If you made it through the height – or is that the depth? – of the pandemic when container prices from Asia more than quadrupled, domestic trucking prices exploded and the supply chain was clogged up as never before, the good news is that the worst is over and we’re not likely to see things that bad again for the foreseeable future.
The bad news is that the post-pandemic lull seems to have ended and if you’re a supplier trying to get your goods from your factories to your customers, or you’re a retailer moving merchandise from your store to consumers prices are back on the way up. The shortages of the Covid years show no signs of returning but price creep is certainly with us, thanks to a couple of key factors:
Labor
The recent labor settlement between United Parcel Service and its drivers, just approved two weeks ago, is estimated to eventually cost the company about $30 billion in increased wages. How that will be reflected in UPS rates remains to be seen but it will certainly mean increased prices.
So too will the settlement earlier this year the longshoreman at West Coast ports signed with the port operators. Both sides agreed to wage hikes of between 8 and 10% and those will no doubt be passed along to customers bringing in goods from Asia.
Container Prices
Thankfully the days of $20,000+ containers are over and the dramatic drop in prices over the past 18 months have been a relief to shippers. But the Wall Street Journal reported in August that the average spot rate for a 40-foot box from China to the U.S. West Coast rose 61% this summer. That’s still way off the height of the rate in early 2022 but it does reflect new pricing pressure for importers. The Journal said the price increases were being absorbed so far and not passed along to customers but concerns remain that if they continue that could eventually change.
The Panama Canal
It’s not just wild fires in Hawaii, tropical storms on the West Coast and brutal heat waves across the mid-section of America. Water levels in the Panama Canal, a key route used by importers who bring goods in from Asia to the East Coast, are at record lows, causing container ships to back up, offload much of their freight to reduce their weight or even use alternative routes like going around South America to reach the East Coast. Reuters reports that spot shipping rates are up as much as 36% because of all of this.
If all of these factors continue and those cost increases are passed along to users, companies in the apparel and home sectors are likely to see higher rates to get goods from Point A to Point B.