Shipping and logistics costs are expected to continue to increase in 2022
Businesses brace for bigger increases in shipping and logistics prices next year after supply chain costs skyrocket in the rush to move goods during the Covid pandemic. 19.
Transportation and logistics providers are looking for sharp increases in contract prices for the coming year, signaling that inflationary pressure from high demand and limited capacity in freight markets is likely to persist.
With high sea transport demand still far exceeding limited capacity in the freight sector, industry experts say transport operators have leverage to raise prices when negotiating new contracts. Shipping executives say they expect tariffs set in many annual contracts to double from deals reached earlier this year, before supply chain bottlenecks reduce the burden. capacity. Some trucking companies are forecasting double-digit growth in contract rates for 2022.
Prices increased across the freight industry, including parcel delivery, trucking, shipping and warehousing. Most freight transportation contracts are negotiated annually, although many large shippers may have multi-year agreements with various carriers.
âI think people are a little shocked right now,â said Todd Bulmash, logistics manager and board member for the Council of Supply Chain Management Professionals. âThey are preparing for the worst.
Prices in most freight transport and logistics markets tend to fluctuate between broadly stable long-term contract rates and spot market prices more sensitive to changes in demand and the availability of capacity. Prices in spot markets for shipping, trucking and other logistics services have risen sharply this year.
Overall, national shipping rates for freight transportation by road and rail in the United States have increased by about 23% this year compared to 2020, according to Cass Information Systems. Inc.,
which handles freight payments for businesses.
A separate measure of the Logistics Managers Index that tracks overall logistics prices, including freight, warehousing and inventory prices, hit a record high in November, up 3.4% from to October and 14% year-on-year. The index was launched in 2016.
Trucking companies and other logistics companies note their own higher costs, including rising wages, as they have sought workers in a tight labor market.
âAs long as we have core inflation throughout the economy, you will see that inflation is reflected in the cost of goods and services, including trucking,â said Derek Leathers, managing director of full load transporter based in Omaha, Neb. Werner Enterprises. Inc.
Mr Leathers, who has said contract rates could rise by percentages of anywhere from one to double digits in 2022, expects price increases to moderate as demand for transport declines and companies end up working. replenish depleted stocks. However, he said, “We don’t anticipate this until 2023. We see the whole of 2022 as a constrained market with inflationary pressures and significant equipment disruptions.”
Parcel shipping prices closest to consumers are rising at the fastest rate in nearly a decade, as pandemic-induced demand shifts pricing power to carriers that deliver packages to homes and businesses . The giants of FedEx delivery Corp.
and United Parcel Service Inc.
both said rates would increase an average of 5.9% next year across most services, the first time in eight years that either company has seen annual increases above 4.9% .
Prices for shipping sea containers are expected to hit record highs under annual contracts that are typically negotiated at the start of the year for the peak shipping season, according to Xeneta, a Norwegian-based transportation and purchasing data specialist.
Xeneta said the spot price to ship a 40-foot container from Shanghai to Los Angeles earlier this month was 75% higher than the same period last year. The carriers “enter into contract negotiations by currently holding the lion’s share of the aces,” Peter Sand, chief analyst at Xeneta.
Seko Logistics, a freight forwarder based in Itasca, Ill., Says its contract rate to ship a 40-foot container from Asia to the West Coast of the United States could double next year to between $ 6,500 and $ 7,000. In 2019, the company paid ocean carriers approximately $ 1,500 for the same service.
âThe carriers are in full control and the rest of us just sit idly by waiting for the carriers to tell us what to do,â said Craig Grossgart, senior vice president of global ocean freight for Seko.
Gordon Downes, managing director of New York Shipping Exchange Inc., which monitors and enforces shipping contracts, said talks between some carriers and customers have already started, rather than wait until the new year as shippers who have waited until the last minute during the last negotiation period revealed that carriers had already run out of space.
In trucking, the outlook for rate hikes next year follows a sharp increase in contract prices that companies negotiate with trucking companies and freight brokers. Last month, the average contract rate hit a record high of $ 2.51 per mile excluding fuel surcharge, according to online freight market DAT Solutions LLC.
To avoid competing for scarce trucking capacity in the open market, some retailers and manufacturers are renewing existing contracts with carriers for 2022 in exchange for moderate price increases, said Chris Caplice, chief scientist at DAT and executive director. from the Massachusetts Institute of Technology’s Center. for transport and logistics. “If you bid you can expect your rates to be on average 10-15% higher,” said Dr Caplice.
The cost of storing goods is also expected to rise faster, as warehouse labor costs rise and facility owners seek to raise prices to replace expired leases that had allowed companies to avoid the sharp increase in rents in 2021.
Rental prices for industrial properties have jumped 25% on average nationwide from rates paid by tenants at the end of five-year leases that expired in the third quarter, real estate firm CBRE Group Inc.
said early December.
Landlords are even reluctant to accept new long-term leases that take into account current market rates, believing that limited capacity will drive prices up in years to come, said Carolyn Salzer, head of industrial research and logistics in the Americas at Real. Cushman & Wakefield real estate company.
âIn five years the rents are going to be higher,â she said. âIt is therefore in the best interests of owner investors to enter into a short-term lease now. “
Third-party logistics operators who provide outsourced distribution and fulfillment services also pass higher labor costs on to their customers, as competition for warehouse workers increases wages.
Shippers are trying in various ways to contain transportation inflation, such as consolidating more loads to minimize truck trips and renting truck trailers for storage rather than paying rising storage rents.
But experts say companies have little choice but to either absorb the cost or pass it on to their customers.
Overall, transportation rarely exceeds more than 7% of the cost of goods shipped, said Satish Jindel, president of SJ Consulting Group Inc. For most businesses, âthe value of the product you are selling and the importance of this sale is much more than a slight increase in transportation costs, âMr. Jindel said. âYou don’t mean to say you lost a sale because you were trying to find a cheaper way to get it out there. “
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