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The Carrier Crunch: Why Prices Continue to Climb and How to Remain Competitive

by LJM Group

Companies across the globe are seeing steep increases in shipping and logistics expenses, following record supply-chain costs driven by the covid-19 pandemic. As a result, transportation providers are seeking major increases for contracts, citing inflationary pressure driven by strong demand and tight capacity in freight markets, which is likely to persist for the foreseeable future.

Shipping hub congestion that began during the pandemic has further impacted exporters, who are struggling to get their products to global markets because of unpredictable sailing schedules, ocean Carriers denying American cargo, and skyrocketing freight costs. For example, shipping rates for a 40-foot container rose from $1,300 before the pandemic up to $11,000 by September 2021. In 2022, shipping costs continue to increase, with recent estimates suggesting shipping costs remain 41% higher globally, compared to previous year data.

Shipping Carriers Are in Control

With high shipping demand still far outweighing tight capacity across the freight sector, industry experts say transport operators have unprecedented leverage to raise prices when negotiating new contracts. Ocean-shipping executives say they expect the rates set in many annual contracts to double compared with agreements struck earlier this year, even before supply-chain demands exceeded capacity. Some trucking companies project double-digit growth in contract rates throughout 2022.

Prices are likewise rising steadily across the freight sector, including parcel delivery, trucking, ocean shipping, and warehousing. While most freight-transportation contracts are negotiated annually, many large shippers have multi-year agreements with a variety of Carriers that allow some flexibility in pricing structure.

According to a recent DHL Sea Intelligence report, there are key indicators that reliability will further decline over the next months. These include the end of the lockdown in Shanghai, lingering port strikes in Europe and the US West Coast, and the start of the traditional peak shipping season. Highlighting additional pricing pressures, Denmark-based Moller-Maersk, the world’s second-largest container Carrier, reported estimated profits to be the largest in Danish history, and will likely exceed its combined results from the past nine years!!

New Protections for Consumers

As one potential protective measure for consumers, US lawmakers recently initiated reforms designed to restrict excessive international ocean shipping costs, and ease supply chain backlogs that have resulted in rapid price increases and delays for US exporters to get their goods to the global market. By expanding the authority of the Federal Maritime Commission (FMC), regulators are expected to be able to better protect US business interests that rely on ocean transportation, and level the negotiation playing field for American exporters and importers by providing the FMC the tools it needs for effective oversight of international ocean Carriers. These oversight and enforcement tools are expected to help the FMC eliminate unfair charges, prevent unreasonable denial of American exports, and prevent other unfair practices harming American businesses and consumers.

Take Control and Remain Competitive

Negotiating shipping contracts can be a daunting task in a high-demand environment. Carriers now hold considerable advantages over the businesses they work with, setting record-breaking long-term parcel  contract rates. Businesses face a number of challenges, driven by ever-changing price and regulatory issues, outdated freight rates, and contract terms locking in timing, package sizing, and service levels.

In a fluid regulatory landscape, customers are further challenged by contract confidentiality, where businesses have no comparative data to benchmark the contracts of competitors. International fuel price fluctuations exacerbate the ability to control costs, and trucking service providers report workforce shortages as a growing problem, with a recent study by the American Trucking Association estimating a nationwide shortage of drivers exceeding 160,000 by 2030.

To remain competitive, companies need up-to-date knowledge and expertise on corporate pricing structures, provided by professionals who specialize in parcel Carrier contract negotiations and pricing management. While Carriers are seeing unprecedented demand for their services, contracts and rates can still be negotiated to the advantage of shippers by using superior insider knowledge. Transportation and logistics management specialists like LJM Group help businesses reduce shipping costs by as much as 30% through expertly negotiated Carrier contracts, as well as Parcel Invoice Auditing Services, Logistics Advisory Services, and other shipping consulting services. 

In times of supply chain delays, as  we are currently experiencing, it is more important than ever to be educated and informed. LJM Group continually helps their clients better understand, manage, and control their shipping expense. 

Sources

Logistics Managers Index Report, June 2022:  
https://www.the-lmi.com/june-2022-logistics-managers-index.html
Ocean Freight Market Update, July 2022.

DHL Ocean Freight Market Update, July 2022:
https://www.dhl.com/content/dam/dhl/global/dhl-global-forwarding/documents/pdf/glo-dgf-ocean-market-update.pd

Bloomberg News, September 2021:
https://www.bloomberg.com/news/articles/2021-09-21/maersk-is-now-heading-for-biggest-profit-i
American Trucking Association, Testimony before the House Transportation and Infrastructure

Committee, November 2021:
https://www.trucking.org/news-insights/ata-president-infrastructure-workforce-remain-truckings-top-priority

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