Shipping Costs Set to Increase

Shipping Costs Set to Increase

Shipping costs are set to increase sharply following several recent market disruptions. Ground transportation is a costly part of supply chain management. When combined, expenses for fuel, vehicle maintenance, driver pay, tolls, and more add up to as much as 40 percent of shipping costs. Unfortunately, recently, various factors have converged to make ground transportation even more costly.

The first is the collapse of Baltimore’s Key Bridge. The American Trucking Association estimated that nearly 5,000 trucks per day would have to reroute. Those trucks carry an annual average of $28 billion in goods. The re-directing adds up to time and fuel costs, which ultimately get passed onto shippers, who must figure out how best to offset the extra, unexpected costs.

One of the immediate impacts was a jump in volume in key trucking lanes, which also led to a jump in pricing. The port of Baltimore is one of the nation’s largest flatbed markets as it’s a chief importer of farming and construction equipment, averaging around $5 billion in the movement of these goods. To top it off, the collapse happened at the peak of the market for this equipment, as farmers in the Midwest and other regions prepared their fields for planting. In the immediate aftermath of the bridge collapse, flatbed spot rates jumped, particularly in the Baltimore to Chicago and Baltimore to Gary, Indiana, lanes. Flatbed loads from Baltimore to Chicago jumped by 117 percent in the week following the bridge collapse.

Other price increases to transportation are happening on the small-parcel delivery side of the business, both on the ground and in the air. Both FedEx and UPS have announced additional surcharges for deliveries in 82 zip codes nationwide. These will impact major cities like New York, Los Angeles, San Francisco, Boston, and Chicago.

The reason behind these new surcharges is uncertain, but they can add up to a substantial profit for the carriers. Some might be using it to cover higher tolls for bridges or tunnels, but they may also be using the surcharges to boost their bottom lines when consumers have reeled in their overall spending post-pandemic. Whatever the reason, the charges can sting, especially when they hit at an unexpected time of the year.

You can try different strategies to mitigate the latest round of rising shipping costs, particularly with small-parcel shipping. These might include consolidating packages that are headed to the same address. Or you can give customers incentives for picking up their packages at commercial destinations rather than shipping them all the way to their homes. You can also talk to your small-parcel carrier when they impose new fees—if you are a high-volume customer, you have some leverage for negotiating prices.

Shipping costs fluctuate from season to season and year to year, and it’s up to supply chain managers to find workable strategies that offset their impact.