Shipping woes? You’re not alone. Whether you're sending by land, sea, or air, you're seeing domestic and international carriers' shipping rates rise, and we’re unlikely to get a breather in the near term.
On one side of the equation, we have the obvious: demand for shipping is up. Due to the global pandemic, many consumers are having items delivered directly to their homes rather than going to retail establishments.
The industrial sector is also upping the demand side of the equation. Single-Family Housing is a prime example. Housing Starts during the past three months are up 30.1% compared to the same time one year ago, and all those building materials must be transported to the appropriate sites.
Next, let’s look at the supply issues:
Land – In 2019, there was a decline in freight coupled with a decline in mileage rates that led hundreds of trucking companies to file for bankruptcy. To compound that issue, the companies that survived 2019 were not purchasing new Class-8 trucks at their normal rate, leading to tighter-than-normal capacity.
Sea – After years of overcapacity and declining freight rates, sea transport was also hit by a wave of bankruptcies and a decline in investment in new containers. This resulted in a shortage of shipping containers.
Air – Prior to the pandemic, approximately half of the freight shipped by air was transported in the cargo sections of passenger planes. With many airlines cutting flights due to consumers staying home, available capacity for freight was also cut. Belly capacity has risen in recent months but is still 57% below the 2019 level.
With some shipping costs more than quadrupled, it can seem quite daunting. There is a bit of light at the end of the tunnel. New trucks have been ordered, and shipping containers that were stranded in Europe and the US due to the onset of COVID-19 are being reallocated.
However, these are not immediate fixes, and the budding global economic recovery will keep upward pressure on prices throughout 2021. In the meantime, be on alert, as shipping woes have the potential to wreak havoc on your inventories and cash flows. You will need to evaluate if and how you can pass transportation costs on to your customers.
Director of Economics