If you’ve been paying attention to the news or prices at your favorite grocery store, you know there’s a global supply chain problem. What you might not realize is that many of the prices you see on the shelves are a result of freight rate increases.
What are freight rates, exactly? These are the prices someone pays to transport cargo. Freight transportation can be anything from ships to trains, depending on the destinations involved.
The final price charged to the customer is determined by a delicate algorithm that uses factors like product costs, cargo transport, weight, shipping, fuel, customs, supply/demand, and many other expenses. Some companies find ways to lower these expenses, like using customs brokerage services in Sydney if they import into the country.
As a business using freight transport, it’s crucial that you understand what causes these rates to fluctuate. This knowledge can make or break your profit margin. Here are 4 factors that can cause freight rates to increase and how you can optimize your costs accordingly.
Optimizing Costs: Freight Capacity
As with anything, when you can divide the cost up amongst multiple people or ship more in one load, the rates are cheaper. But since the pandemic, there’s a limit on how much many carriers are allowed to include on each form of transport.
For example, when passenger planes were delayed due to COVID or staffing shortages, fewer flights were scheduled worldwide. Because the flights often carry freight to their destinations, this meant a reduction in air cargo movement from place to place. Businesses transporting goods turned to other methods, like ships and freighters.
But when there’s limited space and high demand for it, the prices will rise. Across the board, goods are more expensive to ship, and those costs are passed down to suppliers, retailers, and customers.
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Optimizing costs: Documentation
When you ship cargo, it’s crucial that your documents are in order and your licenses are up-to-date. If you’re transporting goods to another country, you must know the laws and regulations of that destination. It’s helpful to work with a customs broker if you’re unfamiliar with a new place, as they can give you the details you’ll need to ensure a faster clearance.
When a freighter doesn’t have everything in order, they risk accruing fines and penalties. Those costs are, of course, passed down in the overall freight rate.
Tariffs
International cargo is often subject to multiple tariffs. Countries prefer their business owners to purchase from in-house manufacturers, but that’s not always possible. Tariffs are in place to try to encourage native citizens to use businesses within that country and to receive funds from freighters that bring their products into the area.
Tariffs can and typically will vary. Watch the regulations for the countries you frequent and try to time your imports before increases occur. Like you, other carriers will try to get in before the cutoff, boosting demand and raising shipping prices. But this increase may still be less than the cost of waiting until after the tariff rises.
Optimizing costs: Logistics Plans
Your logistics plan determines your freight rate costs, too. If you haven’t taken a thorough look at your business’s supply chain, it’s time to do so. Knowing what’s going on with those who are connected to your network through this chain can help you predict costs and upcoming challenges.
Get your plan in place for each shipment destination, including documentation, licensing, tariff rates, and seasons. Is there anywhere in your plan that could be outsourced to another company for cheaper rates or faster shipments?
With these four factors in mind, you can develop a logistics plan that will keep your freight rate costs competitive with the rest of the world.
