As globalization continues to increase, shipping goods worldwide has become more expensive. Here are five reasons why international shipping costs will continue to rise in the years ahead.
The Global Population is Growing: More People Need Access to Goods and Services
As the world population grows, an ever-increasing demand for goods and services strains the shipping industry. Despite rising inflation outstripping wage gains, consumers spent 8.5% more in March 2022 compared with the same time two years earlier.
To meet this growing demand, the shipping industry must continue to invest in new vessels and infrastructure.
Some challenges to meeting growing demand include piracy in the Malacca Straits, South China Sea, and Gulf of Guinea, environmental issues such as emissions reduction, new International Maritime Organization (IMO) regulations, and fuel and labor shortages.
Economic Growth in Developing Countries is Driving up Demand for Shipping Services.
Economic growth in developing countries has led to an increase in demand for shipping services. This is due to the growing importance of supply chains and the need to transport goods quickly and efficiently. As a result, ocean freight rates have risen sharply, and shipping companies are struggling to keep up with demand.
Many shipping companies have begun to expand their operations to meet the increased demand.
This has resulted in the development of new routes and the construction of new ports and terminals.
The Fuel Cost Continues to Increase, Making it More Expensive to Transport Goods by Sea or Air
The recent surge in fuel prices has ripple effects throughout the global economy, affecting everything from supply chains to transportation costs.
One of the most hard-hit industries has been ocean freight, which is responsible for transporting approximately 90% of all goods worldwide. The cost of shipping goods by sea has increased nearly 300% in the past year due to trade imbalances between the East and West economies, residual lockdown effects, and labor shortages.
Rising fuel costs are also a major contributor. Freight ships use very low sulfur fuel oil (VLSFO), which reached $987 (a year-over-year increase of 84%).
This is especially problematic for companies that rely on just-in-time supply chains, as delays can quickly lead to lost revenue. While air freight remains an option for time-sensitive shipments, it is typically much more expensive than ocean freight.
As a result, many businesses are struggling to find ways to offset the rising cost of fuel.
Some companies have turned to alternative transport methods, such as rail and road, while others are working on increasing efficiency and reducing waste throughout their supply chains.
Regulations Governing the Shipping Industry are Becoming More Stringent
In recent years, the shipping industry has come under increased scrutiny from regulators. This is due in part to the growing importance of supply chains, as well as the environmental impact of ocean freight.
As a result, regulations governing the shipping industry are becoming more stringent. The International Maritime Organization (IMO) recently released numerous amendments to its current regulations focusing on emissions reductions, harmful anti-fouling systems, and transporting dangerous goods.
The focus on reducing emissions aims to ensure that ships are appropriately designed and operated to minimize their environmental footprint. These regulations may require new vessel production and impose additional costs on the shipping industry.
Labor Costs are Increasing as Workers Become Increasingly Demanding
In recent years, workers have become increasingly demanding, seeking higher wages and better working conditions. This has put pressure on businesses to raise salaries and improve benefits, leading to a sharp increase in labor costs.
There has also been a significant labor shortage due to residual pandemic resignations and the Ukraine War. Russia and Ukraine account for approximately 15% of the world’s seafarers. However, many Ukrainian seafarers cannot leave their country due to conscription laws, leaving a significant gap in the shipping industry workforce.
The problem is further compounded due to businesses already struggling to cope with the rising cost of raw materials. Companies are finding it increasingly difficult to maintain profit margins.
Streamline Your Supply Chain with Asiana USA
Asiana USA is a leading provider of ocean freight services. We have a long history of providing high-quality, efficient, and reliable customer service.
We are committed to providing the best possible service to our customers and minimizing freight costs. We continue investing in our people, infrastructure, and technology to ensure that we remain a top-tier provider of freight services.