Hello, it’s IINO.
I would like to broadcast IINO san’s Logistics Radio.
Today, I would like to talk about an article in the Wall Street Journal, “Shipping and Logistics Costs Expected to Rise in 2022.”
Daily Logistics Radio by IINO san in 20th Dec. 2021
North America Substantially Increase Contracted Freight Rates in 2022
Shipping and logistics companies in North America are seeking large increases in contracted freight rates for the coming year, and inflationary pressures will persist.
The article said that companies (customers) are trying to prepare for a “further skyrocket” in shipping and logistics prices next year.
I thought it would settle at the current highs, but it may still go up. At the moment, prices are rising across the entire freight sector including courier, trucking, ocean freight and warehousing.
Contracted Freight Rates and Price Increases in 2022
In the freight forwarding and logistics market, there are long-term contract rates and spot rates.
And freight rates generally move back and forth between stable long-term contract rates and spot prices that are sensitive to changes in demand and other factors.
However, as you know, the market prices for spot ocean freight, trucking and other logistics services have risen sharply this year.
Overall, domestic transportation rates in North America have soared about 23% since 2020.
Trucking companies and other logistics companies do not have any workers in the labor market, and to secure a workforce, there is a rise in the cost of salaries.
The article says that contract rates could rise in 2022 and expects price increases to moderate as transportation demand eases and companies finish replenishing depleted inventories.
There will be inflationary pressure during 2022, but it does not expect until 2023, one trucking company president said.
Price Increase for each Logistics Industry
The parcel-shipping prices that are closest to consumers are rising at the fastest pace in nearly a decade as shifted pricing power to carriers.
FedEx and United Parcel Service have announced that prices will increase an average of 5.9 percent for most services next year.
Ocean container shipping rates have annual contracts that are negotiated at the beginning of the year, and these are likely to rise to record levels.
In North America, this is generally negotiated at the beginning of the year, but the article reports that it has already begun.
Contract rates for 40-feet from Asia to the U.S. West Coast could double next year from USD6,500 to USD7,000 this year. In 2019 (two years ago) it was about USD1,500, which is a record price increase.
Trucking also saw record high average contract freight rates in November.
Avoid Bidding and Extend Existing Contracts
Some retailers and manufacturers are extending their existing contracts with carriers for 2022 in exchange for modest price increases. It is because that if they go out to bid, they can expect their rates will be 10% to 15% higher, on average.
Labor costs are also rising in warehouses, and warehouse owners are demanding higher prices from tenants whose contracts are expiring. This will cause the cost of storing goods to rise more rapidly.
Third-party logistics operators are also passing higher labor costs on to their customers as competition for warehouse workers boosts wages.
Thus, the overall price of transportation in North America is increasing.
Commodity Prices Rise in Proportion to Transportation Costs
Experts say companies have little choice other than absorbing the cost or passing it along to their customers. Overall, transportation rarely exceeds more than 7% of the cost of goods being shipped, said one consulting company president.
For most companies, the value of the product you’re selling and the importance of that sale is much greater than a slight increase in transportation costs. And they don’t want to lost a sale because they were trying to find a cheaper way of getting it there.
As the Wall Street Journal reported, within North America, I feel that logistics costs will rise across the board in 2022, which will be passed on to selling prices.
In that sense, there will be inflationary pressures in 2022 as transportation cost increases will also affect the price of goods.
As I mentioned in a previous radio, the talk was a reminder that higher fares are definitely the default for 2022.
I will continue to provide more information as it becomes available.