Any business owner who deals with physical inventory knows that freight costs have gone up in the last year or two. While some variations are normal, the sharp spike in prices now represents a pressing problem. For example, rising grain and oil costs could lead to a nearly 4 percent increase in consumer food products.
Business owners face a choice between eating those costs and shaving already thin profit margins or passing those costs along to customers. Unfortunately, passing the costs along can also mean lost revenue as customers spend more to buy less.
If you’re wondering why freight rates are on the rise, keep reading for a breakdown of some of the key causes.
Supply Chain Disruption
The most obvious culprit in the rise in business shipping costs is the supply chain disruption. That one you can mostly blame on Covid.
The social distancing orders, mandatory quarantines, and full-blown lockdown orders made it impossible for shippers to staff their facilities. They simply couldn’t get enough bodies in place to get the work done.
That combined with a wave of retirement left ports with enormous backlogs. Ships often waited days or even weeks before they could unload their cargo. All that time spent in port wasted fuel and reduced the number of loads ships could move in a year.
That forced an increase in prices across the board.
Truck Driver Shortage
On the domestic front, the U.S. is in the middle of a truck driver shortage. Once freight finally gets off of those ships and onto the docks, many businesses must wait until a trucking company can free up drivers to make the pickups and deliveries.
That puts extra pressure on the companies and the drivers. Yet, the shortage often means too few drivers for too many trucks. Those unused trucks drive up costs as well.
While interest in becoming a truck driver has risen recently, it’s still an ongoing problem.
More recently, fuel prices rose sharply. Some of that you can lay at the feet of supply chain issues, but some of it stems from the war in the Ukraine.
Russia is one of the major producers of oil. Yet, a number of nations have levied sanctions against Russia in response to its invasion of Ukraine. The U.S., for example, banned imports of Russian oil.
Rising fuel costs always drive up the costs of freight transportation and trucking rates in particular. It’s one of the key costs in freight transportation that logistics companies cannot control for and must recoup to stay in business.
Freight Costs and You
As a business owner, freight costs affect you directly. You cannot stop buying your inventory, which means you must pay the shipping costs. Unfortunately, the rising costs of business shipping put you in a position of cutting into your revenue stream or raising prices yourself.
Unfortunately, the problems that are driving those higher costs likely won’t disappear in the short term. All you can do is look for a logistics company that offers superior efficiency to keep costs down.
Genex specializes in logistics services. If you think you need a new logistic provider, contact Genex today.