If you looked at shipping costs recently, chances are you’re shocked by how it’s risen exponentially since the outbreak of COVID-19 in March 2020 and how it continues to do so. A large part of it boils down to the ongoing COVID-19 pandemic and its heavy impact on global supply chains. This is reflected in the spike in shipping prices, which are estimated to remain at a high until 2023.
As a small business or e-commerce business owner, it’s especially important to understand how shipping works. Also, it’s crucial to start reconsidering your order fulfillment strategies to find lower-cost alternatives until prices return to normal ranges.
What is included in shipping costs?
Shipping costs ‘cover materials, manpower and many different supply chain activities that transport inventory to the end customer.’ while also consisting of taxes from the country the shipment originates from and the country where it’s shipped to, and all other documentation fees.
Image: General Percentage Breakdown of Shipping Cost
In simpler terms, every step of the fulfillment process incurs costs. These include labor, fuel, transportation, and delivery fees. Additionally, factors like parcel weight, dimensions, value, and shipping destination contribute to the final shipping price.
The Incoterms (a.k.a. International Commercial Terms)
Incoterms—the abbreviation of International Commercial Terms—are globally recognized shipping terms, and basically indicate three things:
- The party that arranges for transportation and the carrier.
- The party that pays for transport.
- The place and time in which ownership of goods are transferred from seller to buyer.
Image: 5 Most Commonly Used Incoterms
The most common incoterms you should know are:
- EXW (Ex Works)
- DDP (Delivered Duty Paid)
- FOB (Free on Board)
- CIF (Cost, Insurance and Freight)
- FAS (Free Alongside Ship)
The spike in shipping prices during COVID-19
While shipping rates steadily increase over time due to inflation and increased labor and material costs, the COVID-19 pandemic disrupted the supply chain in multiple ways and thus caused shipping costs to rise exponentially.
For example, the global lockdown in response to COVID-19 led to a shipping container shortage for China, one of the main countries for manufacturing goods. Thus, it led to a massive price surcharge for a spot in an available container due to the increased market demand.
Outside the context of the pandemic, other factors could increase shipping rates. They include costs that add up in complex courier agreements, fuel surcharges, minimum package fees, value-added courier services, overhead costs, and variable parcel factors.
How you can mitigate shipping costs
In general, ocean shipping is the more economical option compared to air freight. But with the costs of ocean shipping hitting an all-time high due to shortages in shipping containers, air freight can be the most viable option with the added benefit of a speedier delivery.
Shipping costs are predicted to remain high until 2023. As a small business owner, it’s important to consider long-term solutions. These solutions should be sustainable and benefit both your business and your customers.
At INNORHINO, we specialize in custom packaging that can meet your business needs. We have helped businesses reduce their logistic budget with effective packaging solutions for shipping. With just one easy change on the packaging, one of our clients saved approx. $6,700 on each shipment.
We are always excited to collaborate with all business to create memorable & effective packaging for better end-user experiences that is highly valued nowadays. Shoot us a message. Let’s talk about your products, your business, and your dreams!
This article is written by: Leonni Antono – BBP
Image source: INNORHINO, Unsplash, Pexels
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