The pandemic has caused a lot of problems to the economy. Since its beginning in 2020, it has changed the way business is done. Because of this many industries and companies, like the moving industry and its leader Four Winds Saudi Arabia in Saudi Arabia, have suffered financially. In the second half of 2020, the economy started to recover. Freight rate surge in 2021 is one of the many obstacles on the way to total recovery.
Why is there a freight rate surge in 2021?
There are a few reasons that are contributing to this. Shortage of containers, soaring demands, a small number of ships and dock workers, and saturated ports. Because of this every freight path is packed to its maximum capacity and cargo transport services are overbooked. Recent recurring Covid outbreaks in China made the situation even worse. The problems are the most noticeable on long-distance routes. Due to this, the shipping is much more expensive than on short routes.
Rising shipping costs
Shipping fees were always thought to have an insignificant impact on inflation because they were a small part of the overall price. The shipping costs are rising, making them a bigger part of the price. The 205% increase in freight forwarding costs in the past year could result in prices rising by 2%. For this reason, retailers can do one of the three things:
- stop trading (the freight rate surge in 2021 made this the only option for a lot of vendors)
- raise prices
- pass the cost onto later
All of these options would do the same thing, make the goods more expensive. Prices are rising no matter the choice, for that reason some goods are not imported anymore to certain parts of the world because they are too expensive (olives from EU to the USA for example).
Freight rates rising are more painful for some companies than for others
Bulky low-value items are the most painful to transport in this situation. Because of their size, you cant fit many of them in a container. This makes the shipping fee take up to 62% of the retail price. Some companies cannot survive working like this. They are desperately trying to find a way to work around the high costs, like the freight forwarding companies in Dammam. As stated before, some have stopped shipping to certain locations while others are looking for goods from nearer locations. More and more companies will make efforts to shorten the supply chain the longer this situation lasts. Some European firms are using truck convoys instead of ocean freight to get their goods transported, which is an extreme method, but it works.
Freight rate surge in 2021 – conclusion
As stated before, shipping costs only represent a small fraction of the final price, making them a minor problem. With the end of lockdown, consumers are shifting from goods to services, but the higher shipping costs still persist. The more the freight rate surge in 2021 continues, the more likely the producers are to pass the higher costs onto the consumers.