Today, uncertainty has taken a firm grasp in the ocean freight industry. Since the pandemic, the ocean freight market has seen unprecedented port congestion, driver and container shortages in addition to large increases in freight rates in excess of 300% to 400%.
Key Causes for Ocean Freight Price Increases
A confluence of factors has caused a meteoric rise in ocean freight costs that the onset of the COVID-19 pandemic helped to instigate. These include the following:
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Lockdown restrictions slowing global trade. As a result of this slowdown, ocean freight companies have reduced the number of ships transporting products.
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Lack of labor and port congestion. Labor shortages have been acute at ports for loading and off-loading products. The resulting build-up of waiting vessels has caused ocean carriers to lose money due to the number of times these vessels can make additional sailings.
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Consumer purchasing patterns. Since the onset of the pandemic, consumers have been more apt to purchase online, placing additional strain on e-commerce supply chains. This, in turn, has stressed shipping methods such as ocean freight.
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Increased profits. The pandemic has brought about increase in ocean freight pricing in the presence of exploding consumer demand. While there are legitimate supply chain issues underlying most of the increases, there is a bit of profit-taking in play as well.
Considerations to Mitigate Ocean Freight Cost Increases
In the current environment, securing reductions in ocean freight costs will be difficult. We recommended that a mitigation strategy be employed to better assess what should be shipped via ocean vs. through alternative methods. We recommend the following assessments be included as part of your ocean freight shipping cost mitigation strategy:
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Plan and extend lead times. Avoid peak ocean freight season (July-December) as much as possible or reduce critical ordering during peak season.
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Look to leverage other freight methods (air, for example). Use these means for a more time-sensitive product to reduce lead times via ocean transport.
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Temporarily reduce Just in Time (JIT) stock. Consider buying safety stock to mitigate delays and the need for more emergency shipments.
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Identify alternative ports. Can alternative ports be used for loading or off-loading? Less congested ports tend to have more available equipment and labor to turn around shipments more quickly.
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Alternate ocean shippers. Utilize different carriers based on rates, capacity, and more frequent sailings. This will help mitigate any delays or possible cost increases by fostering competition rather than relying on one carrier.
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Consolidate shipments when the opportunity arises. Due to labor and port issues causing delays, lack of available containers is also a contributing factor to rising prices. Look for opportunities to consolidate shipments from multiple vendors.
Continual ocean freight delays and rising costs demand a strategic approach. By optimizing lead times, leveraging alternative shipping methods, and consolidating shipments, procurement teams can minimize disruptions and cost increases. Strategic Sourcing and Supplier Management Services can further enhance resilience, improve cost efficiency, and drive smarter procurement decisions in this evolving landscape.
Reach out to us today to discuss how we can help support these negotiations!
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