Shipping and container storage and transport have always been cost-prohibitive, but things are bound to get worse before they get better. Along with the necessary cost of commercial marine insurance, shipping and container firms have had to deal with many other factors that have pushed prices upward throughout much of 2021.
The most significant challenges faced by the shipping industry include:
- Delays and rate increases in ocean freights
- Delayed air freights and air transport rates
- Trucking industry delays and spiraling costs
These issues are further worsened by delays and closures caused by the COVID-19 pandemic, which continues to affect many parts of the world. And with the overall lack of capacity and the increasing demand for freight services from Asia to the U.S., it is hardly surprising that air cargo, train, and ocean shipping rates continue to rise.
Delays and rate increases in ocean freight
Port congestion is one of the primary causes of delays and rate increases in the ocean shipping industry. Unsurprisingly, this is a common issue in the Ports of Los Angeles and Long Beach, two of the busiest shipping hubs in the United States.
The seriousness of the problem was verified by Robert Khachatryan, the founder and CEO of Freight Right Global Logistics. After a visit to the Long Beach port, Khachatryan saw the extent of the container crunch firsthand.
The slowing down of Chinese production during the Golden Week holiday further compounded the problem. Combined with the power outages that shut down factories across the country, the delays in shipping caused fears that shipments scheduled for transport would not make it to their destinations in time for the holiday rush.
Rates for shipments across the Pacific did maintain current levels for a while after dipping for a few weeks previously. But with oil prices increasing across the board, industry observers predict an increase in shipping rates over the next few months as carriers tack on fuel surcharges to the bill.
Just how bad is the problem? According to Freightos.com, shipments from China to the U.S. now take as long as 73 days to arrive on average. This amount of time is 83% longer than it would have taken in September of 2019.
Delayed air freights and air transport rates
As expected, the high price and unreliability of ocean freight is forcing a shift toward air cargo. But this development has opened up a new can of worms as the increased demand raised prices and the market cost of goods.
Another factor affecting the air cargo industry is China’s zero-tolerance policy in preventing COVID outbreaks. Given the increasingly stringent quarantine requirements and travel restrictions, hundreds of flights have been canceled or left with half loads. In some cases, planes have even had to take off without any cargo.
With these disruptions, the cost of transporting cargo from China to the United States is now 400% higher than it was before the pandemic. And with most cargo hubs in the U.S. unable to handle the traffic, shipments arriving stateside remain stuck in airports for days at a time.
The situation is expected to worsen as new rail transport issues cause many importers to rely more heavily on air cargo. Although the problem seems to be easing up on the Chinese side of the supply chain, issues caused by COVID-19 continue to affect the rates and capacities of air cargo vessels.
Trucking industry delays and spiraling costs
The trucking industry isn’t faring so well either. As consumer demand shoots through the roof, importers are in a frantic rush to restock supplies and replenish their inventories. These factors resulted in a tightening up of trucking capacity and increased rates.
Things aren’t bound to get better as merchandise produced over the holidays is prepared for transport. With the increasingly stringent quarantine restrictions for returning truckers, many in the industry fear that the worst is yet to come.
Other factors contributing to the spiraling costs are the overwhelmed trucking services and logistical issues with warehouses and railways.
Dealing with delays and rising costs
Most industry observers agree that it will take time before freight and shipping rates go back to pre-pandemic levels. Given the current global situation, that could be several months or even a year or more in the future. As it is, there is little for importers to do but to buckle down and compare shipping options to ensure that they are getting the most efficient alternatives available.
About Merrimac Marine Insurance
At Merrimac Marine, we are dedicated to providing insurance for the marine industry to protect your clients’ business and assets. For more information about our products and programs, contact our specialists today at (800) 681-1998.