, a cost inevitably passed on to their already cash-strapped clientele.
- Supply Chain Difficulties: Continued supply chain slowdowns due to lack of staffing and ongoing COVID-19 complications are causing freight assets to arrive late, muddying entire supply chains. Ocean freight providers are paying a steep cost for ineffective supply chain management as ports increase demurrage and detention fees–up 104% since 2020 alone, according to SupplyChainDive.
- Labor Issues: Faced with staffing shortages and overworked members, labor unions are growing increasingly fed-up with the state of the logistics industry. Recent labor issues at various ports have resulted in strikes, which slow supply chains and raise the cost of shipping. These labor issues stand to have an incredibly far-reaching impact on global freight costs and ocean freight shipping–to the extent that even the White House has taken notice, according to SupplyChainDive. In addition, shippers and customers are at the mercy of the staffing crisis without the ability or data to forecast staffing needs well into the future.
- Political Strife: Political strife can create unpredictable shipping environments, resulting in carriers having to make costly, last-minute decisions. Beyond the much-covered war in Ukraine and its massive impact on global freight costs, other conflicts stand to make their mark on the ocean freight market. With FreightWaves reporting that “almost half of the world’s container ships and 88% of larger container ships transited the Taiwan Strait this year,” rising tensions in the South China Sea mean that shippers need to find new strategies to maintain agility in their global ocean freight operations.
- Inefficiencies in Logistics (keep this as last, use as a transition point): Ultimately, the root cause of higher ocean freight costs–as well as the root of the capacity crisis driving the lack of supply within the ocean freight industry–is the continued presence of logistical inefficiencies; these inefficiencies, which range from data to decision-making, allocation to ETAs, stem from a lack of visibility. Until shippers gain the visibility they need to maintain control over the entirety of their ocean freight assets, the capacity crisis–and the high global freight costs that come with it–will continue to drive unsustainable increases in global freight costs.
How to Lower Ocean Freight Spending
According to reporting from The Economist, “The spot price for sending…a box [an FEU Container] from Shanghai to New York, which in 2019 would have been around $2,500, is now nearer $15,000.” This sharp increase–some variation of which can be seen across nearly all shipping areas and modalities–has forced shippers to get creative to maintain a competitive ocean freight cost structure. For shippers struggling to beat back rising maritime freight rates, it’s clear that the latest logistical crises require the latest logistics solutions. These solutions, primarily based on cutting-edge logistics software developments, can provide ocean freight businesses with the visibility they need to maintain control over the supply chain. By developing an intimate understanding of these ocean freight software innovations, companies can work against rising global freight costs and provide their customers with the necessary visibility to remain competitive in a crowded logistics marketplace.
- Real-time Tracking: With high fuel costs promoting higher shipping prices throughout the logistics industry, shippers can no longer afford to take the long way to their destination. Using real-time tracking, shippers can ensure that their ocean freight assets are en route to their destination via the fastest, most economical route available. In addition, when an issue arises, easily integrated, cross-platform communication methods make it easier for businesses to adjust course.
- Intelligent Allocation: For many businesses, the key to solving the capacity crisis isn’t finding more capacity, but more intelligent utilization of the capacity they already have. Using the data provided by cutting-edge logistics software solutions, shippers are increasingly relying on tech to allocate freight. With these solutions, shippers are maximizing efficiency both in the warehouse and onboard container vessels. Moreover, once a business understands its allocation capabilities, it becomes easy to avoid rising demurrage and detention rates at larger ports, resulting in savings that companies can pass onto customers with stable prices found upon purchase.
- Simplified Communication Channels: With labor issues at the port and the ongoing effects of the COVID-19 Pandemic continuing to cause staffing issues throughout the supply chain, it’s more vital than ever for businesses to maintain contact with all logistics partners at all times throughout the shipping process. By integrating communication methods into an easy-to-use, cross-platform API (Automated Programming Interface), businesses can ensure that their logistics professionals stay up-to-date on the latest changes and trends within the logistics process.
- Easy Adaptability: As political turmoil threatens to rankle global container logistics further and increase current sea freight rates, businesses recognize the need for easy adaptability within their logistics operations. Through API-enabled logistics software, companies can achieve the extensive visibility required to avoid the complex issues that come alongside logistics in turbulent times.
- The End of Inefficiency: Complete supply chain visibility, offered as part of an easily-integrated, API-enabled logistics software, can help businesses avoid the everyday inefficiencies driving the sky-high freight costs in 2022. Container track and trace, accurate ETAs, and hassle-free processes mean that companies taking advantage of the recent innovations in logistics technology are well-poised to reap the benefits. Here are a few benefits of efficiency in ocean freight management:
- lower costs,
- negotiate contract rates with carriers based on data, not anecdote or emotion,
- Getting goods to customers on time, improving brand perception
- Improving the overall customer experience, thanks to cutting-edge container tracking technology. Book a Demo with OpenTrack Today
In today’s competitive logistics marketplace, shippers need every advantage. By partnering with OpenTrack, shippers can implement the latest logistics technology to ensure that their freight assets arrive efficiently and affordably, all while working against rising global freight costs. So book a demo with OpenTrack today, and see what visibility made simple can do for your business.