5 Reasons Shipping Costs Are Poised To Rise

The golden age of ocean shipping costs has come to an end. Over 90 percent of global trade is transported by sea, but that might change soon. This year, we’re seeing the first drastic increase in ocean freight shipping costs since 2010.

panama container ship

Photo credit: NOAA’s National Ocean Service

The average cost to transport goods from Shanghai, China to the U.S. West Coast this month is $1,375. It’s almost double the average cost in May 2016, which was only $788. And the rates are going nowhere but up.

Why is that? We can think of five reasons:

1. Consolidation In The Shipping/Cargo Industry

Last September, the seventh-largest container carrier in the world, Hanjin Shipping, went bankrupt. Manufacturers all over the world scrambled to secure another carrier for their goods, and they were willing to pay more than usual. This resulted in a 40% increase in shipping rates for Hanjin’s old routes.

The international container shipping industry is facing consolidation right now. It is predicted that almost half of the shipping companies in the world will be absorbed into bigger companies this year. This will result in more demand than supply, leading to the first surge in ocean shipping costs since 2010.

2. Stronger Global Economy

Global economy is on the rise. According to The Economist, manufacturers all over the world have been steadily expanding over the past year. Global trading is on the upswing, which means more demand for overseas shipping. Container carriers have yet to meet the demand, especially with the collapse of Hanjin Shipping, so availability on these ships is scarce. Low supply plus high demand equals expensive spots.

3. Rising Cost Of Fuel

Oil now costs over $50 per barrel, which is the highest it has been since September 2015. It’s partly due to declining oil inventories, but it doesn’t help that the current geopolitical situation is shaky as ever. Many petroleum analysts say that fuel prices will continue to rise over the next few months. Some even predict that fuel will hit $5 per gallon soon in some areas of the U.S.

Ocean freight shipping companies correlate their prices with fuel costs, so it’d make sense to partly attribute the rising shipping costs to the rising fuel costs.

4. Labor Shortage

Journal of Commerce’s Senior VP of Strategy Peter Tirschwell confirmed that there’s a labor shortage throughout the container production industry in China. As a result, containers cost so much more than they used to. Manufacturers all over the world aren’t the only ones scrambling to secure something valuable (spots on freight ships, in their case).

The shipping companies themselves are doing the same thing, only their hot commodity is containers. There’s a container shortage because of a labor shortage. Shipping companies have to pay more for containers, therefore they have no choice but to raise their prices to keep themselves above water.

5. Pressure To Be Greener

Whether it’s because their government is imposing more environmental regulations or they simply want to be greener, ocean freight shipping companies are investing in more green technology than ever. Such green technology include a more efficient hull design, dual-fuel engines, and freshwater ballast systems. Shipping companies may feel inclined to offset their green solutions by netting fatter contracts.

How To Save Money On Global Shipping

Outsource to a manufacturer close to you instead of halfway across the world. Not only will you save money on shipping, but you’ll also enjoy several other benefits, such as:

  1. Smaller, more frequent shipments
  2. No risk of cargo getting lost at sea
  3. Easier site visits

When comparing costs, there is no comparison. Manufacturing in Mexico just makes financial sense.