Freight costs have sharply risen over the recent few years. The end of 2020 was the starting point when new spikes in shipping rates were observed. Since then, the rates are consistently increasing, creating new supply chain challenges every day. Almost all businesses (small or large) are affected by continuously rising shipping costs. International trade, the backbone of the global economy, is facing financial challenges in streamlining the global supply chain. Not a single shipping sector isn't affected by ever-increasing freight rates. The freight costs on several trade routes have increased by many folds compared to the last three years.
In this article, we're going to discuss the primary reasons for rising freight costs, but before that, we will look at statistics to show you how things have changed.
How have freight rates increased?
According to the reports of Forbes and other trusted transportation forums, the total increase in freight rates for the shipping industry in the USA will be 28% in 2022. It's the highest increase in the last ten years. The costs of merchandise brokerage have increased by 45%. FTL (Full-Truckload) and LTL (Less-Than-Truckload) freight transportation have seen a 25% increase in shipping rates. Parcel transportation rates rose by 14.7% over a year. Experts are predicting more rise in freight rates in upcoming months.
What are the reasons for rising freight rates?
- COVID-19 Pandemic
The COVID-19 Pandemic is considered the root cause of rising shipping costs. Since the spring of 2020, when the coronavirus started spreading globally, shipping rates have gradually increased. The pandemic compelled importers and exporters to withhold their plans. Prolonged lockdowns and healthcare emergencies further exacerbated the situation. Lockdowns caused a labor shortage in transportation companies, due to which many transporters ceased their operations in certain areas—COVID19-pandemic imbalanced the global economy, trade, and supply chain. The demand for essential commodities remained the same while many folds reduced the supply. This imbalance between supply and demand further pressured freight rates and left them skyrocketing.
- Rising Fuel costs
Fuel is one of the essential elements that run the transportation industry. Transportation companies are increasing their shipping rates to save their businesses from going into loss. Fuel costs have consistently risen over the last few years, forcing transporters to increase freight rates.
- Shipping equipment shortage
Shipping equipment shortage is another significant reason for high freight rates. Due to lockdowns and moving restrictions in certain areas, the transporter cannot relocate the shipping items and equipment due to a shortage of trucks and containers. Amid shipping equipment shortage, the transporters with the available capacity are charging more from the business to deliver their freight.
- Rising consumer demands
As the population is increasing, consumer demand is also rising. eCommerce has further increased consumer demands. Now, customers prefer to order stuff online over physical shopping. Transporters must ship high-demand products in large quantities, which puts pressure on their transportation capabilities and increases freight rates.