Supply Chain

Shipping Rate Increases — Why You’re Seeing Them and How to Plan for Future Expenses

No Comments

We’ve all been stretched thin over the last year. And just when you think the end is in sight, there’s a sharp increase in costs when it comes to shipping rates. If you’re wondering what is going on and how to stop the variability that’s eating into your profit margins, we’re here to help: 

What Rising Rates Don’t Mean for Your 3PL Partnership

It’s easy to feel focused on how much expenses are going to rise, but before we get into the details we want to remind you of the promise of our partnership with you. 

Working with a 3PL pools the resources of small and midsize businesses that allows us to buy distribution services at a larger volume for more leverage on rate negotiations. As always, our office support team will be reviewing each line item of your shipping costs to ensure no unexpected fees arise, and our forecasting software will allow you to eliminate shipping inefficiencies and plan for windows of opportunity. 

In short, we promise to continue to deliver our specialized service to your business and help stabilize rates whenever possible. 

Causes Affecting Shipping Rate Increases 

Though each sector of the shipping industry has many nuances, the majority of the causes for their need to increase rates can be broken down into three factors that plague them all: 

  • The Increased Volume Created by COVID Vaccines — The world’s dire need for temperature-sensitive vaccines to reach billions of people across the globe is using a remarkable amount of bandwidth that would otherwise be available. This is especially true for cold chain and air distribution, but workers from all backgrounds in shipping are being relocated to fill the increased need. 
  • Enormous Fluctuations in Consumer Behavior Patterns — Online consumer spending for U.S. merchants grew 44% in 2020 and is projected to expand by another 15% in 2021. This shows a growing volume that puts pressure on all modes of transit, but consumer habits have also decreased bandwidth. Commercial flights being grounded due to low consumer demand also sharply decreases the air travel cargo space for commercial shipments.
  • Disruptions in Worker’s Ability to Perform — Between added labor hours necessary for enhanced cleaning and safety practices, more impactful worker illness, and a quickly retiring workforce has led to much larger shortages for the workforce hours needed in 2021 than previously anticipated. Overall, the driver population has decreased by more than 68,000 compared to 2020. The cascading timeline of economic shutdowns worldwide have led to a compound effect of delays for inbound and outbound volumes as well.

Rates to Expect Moving Forward

Everyone is tired of hearing the word “unprecedented,” but the reality is that we’ve seen a huge, unexpected shift if purchasing habits and shipping needs in the last year. The good news is we have a little bit of runway of what we can expect through the end of 2021 with hopes of a more stable expectation of rates beyond. Here’s what we can forecast for now:

Shipping Method % Rate Increase by End of Year
  Parcel   5-8%
  Less than Truckload   5-11%
  Truckload    10-12%
  Expedited   6-8%
  Cold Chain    5-10%
  International Air    35-50%
  Ocean Container   50%, plus additional premiums

What You Can Do to Minimize Expenses 

Unfortunately, every player is going to experience an economic squeeze with these rate increases, but there are options to help your business decrease the financial impact: 

  • Increase Safety Stock Levels — This will allow your team some extra leeway to ride out peak shipping spikes when you need to re-order. 
  • Consider Crossdocking — Choosing to bypass the warehouse as you transport product to customers can decrease fuel costs and labor expenses with a more direct route. 
  • Move Manufacturers — We aren’t expecting to see a decrease in shipping rates any time soon. So, it may be worth re-crunching the numbers to see if a local manufacturer will help you save in shipping costs—especially if you’re frequently shipping from Asia to Europe or North America. 
  • Buy Some Time — Slower methods of transit are still less costly than expedited. Creating opportunities for a slower supply chain can save your business big. 

It’s been a hard year, and you’re probably ready for the constant change to end. We don’t expect a decrease in shipping rates this year, but we are here to help your business find the best moments to take action. Reach out to your dedicated 3PL partner to find the best way to keep your business afloat. 

Tags: Supply Chain

Related Articles

Menu