In a time of historic consumer demand and limited space, carriers are using their power to increase the price of shipping goods around the globe.
The surge in shipping costs is a result of record volumes from pent up consumer demand after months of quarantine; no additional vessels available to meet increased demand; and supply chain stress caused by the simultaneous reopening of virtually every global economy. Some say multiple stimulus checks from the U.S. government may have played into that demand spike, as well. This has fundamentally changed the way carriers view their business.
Carriers no longer focus on securing volume. Instead, they have shifted their efforts to increasing revenue. In terms of contracts and contract types, carriers are moving away from long term fixed deals to the spot market for the first time in many years, and they are concentrating on profitability. As a result, for at least this year, carriers are only willing to sign contracts that guarantee the current high rates – without any perks.
“Carriers have the upper hand in this year’s contract negotiations, and they are taking full advantage,” said Peter Hsieh, Vice President of Sales and Marketing for OEC Group’s Northeast Region. “It is a simple case of supply and demand. There is very limited capacity and significant demand for any open space on every available ship because consumers are purchasing products in record numbers. As a result, carriers haven’t been pressured to give in on their fees, so they’re not.”
To make matters worse, this comes at a time when carrier reliability is at an all-time low. In any other year, these problems and the weakened state of carrier services would give shippers a robust upper hand, but volume and demand are so high that those issues have had no effect. Now, clients that are forced to pay high rates to ship their products don’t even know if their goods will get to the intended destination in time.
“The last thing you want to do in a market like this is postpone your shipments, hoping things will improve next week, next month,” said Frank Costa, Vice President of Sales at OEC Group’s North East Region. “Finding a reliable partner with sufficient space to keep your shipments moving is vitally important to maintaining your supply chain integrity, and things will not improve in the short term.