Remarkably high shipping costs for businesses will be sealed into contracts over the next 12 months, forcing businesses to pass the additional costs on to consumers, so today we tell you all about the new global outlook on shipping costs. .
The price of a container of goods from China to the west coast of the US and European ports has been near record highs for several months, and conditions are ripe for further increases, although spot rates generally soften. At this time of year. Additionally, new contracts being signed by some of the largest US importers indicate that the increase will not be a problem in the short term.
Shipping costs at retailers
Most large retailers and manufacturers sign annual agreements with ocean carriers to set their container shipping rates, in private negotiations that generally take place at this time each year.
Along the leading trade route linking Asia to North America, contract rates in recent weeks have hovered around $ 2,500 to $ 3,000 for a 40-foot container, 25% to 50% higher than it does. one year, according to George Griffiths, editor of the global container freight pricing team at S&P Global Platts.
“It shows that people expect this to continue, that they don’t expect rates to go down anytime soon,” Griffiths said. Container ships “are coming into this in a significant position of strength,” he said.
Shipping costs and monetary policy
Global supply channels have caught the attention of various Federal Reserve officials around the world, who are trying to establish monetary policy based on the speed of their nations’ recovery and the outlook for inflation.
While there are signs of strong manufacturing activity in the coming months, reports of material and labor shortages, as well as transportation bottlenecks, pointed to some potential constraints on the pace of the manufacturing recovery.
“We’re going to have a conversation about inflation,” said Jim Bianco, president and founder of Bianco Research, during an interview with Bloomberg Television. “If we see it, the Fed will have to accelerate.”
Multiple obstacles that increase shipping costs
The higher shipping costs have been caused by a combination of factors, including rising demand amid stimulus controls, saturated ports, and too few ships, dockworkers and truckers. The problems are too broad to remedy with a short-term solution and are creating a ripple effect in American supply chains.
They are causing major headaches for business owners like Arnold Kamler, CEO of Kent Bicycles. “I’m describing our businesses here as trying to play Whack-A-Mole,” Kamler said in an interview. “You fix a problem and then something else comes along.”
The CEO of the Fairfield, NJ-based bicycle producer, which employs 225 workers and imports its parts from Asia, said its shipping costs have more than doubled in recent months. On top of that, truckers regularly miss appointments to pick up merchandise from warehouses, while a lack of parts prevents production from meeting demand. Kent has raised the prices of its bikes four times in the last 12 months, driven in part by freight costs, raw materials and fees.
For example, price increases and surcharges imposed on smaller businesses using spot rates can be attributed to anything from weather and ship congestion to the cost of fuel and raw materials.
Kamler said clauses in his contracts have allowed container carriers to charge premiums during the peak season, which he hopes to run through mid-November. If you don’t accept the raises, you can’t build any more bikes. “When is a contract not a contract? It is when you sign a contract with a steamboat company. Kamler said.
The World Shipping Council, which represents the shipping industry, said the biggest logistical difficulties are on land and the market is driven by supply and demand.
“As shipping typically represents a small cost per unit for the goods transported, demand is not very price sensitive,” said John Butler, president and CEO of the Washington-based council, in an emailed statement. “So when demand exceeds capacity as we see today, rates will go up.”
Jim Estill, CEO of Danby Appliances Canada, said cargo sometimes stays in ports for up to 10 days before being loaded onto trains or trucks. That’s leading to higher prices – a freezer that could normally sell for $ 350 now costs about $ 70 more due to shipping issues. “The price increases are barely happening now,” he said.
Peak seasons
In the US and elsewhere, shipping typically has two peak seasons each year. One occurs before the Lunar New Year when companies secure inventories before Chinese factories close for the holidays, and the other begins in late summer to prepare for Christmas shopping.
There was optimism that the interim period in 2021 could eliminate container delays, but the blockade of the Suez Canal last month added further tensions that only dashed hopes.
Problems are emerging across the business landscape. Nike Inc. said revenue declined 10% in its latest quarter due to supply chain challenges, including container shortages and bottlenecks at US ports.
Kamler from Kent said he would normally be extremely stressed by high shipping costs and a lack of spare parts. “The only saving grace is that all my competitors are in the same boat,” he said.
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