Little High, Little Low: The Rationale Behind High Transportation & Shipping Costs
Hearing the common person complain about high prices is a daily affair. But an entire industry complaining about it, now that's something intriguing. The recent Suez Canal incident has overblown transportation costs all over the world. This route is used by an average of 50 ships on an everyday basis. For days, major trade from Europe and Asia had been stuck and the result? A tremendous backlog, forcing these ships to take a detour and go around Africa for trading. It is estimated that around 200 ships had to take this detour. This not only consumed more time but also added massively to the costs. The incident has added to the ongoing problems caused by the global pandemic and has caused somewhat of a knock-on effect, to the detriment of many Importers & Exporters.
Reasons for the Increase in Transportation Costs
Freight rates in logistics refer to the cost of shipping cargo from one country to another. These rates tend to change depending upon the port of loading, final destination, weight of the cargo, the form of the cargo and many other factors like the ones mentioned below.
This occurs when the order has to be re-routed to another facility because the primary shipping point could not meet the demand or when the primary shipping point is out of empty container stock. Out of area shipping will lead to increased transportation costs and added time to the overall transit of your cargo.
Splitting the shipment can result in raise shipping/transportation costs due to individual shipments being considered separately. These separate shipments will also have other costs which will include clerical and managerial costs. It has been roughly calculated that the costs can raise up to 30% more than the normal costs in cases of split shipment. Moreover, splitting the shipment can also cause inefficiency. One solution to split shipments is their identification through a database, which can cut down on unnecessary costs.
Poor Coordination With Prescribed Routings
Prescribed routing includes the use of a guide that specifies the carrier for a distinct size of the shipment and its mode. In most cases, the traffic manager prepares the route guide which has to be followed by the local shipping personnel. This routing guide should be customized for each location. It should include the best route along with an alternative. This routing guide also has the specific region destination, state, country or ZIP code, as required. A good database can cope with these instructions. This can lead to up to 15% of cost savings if these freight routes are properly followed, maintained and managed.
The Impact of COVID-19 on Transportation Cost
Thus far, our discussion has centred around the normal and the ordinary. But COVID-19 has created situations far removed from that. While every aspect of life and business was disrupted, logistics too suffered massive turbulence during the pandemic, the effects of which the industry is still now trying to cope with.
The Outbreak of the COVID-19 Pandemic - effects on supply chains
The COVID-19 pandemic led to a decreased supply of goods from China during the summer of 2020. Furthermore, it resulted in a 5-15% decrease in transhipment in the European ports. Importers are now catching up, which resulted in an increase in the volume of demand in the 4th quarter of 2020 causing a huge shortage of empty containers in China.
Upcoming Global Economic Recovery
By the end of 2020 and the beginning of 2021, there has been a reviving period in the logistics industry as economies have started to speed up their international trade. Greater demand has led to greater transportation and shipping services which have placed the industry in a better position this year as compared to 2020. All of this however does not stop us from helping our clients achieve the best possible Logistics and shipping solutions, tailormade to them and their business. Contact us today for more information on our tailormade hassle-free logistics solutions that take the strain of importing/exporting away from you and your business!