Why is Freight so expensive out of China right now?
There’s currently quite a lot of change happening in the logistics & supply-chain space that will impact Western businesses & consumers, so we thought it would be a good idea to share why this is happening and what the future outlook holds.
You may, or may not, have heard that the cost of shipping has increased significantly lately.
It’s certainly true.
Shipping costs for 2021 have increased 126%, and in fact since the onset of the pandemic in early 2020, shipping costs have increased a whopping 600%. No joke.
Do you see that blue line? It’s heading off the chart.
What the chart shows us is, if you ordered a 40 foot container from Guangzhou China at the start of 2020, and then again today, you would be forking out an additional USD$6500 - just to transport your products, receiving not a single more quantity or quality improvement than the 1st shipment.
Some importers into the US are reportedly even paying up to USD$25,000 for a container.
Sadly, this looks to become the new normal for some time until things can recover.
Why is freight increasing so much?
There are two key causes: Backlog onflow effects from thousands of shutdowns of manufacturing & logistics providers at all levels globally, and stock (container) shortages.
1 - Backlog & Onflow Effects From Shutdowns
Shipping lines and port authorities have battled excessive port congestion, spontaneous COVID-19 outbreaks, and a lack of container availability. As the global shipping industry is a network of interlinked trade routes relying on each other, delays in a single region, trade lane or even an individual port will impact the entire globe - it all flows on.
Numerous key zones in trading countries have experienced COVID-19 outbreaks necessitating sporadic shutdowns of manufacturing and logistics industries. Ports, warehouses, logistics hubs etc.
Also, with air freight becoming less affordable due to less passenger flights in the skies, more importers are turning to sea freight to move their goods. Summing it up, there’s more strain on supply chains and logistics network than ever before + More goods are being demanded, whilst intense squeezing & pressure reduces the operating capacity of logistics providers (covid rules mean some warehouses and ports work at 30-50% of normal capacity).
It’s one hell of a backlog compounding effect. It’s a kind of ‘perfect storm’ and the pressure is on the logistics providers so they are jacking up prices, and potentially conspiring whilst they’re at it - it’s a fairly monopolised industry. Just check out Maersks profits!
2 - Stock (Container) Shortages
With ports being unable to meet the demand you’ve got actual shipping containers banking up in holding areas creating a lot of congestion, if you see holding yards when you drive past our ports, there are ‘cities’ of empty containers - and that’s a big part of the problem.
Since there has been a massive increase in ecommerce/online shopping, combined with people spending more on household and consumer goods since they aren’t travelling, there have been a lot more containers coming into the country in the past 12 months, many more than before.
With many Western countries importing more than they export, this causes a grave container imbalance, and with those shipping containers are all sitting empty in Western ports or holding yards, they’re hot property in China & Vietnam - so the cost of using them are skyrocketing. Guess who owns them all?
The shipping lines like Maersk, the ones charging ludicrous amounts for your sea freight!
Have a quick look at this video showing congestion on the water, and this one by the ABC detailing the issues faced by Australian businesses.
Sadly, the information we are seeing indicates that things may not ease back until 2023.
So what does it mean for you?
As a Business -
If you rely on any imported products within your business, they will likely become more expensive until this freight crisis eases over the years.
If you import these products yourself, you will need to be prepared to spend more on the freight portion, it is sadly inevitable.
If you’ve been quoted on products within the last 30 days and still have quote validity, I suggest you order as much as you can - stock up to help weather the storm - that’s what the department stores have been doing.
As we move towards the end of the year and into the Christmas season, costs are likely to increase. This is because it is the typical ‘peak season’ for factories and freight networks, so there is added pressure as factories pump out massive amounts of product before they begin to close down for their new year breaks (Chinese New Year means that factories in China shut down for most of February).
With all of this uncertainty, do rest assured that if you are working with Sourci as your supply partner you can definitely rely on us to offer solutions to help with some of these challenges. Such as benefitting from our wholesale freight network due to our volumes, or establishing manufacturing in an alternative country, where the freight rates are coming in cheaper.
As a Consumer -
Personally, I do anticipate that there will be a moderate wave of inflation that comes from this.
Prices of products are likely to increase on some imported products, I just can’t see a way around it. Particularly for low cost, high volume items.
Cheaper products that are imported are now going to cost those importers 30-70% more. If a container load worth of say pizza boxes was worth $12k including freight before, now it’ll cost them $20k all due to the freight portion. Packaging, plastic food containers, coffee cups, and these types of products, even the under $30 products you find at Bunnings, you can expect slight increases to account for the freight. I certainly hope not, but I cannot see importers absorbing likely their entire margins - it doesn’t make commercial sense.
I do have hope that importers of higher cost products will choose to simply absorb their additional costs - so let’s wait and see.
The Good News?
Sourci is attacking this head-on, with a number of strategies..
- We are actively partnering up with the biggest freight movers in the country. Using our immense volume power combined with theirs means that our clients will benefit from prioritised shipments and get the most competitive prices out there.
- We’re keeping our finger on the pulse.
As things evolve, shift, and improve we’ll be the first to know and offer solutions to moving your goods. Our team has been up to some crafty and creative things, all in the name of reducing logistics costs for the brands that we partner with.
- Reducing your product cubic volume has never been more important. Packaging your products in more dense layouts means that you are shipping less ‘Air’ and in turn, saving you $$$ - we’re coining a new phrase; “Air Is Money”.
- Reducing your product costs - this is what we always strive to do in conjunction with brilliant quality improvements. Reducing costs on your products can help you absorb some of those freight increases, working to balance things out.
- Consolidating our clients shipments together in combined (LCL) shipments. Splitting container space is great for sharing the sea freight cost burden, if you don’t need an entire container load worth of space we’ve got you covered there.
A few final tips to reduce freight costs:
- Save space in your packaging!
- Order full container loads (FCLs) at a time if you can to improve scale
- Focus on higher quality products, improvements to your offering mean you can justify a higher price point.
As always, reach out to us here at Sourci and we’ll be glad to help you on your manufacturing journey.
Happy Selling, Take Care.