5 Ways Businesses:

Navigate Rising Shipping Costs

If you’ve tried restocking your inventory in the last year, you probably had a near-heart attack. Soaring shipping costs across the world have upended the logistics industry.

It is difficult for many businesses to keep up with costs while keeping their customers satisfied.

And the problem is twofold the Amazon effect has skewed customers’ expectations for fast, free delivery on the one hand, and rising fuel prices have caused rates to climb on the other.

Fortunately, businesses can do a few things to navigate this. And plenty of them already are.

Why are shipping costs so high in the first place?

Before diving into solutions, it helps to understand why shipping prices have risen in the past year. We all understand how the pandemic upended supply chains, leading to

unprecedented demand in the logistics industry, but there are other factors.

Shipping costs are typically driven by three primary factors: fuel prices, labor costs, and the cost of materials used.

  • Fuel prices can vary wildly depending on geography and time of year. In 2021, fuel prices skyrocketed due to an unseasonably cold winter and increased demand for delivery
    Geopolitical tensions, the influx of car and plane travel post-pandemic, and increased global trade also impact these rates.
  • Labor costs have risen as couriers deal with new regulations and safety protocols to operate in the post-COVID world. Historically low truck driver salaries make matters worse—
    one of America’s top ten most dangerous jobs (and a critical proponent of the economy) isn’t valued as such. As a result, would-be truckers are looking elsewhere for a
  • Cardboard boxes, pallets, tape, and other packaging supplies are expensive. The more complex a shipment is to package, the higher the associated cost. Insurance, equipment, and
    maintenance costs for commercial vehicles also rise, playing a role in overall cost.

Source: International Monetary Fund

The World Economic Forum and IMF report a drop in global shipping rates, but it is comparatively small when looking at the damage already done.

But high shipping costs worldwide can lead to major struggles for business owners, fleet managers, and consumers.

What do high shipping costs mean for business owners?

For business owners or e-commerce merchants, rising shipping costs can be a significant blow to the bottom line. Margins are tight enough as it is, and as customers demand faster, cheaper shipping options, it can be hard to keep up.

According to the logistics monitor, Project44, international freight management between China and major US & European harbors has dramatically stagnated since late March 2022.

For businesses relying on international shipping, this has resulted in four times higher delay rates over the last year.

The cost of shipping containers across the seas skyrocketed by 700% in just 18 months following March 2020. Unreasonable detention and demurrage fees were imposed by ocean carriers, which led to an average hike in empty container park rates of 61% since September 2020.

Legislation such as the Ocean Shipping Reform Act (OSRA 22) hedges risk against future crises, but continuous inflation will still increase prices.

5 Strategies Businesses Use to Mitigate Rising Shipping Costs

Ultimately, all these changes are being passed onto those further down the supply chain (i.e., businesses and consumers). This makes it hard to keep prices competitive, create a reliable customer experience, and maintain profitability.

But the good news is that businesses can take action to lower costs and improve operational efficiency. The following strategies can help manage rising shipping costs while ensuring customers still get the service they expect.

1. Increase supply chain resilience.

Supply chain resilience is critical for businesses that rely heavily on imported goods or services. Issues with cargo shipping can cause delays and unexpected expenses, placing further strain on already tight budgets.

To increase your supply chain resilience, it’s worth booking your cargo well in advance to avoid the potential of last-minute changes. Investing in digital systems to track disruptions in real-time will also help you stay up-to-date with the situation at any given moment.

Building contingency plans will also help you stay prepared for emergency scenarios. You should plan ahead for potential factors such as weather, pandemics, and labor strikes

that could cause shipping delays and stay on top of current events in your sourcing areas.

2. Re-evaluate shipping networks.

Businesses can also benefit from re-evaluating their current shipping networks. Do you rely on a single provider for all your shipments? By exploring the market, businesses can look at potential opportunities to save money in different countries or locations.

There are a few key considerations to keep in mind when re-evaluating shipping networks.

  • Multi-Modal Shipping: Multi-modal shipping enables businesses to combine different transportation modes, such as air, road, and sea freight. This can help cut
    costs by allowing you to choose the best option depending on your shipment’s size, weight, and destination.
  • Alternatives to China: As China’s labor costs continue to increase, businesses are increasingly moving their manufacturing and import operations to other Asian countries. Vietnam
    has been a major proponent of this, with 0% corporate tax for foreign investors and labor rates about half of those in China.
  • In-House Shipping: In-house shipping solutions can give businesses more control over their supply chain costs. Larger companies typically use these solutions and involve
    forming an in-house carrier network. They have a dedicated fleet of trucks and drivers and negotiated rates with carriers. This large investment might not always be
    feasible, but it’s worth considering if you have the budget.
  • Third-Party Logistics (3PL): Working with a 3PL provider can help streamline your shipping network and improve efficiency. These companies typically have established
    relationships with carriers and an in-depth understanding of different transport solutions. They also offer support services such as warehousing, inventory management, and
    freight forwarding.

There is no one-size-fits-all solution to this issue. Still, businesses of all sizes must reevaluate their product sources to stay competitive in today’s economy.

3. Simplify your packaging process to save time and money.

Businesses can cut costs and reduce delays by simplifying their packaging process. This involves using fewer materials, lighter-weight materials and ensuring that packages are easier to open when they reach their destination.

Depending on the company, its products, and its customers’ needs, there are a few ways to reduce packaging costs.

  • Pack smarter. By utilizing creative packaging techniques, businesses can save on materials and reduce the weight of their shipments. Replace unnecessary packaging with more
    durable and lighter materials such as airbags.
  • Automate the process. Investing in automated packing machines can help speed up the packaging process and reduce errors. Automation can also be used to print shipping labels,
    which saves time and money.
  • Make returns easier. Customer returns should be as easy as possible for customers. Incorporate return labels onto product packaging and make sure your packages are easy to open
    and resealable when necessary.
  • Design condensable products. Product design affects how much packaging is required for each item. Designing a product that can be folded or condensed and shipped in
    smaller packages can help save on material costs.

Reducing the number of components used in the packing process will save money and make it easier for shippers to keep track of their inventory.

4. Negotiate better deals with carriers.

Freight rates can vary depending on the carrier, so negotiating these rates can benefit businesses. But before negotiations, you need to look at the entire picture, including your business and theirs.

  • Clearly understand your operating costs. You need to know exactly how much it costs to run your business to make budgeting and pricing decisions where they make sense.
    Trucking companies should avoid rates too low to sustain their operations. Products businesses should avoid rates that are too high to maintain a sustainable profit
  • Look at the drop-off location. Many organizations have suppliers that ship directly to their warehouses. But many also have pick-up and drop-off ports, which may affect the shipping cost and timetable. You may get lower rates out of certain ports, but they may impact the cost and timing of your last-mile deliveries.
  • Verify your carrier and supplier information. There are plenty of fraudulent carriers and suppliers out there, and running a credit check on a prospective partner can help you avoid dealing with them. Asking for documents such as bills of lading and proof of insurance can also help you verify their legitimacy.
  • Get everything in writing. After you have reached an agreement with a carrier, make sure to get everything in writing. Make sure the contract includes standard exceptions such as weight, size, and destination restrictions.

When dealing with those responsible for shipping or handling your goods, it’s important to remember that you are the only one looking out for your business—it pays to be informed and prepared when dealing with these issues.

5. Make the most of technology like route optimization and automation tools.

Avoiding costly mistakes with freight carriers, limiting your reliance on any one supplier, and designing products and packaging to make shipping more efficient can all help

businesses save money on their logistics costs.

But all of these areas bring costly risks that come with the trade. The only way to guarantee cost savings and improved efficiency is to use technology to inform and optimize

your shipping processes.

There are numerous essential tools you can use to save time and money:

  • Route Optimization Software: Route planning software helps you optimize routes and deliveries to ensure your shipments are taken at the most cost-effective route. This
    reduces drive time by 35%, further reducing fuel and maintenance costs and offsetting some of the lead time and costs associated with shipping. It also helps you monitor driver performance, avoid dangerous roads, and plan for contingencies. The end result is better oversight for fleet managers, improved driver efficacy and satisfaction, and cost savings for the business.
  • Fleet Telematics: The data gathered and provided by fleet telematics can help you identify waste in your operations and make decisions based on data rather than hunches. This is especially important when dealing with larger shipments that require more coordination. For example, you can use telematics to monitor the progress of shipments, find the most cost-effective route and ensure deliveries are made on time.
  • Automation Tools: Automating manual processes such as invoicing and billing can help save a lot of time and money, allowing you to concentrate more on refining your operations rather than paperwork. Automation tools can help you automate invoicing, order tracking, and shipment management.
  • Warehouse Management Systems (WMS): Given global supply chain complexity and increasing customer demands, a WMS plays an essential role in supply chain management. Instead of holding onto excess inventory “just in case” your supplier or carrier changes their terms or faces delays, a WMS can provide detailed data on inventory levels and order fulfillment times while streamlining communication for better supply chain relations. This allows you to make more informed decisions about when and where to place orders for the most cost-effective sourcing and shipping. Plus, it automates the shipping, return, and inventory tracking processes.

The tech stack you choose to power your logistics operations should be tailored to the needs of your business. The goal is to reduce costs, increase agility, and maximize efficiency.

Final Thoughts

Whether shipping costs rise, fall, or stay the same, the burden falls on logistics workers to find creative and cost-effective ways to maintain their operations.

Increasing complexities in global markets require companies to be able to adapt and adjust their supply chain operations quickly, accurately, and cost-effectively.

By selecting the right tools and technologies, businesses can take control of their logistics operations, optimize routes and deliveries, reduce manual processes, and stay on top of costs to remain competitive in an ever-changing market.

With route optimization software, businesses save time and money in their logistics processes and efficiencies regardless of the market conditions.

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