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How global shipping cost increases in 2021 have affected the price of imported goods

SHIPPING CONTAINERS

 

2021 has witnessed drastic changes in different sectors with the shipping industry experiencing changes in Australia as well as on a global scale.

In the last couple of months, the cost of shipping goods has skyrocketed with international shipping costs at an all-time high. The shipping industry is simply faced with its most challenging period in terms of pricing.

To put things into context, the cost of shipping a Full Container Load of a 40-foot container from China to Australia now costs about 25%-50% higher than the price it cost a year ago.

The question then is; why has it increased dramatically in 2021?

The COVID-19 pandemic is one of the biggest reasons why prices are at an all-time high in 2021. The pandemic created an unprecedented socio-economic crisis on a global scale.

China, Australia’s largest trading partner was one of the worst affected countries affected by the pandemic and although China was quick to reopen for trade, the subsequent threat of the Delta variant of the virus meant that more restrictions had to be put in place to contain the outbreak.

The second contributing factor to the increase in shipping costs is the global shortage of shipping containers.

With government restrictions and lockdown of borders and seaports, shipping containers are stuck in different regions creating a shortage hence a premium amount being charged on the few available containers.

An increase in demand for goods as eCommerce businesses have thrived more in this period has also led to an increase in shipping costs as Chinese shipping container manufacturers struggle to manufacture containers to meet up the demand in the market.

With projections showing that the costs of shipping goods would not come down until 2023 as the industry tries to adjust to the new realities, businesses in Australia have to prepare for the cost increases and find solutions.

Transportation of goods from China to Australia can be done through two major methods and while sea freight is the more commonly used method, the explosion of shipping costs has necessitated the need for solutions.

Airfreight is the second method of transportation of goods from China to Australia and while typically it may seem to be expensive, it has some advantages.

Transportation of goods by air is faster than sea freight and with shipping costs extremely high, air freight may be a more affordable option right now especially because goods can be delivered a lot faster.

Another solution to the increased shipping costs and a method through which businesses in Australia can prepare for the shipping costs is to gradually begin to move their manufacturing location.

While this may seem like an absurd idea because China is the global manufacturing leader, the last year and a half has also shown China to be the global shipping crisis haven at the moment.

Concentration and reliance on businesses in one area have never been a good economic idea and outsourcing manufacturing to other countries that can provide similar solutions is the right way to go.

Investing in and promoting local manufacturing for the long term is a great way for Australian businesses to prepare for the cost increases.

Alongside the drastic increase in shipping costs, 2021 has also witnessed an increase in global shipping congestion.

For example, before the COVID-19 pandemic, the waiting time for vessels to berth at the Yantian port (part of the world’s 4th largest container port) in Shenzhen was half a day. Now, however, vessels have to wait for as long as a period of 16 days before berthing at the port.

Apart from the global health threat which has led to more restrictions and shutdowns such as the shutdown of the Yantian port in May 2021, one of the major factors of the global congestion is the accident that happened at the Suez Canal earlier in the year.

In March 2021, the shipping vessel Ever Given got stuck in the Suez Canal which led to a blockage of the entire waterway for a week.

Statistically, about 12% of the world’s trade is shipped through the Canal and this delay has led to a backlog of ships that have yet to berth as well as ships that have not been able to be dispatch.

With the global shipping congestion estimated to take a very long period before things can be cleared up, businesses in Australia have to prepare for these delays and look for solutions.

One of the ways to prepare is to purchase goods in bulk to store up so that they can have excess goods in-store and can afford to order ahead and wait for the period until their goods get shipped to them.

However, this is not a long-term solution with exorbitant shipping costs, the high purchase cost of goods, and the risk of bulk purchase of goods proving that better solutions should be worked on.

Airfreight is a long-term solution to avoid shipping delays of goods and products coming from overseas to Australia with some eCommerce giants already taking this approach.

While this may not seem a great solution for small-scale businesses or less than a container load (LCL), the cost of delayed shipping and high shipping cost is a greater risk.

More than ever before, the COVID-19 pandemic has laid bare the cracks in the shipping system and has challenged eCommerce businesses to reevaluate how they prepare themselves for peak season for the supply chain in the future.

This season has shown that one of the ways businesses can prepare themselves is to create a flexible logistics module that can quickly adjust and react to unplanned occurrences to still be able to cater to the demands of customers.

Additionally, an important way for businesses to prepare themselves for peak season for the supply chain in the future is to optimize warehouse operations.

Businesses have seen the need to spread large quantities of products and goods across multiple warehouses that will also be distribution centers and retail locations.

This helps to ensure the availability of goods at multiple locations, reduces the cost of transporting goods, improves the speed of delivery, and the ability to satisfy customers even in the event of any unplanned event.

Third-party logistics centers have been in operation to meet businesses’ demands of logistics and support to satisfy customers and while they have advantages, having your products at your warehouse is a lot better.

Owning your warehouse is cost-effective in the long term as it saves you the cost of paying and outsourcing for third-party warehouses.

The biggest benefit of having your warehouse however is that it allows you to have total and direct control over your goods and inventory.

With the variety of warehouse management software available, you can track your inventory, customers’ orders and ensure your goods are properly handled and stored accurately.

There is also the added benefit of being able to choose where you want to build or purchase your warehouse to enable convenience and strategic planning.

Of course, owning your warehouse means you can have access to tax benefits that are accruable to your warehouse space as a commercial real estate property.

With these uncertain times, one of the worries for business owners remains how to maintain their profit margins to avoid them having to fold up and lose their business in the long term.

A solution to this worry is to pass on the cost to your customers. For example, shipping containers are being kept at sea for longer before being able to berth and this is incurring an increase in cost for business owners.

Business owners cannot afford to bear the cost only but can pass the costs to customers by factoring in the length of time it would take in the price of the goods.

Another solution for business owners is to purchase and import goods in larger quantities from overseas.

This would help reduce the cost of transportation and would also ensure that goods and products are always available for customers when they need them instead of having to pay exorbitant fees to get goods delivered fast and early.

If you have a Bulk Order Request then Fill in this Form and we at Awesome Pack can provide you with the best possible prices.

One thing the world can generally agree on is that this year has certainly changed the landscape of businesses and impacted every industry.

The impact has most certainly been felt globally in the shipping industry with the price of imported goods skyrocketing to an all-time high.

However, businesses must continue to evolve and thrive just like the rest of the world.

 

Always helping you on your eCommerce journey,

 

The Awesome Pack Team

8/72-76 Fenton St, Huntingdale VIC 3166

Ph: 1300 816 800