Peak Season + Rising Rates = Expensive Times Ahead
Published on May 3, 2022
Carriers try to raise rates throughout the year, but the most significant increases are usually in August. From Back-to-School to last-minute holiday sales, there’s no slowdown. The final five months of the year are prime shopping season, making them prime shipping season too.
Add to that the Golden Week, the 7-day Chinese national holiday, starts on October 1. Factories and warehouses completely shut down at that time. If Thanksgiving orders aren’t in before Golden Week arrives, Black Friday sales suffer.
Shippers expect to pay a peak season surcharge. Since volume makes rates go up anyway, adding a further seasonal surcharge can feel like adding insult on top of injury – but shippers have little choice but to pay it.
Rates Landscape for 2022
Home to China’s largest port, Shanghai is deep in the throes of the latest COVID-19 variant wave. With manufacturing plants and warehouses closed and trucking limited thanks to traveling restrictions and quarantines, the availability of goods has plummeted. The city’s air and ocean ports remain open, but labor shortages related to zero-tolerance home confinement restrictions mean operations are slow.
Shenzhen’s outbreak in 2021 crippled its Yantian port, resulting in a 70% drop in operations for nearly a week and causing a 20% spike in ocean rates to Europe and the U.S. So far in 2022, despite what’s happening in Shanghai, ocean rates in the U.S. have remained stable. Indications are that trans-Pacific volumes will remain strong. When operations rebound, there could be a surge in shipments accompanied by increased rates.
Some pulling forward of summertime demand is expected to get in front of peak season congestion and labor disruptions along the West Coast of the U.S. this year. However, inflation has begun to impact consumer demand, which is waning and causing moderate potential congestion and price hikes.
Global container freight rates for the first week of April 2022 were119% of 2021 levels. Also compared to last year, Asia-U.S. West Coast rates were 168% of 2021; Asia-East Coast rates, 192%; Asia-North Europe rates, 65%; and North Europe-U.S. East Coast rates, 172%.
Asia-Europe air freight operations continue to experience disruption from ongoing coronavirus outbreaks and the war in the Ukraine. Diminished demand out of Shanghai has resulted in air carriers canceling flights due to limited goods available to ship. However, despite reduced demand, the reduction in ground handling and capacity has caused rate increases.
Soaring oil prices mean higher diesel prices. U.S. diesel is up significantly over last year and is likely to increase further as sanctions mount against Russia, the world’s third-largest oil producer. As price increases pass down to shippers, international freight rates will increase even more.
Trucking logjams are happening throughout Europe, thanks to the combined effects of the Ukrainian conflict, border closures, travel restrictions, and quarantine restrictions.
Navigating the Current Market
Rates aren’t going to be coming down anytime soon, but there are some steps you can take to navigate the current market more effectively:
Be prepared to buffer your transit time and freight budget
Cost increases for delays and limited capacity can and will arise. Forwarders are doing what they can to move goods on schedule without charging more, but in the current instability, some things are simply beyond their control.
Compare a few modes/quotes to get the best cost and service combination possible
Consider which mode is actually the best for you right now. Ocean freight is usually substantially less expensive, but has a much longer lead time. If your transit time demands it, ship by air and be prepared to pay the price.
Mitigate the effects of business restrictions and lowered demand by exploring warehousing options
Pay more attention to goods profitability and consider if and when a pivot might be worthwhile. Remember to factor in freight costs. Book now if you can in order to avoid the higher rates at the beginning of peak season.
Communicate with your forwarder
It’s never been more critical than now to stay on top of your transit time and be looking for changes.
Think about your transit times in terms of speed to need
Make sure you’re not paying your factory extra for an earlier delivery that’s not earlier. Waiting is more than okay when it saves you both time and money.