In episode 26, the Freight Guru talks about how inflated shipping rates are still affecting the current economy.
After two years of living with Covicd-19 restrictions as our “new normal,” shipping rates continue to rise, up to 300 percent. The question remains, until when?
Listen to the Full Episode Here
“Inflation is the decline of purchasing power of a given currency over time. A quantitative estimate of the rate at which the decline in purchasing power occurs can be reflected in the increase of an average price level of a basket of selected goods and services in an economy over some period of time.”
What is making sea freight rates parabolic?
High demand and little regulation have created “the perfect storm” where major ocean shipping companies can charge anything they want. Affecting everyday consumers as well as the logistic industry i.e. small to mid-sized shippers and forwarders.
It’s impossible to know when things will go back to “normal,” if they ever do. Covid has changed our lifestyles into a “new normal”
A few facts to consider:
Tensions rose during the Trump administration and continued into the Biden administration affecting trade between the US and China.
The average cost of a container used to be about $3000 when nowadays prices are inflated to $14000.
- Lockdown restrictions slowing down global trade
- Trade tensions between China and the US
- Lack of manpower due to the pandemic
- Big shipping firms taking advantage
- Surplus of stimulus check and money printing
- High consumer demands
- Driver shortages
Who is it affecting?
This international shipping rate and domestic trucking rate inflation primarily affect consumers.
Wages and salaries in the South Florida area have not increased yet shipment rates are increasing on a monthly basis.
Yet, a market that continues to boom is home goods and furniture. Since most employees are working remotely, they are inspired to remodel and/or build home offices.
Trucking has surged in demand because of this especially companies like City Future, Wayfair, and Amazon.
City Furniture specifically has grown in valium and demand due to the increase of Florida home buyers (see the related episode here).
Especially cross migrations from states like New York and California into The Sunny State more so in South Florida.
According to Luis, trucking demand is only going to increase and continue into Q1 and Q2 of 20222.
Because of the increase in demand and the lack of manpower due to the pandemic, forwarders have had to pay above their contracted rates.
For example, a contractual rate for 10 boxes coming out of China was valued at $20000. However, due to the uptake in demand, the forwarder needs 10 more boxes that now have to go on a brokerage market similar to the trucking SPOT market.
Or if the forwarder is not in a contracted rate and has their entire load on the spot market, they’d have to pay the rate/container at that moment.
That is if there is capacity on the shipper. Otherwise, they would have to wait for approximately two to three months.
Will goods go up due to inflation?
When it comes to inflation is important to understand some key indicators that tell us how inflation affects the prices of goods.
- Housing Markets are at an All-time High
- Used Car Markets are at an All-time High
- Commodities such as Lumber and Steel have reached all-time highs
- The Fed is printing money and consumers are spending!
In the trucking industry, as a small-mid-sized logistic company owner, you need to understand how you are running your business. Staying on top costs versus investments.
Inflation affects maintenance fees (i.e. tire repair), wages due to drivers, and labor shortages to name a few.
Considering negotiating your contracted rates as soon as possible to lockin present rates in case of future inflated rates.
Understand the market and being data-driven to make wise decisions with your business operations.
Take a listen to these past episodes to set yourself up for success in the trucking industry:
How to Hedge against inflation in 2021
Disclaimer: This is not financial advice. These are few suggestions based on Luis’ opinion and experience.
- Buy and sell gold
- Buy and sell commodities
- Invest in stocks and Bond Portfolio
- Real Estate
- S&P 500
- Real Estate Income
- Trading in cryptocurrency
It’s always a good idea to have multiple income streams if possible to avoid income dependencies.
Especially cryptocurrencies and smart contracts. They just maybe a new integration to the trucking industry eliminating much of the risk involved when negotiating rates on and off the spot market.
Recommended Logistics and Trucking companies:
LTL Services – https://goltlhub.io
Hazmat Services – https://gohazmathub.io
TMS – https://mytruckhub.com
Logistics Services – https://gofreighthub.io
Fulfillment – https://www.sunshipecommerce.com
Warehousing – https://gowhsehub.io