Global goods trade is showing signs of accelerating after last year’s slump, pushing up ocean freight rates and giving some supply chain managers flashbacks to the demand spike that disrupted international commerce three years ago.
This situation brings back memories of the chaos and skyrocketing freight rates during the pandemic, as shippers have learned lessons from COVID-19, and some are bringing their imports forward ahead of the peak season and the potential for a capacity squeeze.
Factors Contributing to the Surge
Several key factors are driving the current surge in freight rates:
- Port Congestion: Port congestion in China and other Asian countries is pressuring an overstretched container shipping market that is already reeling from vessel space and equipment shortages. For instance, in Singapore, severe congestion is leading to berthing delays as long as seven days, significantly longer than the usual half-day wait.
- Labour Strikes: Companies are worried about the Threat of a Canadian rail strike and contract talks for dockworkers in the eastern/southern U.S. and eastern/western Canada. These labour disputes can disrupt port operations and delay the movement of goods.
- Geopolitical Tensions: Heightened trade tensions between the U.S. and China are contributing to the uncertainty and increased costs in shipping. The U.S. government’s recent announcement of more tariffs on Chinese imports adds to the urgency for companies to stock up before these tariffs take effect.
- Red Sea Attacks: Ocean shipping began the year already stretched by Red Sea attacks that forced carriers to send their vessels the longer way around southern Africa rather than through the Suez Canal, increasing transit times and affecting capacity and equipment levels.
Impact on Businesses
The surge in freight rates has several implications for businesses:
- Increased Costs: The cost for a 40-foot container to the US West Coast from Asia jumped 13.4% to $4,915 by the end of May, the fifth straight weekly advance. This is triple what it was in late December, reflecting the tightness in the market.
- Inventory Management: Importers and exporters typically see shipments increase from July to September as retailers look to restock before back-to-school, Halloween, and year-end holiday sales seasons. This early peak season is packing a major punch, and recent feedback from many carriers indicates vessels are completely full.
Strategies for Adaptation
To navigate these challenging conditions, businesses can adopt several strategies:
- Early Ordering: Companies should build in extra lead time to their orders to avoid the peak season rush and secure lower rates. Early ordering helps mitigate the impact of sudden rate hikes and ensures timely delivery of goods.
- Diversifying Supply Chains: By exploring alternative routes and ports, businesses can avoid the most congested areas and secure better rates. Partnering with multiple carriers also helps leverage competitive rates and ensures the availability of shipping options during peak times.
- Utilizing Freight Forwarders: Collaborating with reliable freight forwarders can provide businesses with strategic planning, risk mitigation, and proactive measures to ensure a resilient supply chain. Freight forwarders can optimize transportation routes, select efficient modes of transport, and navigate disruptions seamlessly.
- Leveraging Technology: Implementing advanced tracking systems and data analytics can help businesses gain real-time visibility into shipping operations, forecast demand, and optimize shipping schedules. This enables proactive management of delays and disruptions.
Conclusion
The current surge in global trade and freight rates presents significant challenges for businesses. However, by understanding the contributing factors and implementing strategic measures, companies can navigate these turbulent times effectively. At Universal Logistics, we recommend understanding that rates are going to continue to increase during this period. By staying informed, planning ahead, and leveraging the expertise of logistics providers, businesses can maintain resilient and cost-effective supply chains.
For more detailed strategies and assistance, contact our experts at Universal Logistics.
