Setting the Scene
Inflation and a host of geopolitical issues have made for some interesting developments in the shipping world over the last 18 months. To start, there are a few distinctions to make before we can make sense of some of the recent data. The first concerns the difference between spot prices and contract prices. A spot price for a shipping transaction is what you would pay if you wanted to move a product right now, today. These differ from the various types of contract prices, in which a business can decide on a predetermined shipping cost for a set amount of time. There are costs and benefits associated with each type of arrangement. Spot prices can change significantly from day-to-day and week-to-week, leading to unexpected shipping costs. On the other hand, agreeing to a longer-term contract could cause a business to miss out on reduced spot costs. The second distinction to keep in mind is the global vs. domestic market. While the majority of supply chains involve some type of product or process from overseas, certain goods are supported by supply chains that do not involve overseas shipping. You may operate a sort facility that only deals with national carriers like the US Postal Service, FedEx, UPS, etc.
News Updates
Starting in 2021, data firms like Xeneta started tracking an increase in overseas shipping costs. Spot and contract rates both hit record highs in early 2022 of just below $10,000 for the average daily rate for shipping a standard container from the Far East to the U.S. West Coast. This spike left a lot of sorting hubs and associated businesses scrambling, as supply chains were bottlenecked and costs had to be passed along to consumers. Following this spike, contract and spot prices have slowly returned to the more normal levels we were seeing in 2020, around $2,000 per container, according to reporting from the Wall Street Journal. While there was speculation that the highs of 2022 were anomalies related to COVID, inflation, and the war in Ukraine, shipping markets are still showing instability. The Journal reports that “The average spot rate to ship a 40-foot container from China to the U.S. West Coast rose 61% during the six weeks through Aug. 15 to $2,075.”
Adapting Strategies
One of the key takeaways from these shipping shakeups is adaptability. The needs of each shipping hub are going to be different depending on things like parcel sizes and frequencies, sales forecasting, destination shipping areas, packaging, sorting, e-commerce data, etc. Modern warehouse shipping management systems and predictive modeling can provide valuable insight into how these variables will impact shipping costs, and how solutions toward increasing efficiency and reducing costs. In the end, it is important to be able to adapt your shipping strategy in real-time, so that you are able to take advantage of the price swings that we covered in the previous few sections. When global markets ebb and flow to these extremes, there are obvious pitfalls in the sorting and shipping sector. But there are also opportunities to take advantage of insights from the modern logistics and management systems available for sorting hubs.
