Having soared throughout the pandemic, the cost of shipping declined in March
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Having soared throughout the pandemic, the cost of shipping declined in March
Since the start of the pandemic, the cost of shipping has increased significantly. In the past month, however, container shipping costs have fallen by about 12%, according to the Drewry World Container Index.
And there are a whole bunch of reasons why this could be happening. Start with the spike in COVID-19 cases in China last month. The country locked down many of its ports and manufacturing hubs.
“And that’s created a supply outage,” said Simon Heaney, senior manager of container research at Drewry.
He said that means there hasn’t been a whole lot to ship out of China recently. And even if consumers are demanding goods: “If you’re not able to move goods, it’s meaningless,” he said. “So the ships will be idle, there’s not enough goods for them to move, and therefore freight rates come down.”
The shipping slowdown in China has eased up traffic at some U.S. ports. And that means that ships at the ports of Los Angeles and Long Beach have had more time to unload, said Lisa Ellram, a professor of supply chain management at Miami University in Ohio.
“It’s not just that they’re no longer waiting, and that things are slower, but it’s also that that capacity is actually available now, for sale on the market,” she said.
Another reason for the decline in shipping costs? Demand for goods could be stalling.
Many retailers still have plenty of inventory, said Zac Rogers, a professor of supply chain management at Colorado State University. That’s because they loaded up on it when supply chains were even more congested than they are now.
“And so we don’t need to place the normal orders that we would probably be placing right now in March and April, because we have so much stuff left over from December, January and February,” he said.
Then, there’s a counterintuitive reason why shipping costs could be declining. There’s the rising cost of fuel. Plus, Rogers said, trucking prices may have increased by too much for some companies.
“Whatever the break-even equation is, there’s a big piece of shippers that said, you know, ‘Trucks are now too expensive, I’m not even going to contract one out,'” he said.
And as demand for trucking eases up, the price comes back down. “And you see reports of carrying companies saying, ‘Man, loads that we would have rejected for the last six months, we are now more than happy to take because we have way less business than we did for all of 2021,'” Rogers said.
He added that the declining price of shipping is a sign that — after the surge in demand for consumer goods early in the pandemic — the economy is starting to level out.
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