Shipping companies globally expect steeper rises in shipping and logistics contract rates next year after supply-chain costs skyrocketed in 2021. The Logistics Managers’ Index, which analyses total logistics pricing such as transportation, warehousing, and inventory prices, settled by 3 percent in December after setting a record high in November and an increase of 14 percent year on year.
Shipping companies are looking for significant price hikes while renewing their contracts in 2022. This indicates that the inflationary pressure caused by high demand and limited capacity in freight markets in 2021 is likely to endure. With increased shipping demand still outweighing limited capacity in the freight sector, industry analysts believe shipping companies have the bargaining power to hike rates when negotiating new contracts.
Contract rates are expected to climb by high single-digit to mid-double-digit percentages in 2022, with prices expected to stabilize later as transportation demand eases and businesses restock depleted inventory. However, it is unlikely to happen before 2023. A capacity-constrained industry with inflationary pressure and substantial equipment and government interruptions is projected to continue in 2022. Earlier this month, the spot price to ship a 40-foot container from Shanghai to Los Angeles was 75% more than last year. Similarly, the contractual fee for sending a 40-foot container from Asia to the West Coast of the United States might quadruple next year to between $6,500 and $7,000. In 2019, businesses paid around $1,500 to ocean carriers for the same service.
In addition to the rising shipping cost concerns, shipping companies in the United States are concerned that an empty container fee may soon be adding to their increasing costs. The Los Angeles and Long Beach ports formally authorized the idea to collect penalties on long-dwelling import containers to minimize the number of containers at the docks. The port of Los Angeles expects to collect the $100 tax established in October for every empty container on the grounds for nine days or longer beginning on January 30. Every day until the package departs the port; the cost will be increased by $100.
In Asia, the situation is not different as the rates from China to North Europe are expected to rise somewhat ahead of the Chinese New Year vacation, which takes place in the first week of February. However, fresh lockout problems due to increased COVID cases may result in container and transportation bottlenecks.
Meanwhile, the uncertainty in the maritime freight market appears to have enhanced shippers’ and carriers’ willingness to exchange FFAs (Freight Forward Agreements).
The air capacity from Asia and globally continues to face a struggle. Just when the air cargo operations started to normalize and the load of the holiday season started getting cleared, hundreds of flights were cancelled in China’s key hubs, including Shanghai, Beijing, and Shenzhen, in the last week of December due to increasing COVID cases. Hong Kong also confronts stringent quarantine restrictions, which has resulted in “very complex logistics patterns.”
In mid-December, the government established a rigorous lockdown and has since cut off most transportation to the city, including flights. Following an epidemic of COVID in the city of Xi’an, China’s ninth-busiest cargo airport is still seeing a high number of flight cancellations.
And the following eight weeks are anticipated to witness significant disruption in China: not only will the country’s “zero-COVID” policy result in local restrictions, but with both the New Year’s interlude and the Beijing Olympics beginning next month, the government is likely to clamp down on transportation.
The last-mile parcel shipping rates are growing fastest in over a decade. As the demand pattern shifts significantly, the pricing power of carriers has increased significantly. FedEx and United Parcel Service said that their prices would rise at an average of up to 6 percent across most services in 2022. This is the first time that either business had annual hikes over 4.9 percent in about eight years.
The prediction for increased rates in transportation for next year follows a substantial increase in the contract costs that firms negotiate with trucking companies and freight brokers. According to the online freight marketplace DAT Solutions, the average contract fee reached a record $2.51/mile, excluding the fuel cost. To avoid competing for constrained trucking capacity on the open market, several retailers and manufacturers are extending current contracts with carriers beyond 2022 in exchange for modest price hikes.
As businesses cope with a new wave of post-Brexit red tape, UK traders fall foul of a new IT system police goods crossing the English Channel.
Imports into the UK from the EU must be handled through the Goods Vehicle Movement Service (GVMS) as of January 1. However, carriers have reported multiple issues, such as shipments not loading on the system and rejected reference codes.
Wiima Logistics is a provider of fourth-party logistics (4PL) and project logistics services. We provide our customer with a complete solutions for supply chain management, administration and outsourcing.
If your companies supply chains are suffering from the problematic freight market situation, we are more than happy to help. Our world-class experts are at your service, willing to provide you with creative logistics problem solving where and when it´s needed the most. Extraordinary times require extraordinary measures, and we are up for the job.
We can arrange special solutions in all freight modes:
- Or combinations of all of the above
Our global offices are more than happy to advise you on logistics related matters.
We are looking forward to hearing from you!