There are no two ways about it, freight and shipping costs are on the rise. With added expenses getting goods from Point A to Point B, shippers are feeling price pressure. But beyond the impacts to shippers, how does this jump in the cost of moving freight affect consumers? It can come in the form of higher consumer prices as these companies look to maintain their bottom lines. You've seen the stories and likely noticed it yourself, many consumer goods cost a bit more than they used to (if you can find them at all).
How Much Have Freight Costs Increased in 2021?
As mentioned above, freight costs have increased this year. Just how much? According to our latest Intermodal Spot Rate Trendline Pricing Analysis, intermodal is up about 5% year over year. Trucking rates are up even more over that time, with one measure showing a 36% rise over 12 months prior. Broadening horizons to include international shipping finds the increases often much greater. Forty-foot containers are used on overwater shipping lanes. Experts say the price to move one from Asia to the U.S. was under $2,000 in 2019. Now, shipping that same container on-time costs upwards of 12 times more.
One big culprit: Diesel fuel prices, which are running more than 50% higher than this time last year. Another: shortages along many aspects of the supply chain, including truckers and laborers to transfer shipments, shipping containers, and warehouse space. And the elephant in the 2021 room, the COVID-19 pandemic, which has not only changed the demand equation but also necessitated added safety measures throughout the shipment process.
How Does Transportation Affect the Price of Goods?
Put simply, transportation affects the price of goods because it is a key component of both their creation and sale. Manufacturers must ship the components of a product, like microchips and cotton, as well as product packaging. And once the goods are packaged and boxed, they must get to the consumer, via shipment to physical stores, online retailers, direct to businesses, or direct to consumers. Higher freight costs affect every aspect of this chain, which in turn affects what companies must charge for goods to break even or make a profit.
Does Freight Charges Add To Cost?
While there isn't necessarily a one-to-one correlation between higher freight charges and higher consumer costs, there's certainly a relationship. With freight costs up, companies must make up for that increase, and they generally will pass those increases on to the consumer. The Consumer Price Index tells the story. The latest release from the government shows the index up 6.2% over the same time a year ago.
The UN takes it a step further, directly connecting rising consumer prices to shipping rates. The United Nations Conference on Trade and Development (UNCTAD) blames higher freight costs - specifically container costs - for an expected 1.5% rise in global consumer prices through 2023. Within this analysis, UNCTAD points to more than 10% increases in clothing, textiles, and furniture, and more than 11% rises in the cost of computers and other electronics. All again are primarily attributed to higher freight costs.
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