Why are Freight/Shipping Costs Increasing
A lot of businesses have been impacted due to the pandemic. Due to the lockdowns and change in consumer behaviour, there has been a paradigm shift. Due to this transition, the shipping industry has also suffered in a lot of ways, resulting which freight costs have increased.
Main factors affecting freight/shipping costs:
1. Reduced Supply & Demand: Due to the pandemic there was a halt in production in the first half of 2020. There has been a shortage of containers since then due to the disruption in the supply chain. The initial impact of the pandemic left many owner-operated and small fleets out of business. Due to which there are fewer operating shipping fleets leading to a price hike.
2. Current High Demand: The 4th quarter of 2020 and the 1st quarter of 2021 were the periods of reviving economies and increased international trade volumes. Greater demand for transportation services led to an increase in freight rates.
3. Rising Fuel Costs: The increase in fuel cost is putting additional pressure, pushing to raised costs. All major oil-producing nations have cut down production drastically due to the pandemic, which has created a demand-supply imbalance resulting in pricing pressures.
4. Longer Transit Time: Transit times are extended for days at the port of destination. This slowdown is due to congestion in the ports due to increased orders. In order not to arrive at the port when there is no more room at the quay, the shipping companies are choosing to slow them down. The arrival time is therefore unreliable and forecasts are difficult to obtain.
5. Ships Unloading Time: Vessels unloading time is almost 30% longer than it used to be. Due to Large volumes to unload and Less availability of teams in ports, the unloading times have increased.