Navigating the Surge in Freight Shipping Rates: Causes and Solutions

Introduction: The Rising Tide of Freight Shipping Costs

In recent years, the logistics industry has experienced unprecedented challenges, with freight shipping rates reaching new heights. This surge, which began in autumn 2020, has shown no signs of abating. According to Freightos, the cost of a shipping container has increased by 80% since November 2020 and has almost tripled over the past year. This price surge affects nearly 80% of the world's commercial trade, impacting all goods transported by sea, air, or truck freight along major global trade routes.

The COVID-19 pandemic has unleashed a cascade of unique stresses on the global supply chain. Despite adjustments over the past year, freight companies are still grappling with the logistical complexities unleashed by the lockdowns. As Lars Jensen, CEO of the logistics consultancy SeaIntelligence, aptly described it, "It's multiple different bottlenecks all at the same time...like a train wreck in slow motion."

In this article, we'll delve into the factors driving up freight shipping rates, explore their impact on businesses, and discuss how FreightAmigo's digital logistics solutions can help navigate these challenging times.

The Perfect Storm: 5 Key Factors Behind Rising Freight Shipping Rates

Several persistent issues continue to plague the freight industry, keeping international shipping prices high. Let's examine the five primary causes:

1. Increased eCommerce Adoption Worldwide

The global pandemic has accelerated the shift towards online shopping, even among demographics previously hesitant to embrace eCommerce. This change in consumer behavior has led to a significant increase in parcel volumes, putting unprecedented pressure on container space. In December 2020, US-inbound cargo volumes were up 23% from the previous year, further straining the already tight capacities of sea freighters.

Courier services like FedEx are struggling to handle the surge in last-mile eCommerce deliveries. Experts predict that parcel volume from eCommerce will reach a staggering 100 million per day by 2025. This dramatic increase is forcing logistics professionals to recalibrate their operations to meet the demands of a future centered around global eCommerce.

2. Labor Shortages Across the Supply Chain

Ports, warehouses, and manufacturing hubs are grappling with significant labor shortages. Despite the implementation of post-pandemic safety measures, there has been a slow return to the workforce. This sluggish employment trend is largely attributed to poor vaccine access in certain regions and stimulus-supported incomes in countries like the United States.

The shortage of adequate staff has forced logistics companies to operate at reduced capacity. To compensate for this reduced efficiency and increased operational costs, many companies have had to raise their prices, contributing to the overall surge in freight shipping rates.

3. Sporadic Openings and Closures

The inconsistent access to key ports has made it challenging for freight companies to regulate capacity on shipping containers. While economies are eager to resume manufacturing output, they face new outbreaks and closures, especially in Asia. These variable lockdown schedules impede normal scheduling for pickups and deliveries, making access to key shipping infrastructure unreliable and causing a stuttered flow of goods.

This on-off activity results in goods languishing in ports and delivery times slowing down. When new capacity becomes available, companies must be more active in managing operations, which keeps labor costs high and contributes to the overall increase in shipping rates.

4. Port Congestion and Closures Creating Delays

Port congestion, particularly in the United States, has become a major problem for freight professionals. Fewer vessels are keeping to their delivery schedules, while the average delay length for late vessels continues to extend. This situation was exemplified in January 2021 when the port of Los Angeles saw 42 ships anchored offshore, with every warehouse within a 60-mile radius already at full capacity.

Without available space to store cargo, ships are forced to idle offshore until space becomes available. These indefinite delays are costly and contribute significantly to the rising freight shipping rates.

5. Shortage of Shipping Containers

The past year has seen a massive dislocation of shipping containers around the world. Much-needed empty containers are stuck in understaffed, congested, or locked-down ports. When fewer ships arrive at US ports, fewer containers are available for return trips to Asia or Europe. This results in huge pileups of goods in stateside warehouses and port terminals, causing overall freight delivery times to slow.

The imbalance of available containers keeps rates elevated. Some experts suggest that we may see greater storage of goods in warehouses for retailers as a way to mitigate against shortages, though this strategy incurs the risk of held inventory going to waste.

The Impact on Businesses and Global Trade

The surge in freight shipping rates has far-reaching consequences for businesses and global trade:

Increased Costs for Businesses

The most immediate impact is the increased cost of shipping goods. This rise in expenses can significantly eat into profit margins, especially for small and medium-sized enterprises that may not have the negotiating power of larger corporations.

Supply Chain Disruptions

The combination of high shipping costs, container shortages, and port congestion has led to significant supply chain disruptions. Many businesses are facing delays in receiving raw materials or shipping finished products, leading to production slowdowns and inventory shortages.

Inflation Concerns

As businesses face higher shipping costs, many are forced to pass these expenses on to consumers, contributing to inflationary pressures across various sectors of the economy.

Shift in Sourcing Strategies

Some companies are reconsidering their sourcing strategies, looking at options closer to home to reduce reliance on long-distance shipping and mitigate the impact of high freight rates.

Environmental Considerations

The congestion at ports and the idling of ships offshore have raised concerns about the environmental impact of these disruptions, prompting discussions about the need for more sustainable shipping practices.

How FreightAmigo Can Help Navigate These Challenges

At FreightAmigo, we understand the complexities of the current freight shipping landscape. Our digital logistics platform is designed to help businesses overcome these challenges and optimize their shipping processes. Here's how we can assist:

1. Rate Comparison and Optimization

Our platform allows you to compare door-to-door freight quotes for international courier, airfreight, sea freight, rail freight, and trucking solutions. By providing access to a wide range of options, we help you find the most cost-effective shipping solutions, even in a high-rate environment.

2. Real-Time Shipment Tracking

With connections to more than 1000+ reputable airlines and shipping lines, we offer real-time tracking of your shipments. This visibility helps you manage expectations, plan more effectively, and respond quickly to any delays or issues that may arise.

3. Streamlined Customs Clearance and Insurance

We simplify the process of arranging customs clearance and cargo insurance, reducing the risk of delays and additional costs associated with these often complex procedures.

4. Automated Documentation

Our platform automates the generation of shipment documents, reducing the risk of errors and saving valuable time in the shipping process.

5. Expert Support

Our 24/7 logistics expert support ensures that you have access to professional guidance whenever you need it, helping you navigate the complexities of the current shipping environment.

6. Digital Supply Chain Finance

As a full-service, one-stop digital supply chain finance platform, we offer solutions that can help improve cash flow and financial flexibility, crucial factors in managing the impact of high shipping rates.

7. Innovative Technology Integration

By combining artificial intelligence, big data, FreighTech, FinTech, InsurTech, and GreenTech on one platform, we provide innovative solutions to accelerate logistics, information, and cash flow, ensuring a more efficient and enjoyable logistics experience.

Strategies for Businesses to Mitigate High Freight Rates

While the current situation presents significant challenges, there are strategies that businesses can employ to mitigate the impact of high freight rates:

1. Diversify Shipping Options

Don't rely on a single shipping method or carrier. Explore alternatives such as air freight for time-sensitive shipments or consider multi-modal options that combine sea, rail, and road transport.

2. Optimize Packaging and Loading

Efficient packaging and loading can help maximize the use of container space, potentially reducing the number of containers needed and, consequently, shipping costs.

3. Plan Ahead and Book Early

Given the current capacity constraints, booking shipments well in advance can help secure space and potentially lock in better rates.

4. Consider Nearshoring or Reshoring

For some businesses, it may be worth exploring options to move production closer to key markets to reduce reliance on long-distance shipping.

5. Leverage Technology

Utilize digital platforms like FreightAmigo to streamline logistics operations, compare rates, and gain better visibility into the shipping process.

6. Negotiate Long-Term Contracts

For businesses with consistent shipping needs, negotiating long-term contracts with carriers can provide more stability in rates and guaranteed capacity.

7. Explore Shared Container Options

For smaller shipments, consider Less Than Container Load (LCL) options or explore opportunities to share container space with other shippers.

The Future of Freight Shipping: What to Expect

While the current situation is challenging, it's important to look ahead and consider what the future might hold for the freight shipping industry:

Gradual Stabilization

Experts predict that freight rates will eventually stabilize, though this process may take time. As supply chain bottlenecks are addressed and new capacity comes online, we should see a more balanced market.

Increased Focus on Resilience

The disruptions of the past year have highlighted the importance of supply chain resilience. We expect to see continued investment in technologies and strategies that enhance flexibility and reduce vulnerability to disruptions.

Acceleration of Digital Transformation

The challenges faced by the industry have underscored the importance of digital solutions. We anticipate increased adoption of digital platforms and technologies that enhance visibility, efficiency, and decision-making in logistics.

Sustainability Initiatives

As environmental concerns gain prominence, we expect to see more focus on sustainable shipping practices, including the use of alternative fuels and more efficient vessel designs.

Reshaping of Global Supply Chains

The experiences of the past year may lead to a restructuring of global supply chains, with more emphasis on diversification and resilience rather than just cost optimization.

Conclusion: Navigating the New Normal in Freight Shipping

The surge in freight shipping rates presents significant challenges for businesses across the globe. However, with the right strategies and tools, it's possible to navigate these turbulent waters effectively. By leveraging digital platforms like FreightAmigo, businesses can gain the visibility, flexibility, and efficiency needed to optimize their shipping processes and mitigate the impact of high rates.

As we look to the future, it's clear that the freight shipping industry is undergoing a transformation. The challenges of today are driving innovation and reshaping strategies for tomorrow. By staying informed, adaptable, and open to new solutions, businesses can not only weather the current storm but also position themselves for success in the evolving landscape of global trade.

At FreightAmigo, we're committed to supporting our clients through these challenging times and beyond. Our digital logistics platform combines cutting-edge technology with expert support to provide comprehensive solutions for all your shipping needs. Whether you're dealing with the immediate impacts of high freight rates or looking to optimize your long-term logistics strategy, we're here to help you navigate the complexities of modern shipping and unlock new opportunities for growth and efficiency.

As we continue to expand our footprint and ecosystem globally, we're creating new paths for businesses and individuals to grow and ship. In these uncertain times, one thing remains clear: the future of logistics is digital, and FreightAmigo is at the forefront of this transformation, ready to support your business every step of the way.