For any business sending cargo internationally, ocean freight shipping is a favorable choice. The International Chamber of Shipping reports that it accounts for almost 90% of global trade. Seaborne trade continues to expand due to competitive freight costs and the growing efficiency of shipping.
Small businesses, in particular, prefer ocean freight because of its economic pricing, reliability, and safety. Moreover, it’s ideal for transporting large volumes and bulky shipments without breaking the bank. The eco-friendliness of this shipping method is another reason it emerges as a top choice in the age of sustainability.
On the other hand, there are some challenges small business owners encounter with ocean freight. These include a lack of visibility into shipment status, uncertain schedules, and limited availability. Aside from these, rising costs emerge as the biggest pain point for businesses grappling with tight funds.
According to Statista, container freight rates hit a staggering $5,800 for a 40-foot container in June 2024, the highest value on record. This spike came after an extended dry spell, with the rates slumping to $1,342, the lowest ever, in October 2023. The prices may continue rising, leaving small business owners anxious about shipping expenses.
In this article, we will highlight what these increasing rates might spell for small businesses and how they can address the challenges ahead.
Rising Ocean Freight Rates: Understanding the Why
Global ocean freight has witnessed a tumultuous phase in recent times. Not surprisingly, small businesses feel the pinch as freight rates continue to soar due to various factors. Let’s give a breakdown of different factors leading to the increase in ocean freight costs.
Political Instability
The instability in the Middle East has resulted in immense pressure over global sea trade. With the Red Sea being in a critical zone, shipping companies face higher insurance premiums due to the increase in risk of losing their vessels.
Travel time has increased significantly as they need to change the shipping routes and reroute around the Cape of Good Hope to avoid the Suez Canal. High insurance premiums and fuel costs translate into a surge in freight costs.
Container Capacity Crunch
A recent article published in CNBC highlighted the impact of a sudden ocean container capacity crunch on global ocean freight. The crunch couldn’t have come at a worse time, with the peak shipping season underway.
Even worse, factors like longer ocean transits, congestions along the trade routes, bad weather in Asia, and vessels skipping ports have exacerbated the supply chain issues.
A severe drought in the Panama Canal has resulted in weight limitations on vessels passing through the routes. This means they can carry less, leading to a reduction in container space and a rise in costs due to short supply.
US Tariff on Chinese Imports
Besides the geopolitical and natural factors affecting the popular ocean freight routes, another reason for increasing prices is the new US tariffs on Chinese imports. President Joe Biden, in May 2024, announced steep tariff increases on imports such as medical products, computer chips, and EV batteries.
The repercussions of these sanctions are serious, from trade flow disruptions to changes in global supply chains. These factors contribute to the volatility of ocean freight rates.
The Impact on Small Businesses
Statistics indicate that the sea freight forwarding market will hit a massive $75.21 billion in 2024, and is expected to reach $96.86 billion by 2029. Small businesses make up a significant part of the market. However, they also likely suffer the most due to the unprecedented rise in ocean freight costs.
High ocean freight costs and supply chain issues lead to delayed orders, and no small business can afford to deal with them. In a competitive market, delays can result in unhappy customers, canceled orders, and reputational damage. For small businesses, these factors make a fatal combination in the long run.
Increased prices are another pain point as profit margins are reduced. Manufacturing companies bear a greater brunt due to the rising price of raw materials and intermediate products. Moreover, a higher price of final goods drives overall discontentment among customers.
How Small Business Owners Can Cope With High Shipping Costs
The problem of rising ocean freight costs is real and challenging. Small businesses must find actionable solutions to stay afloat in such conditions because the price surge may not be resolved for some time. While business owners cannot find a way to solve the global crisis, they can do their part to lower their shipping costs. The following strategies can help them address the ongoing challenges.
Research and Compare
Study the market and research the prevailing rates to set realistic expectations. The best way to start is by finding a list of freight providers matching your business goals, product, and budget.
Getting quotes from these providers is the next step. At this point, you should check the reviews and reputation of providers to choose wisely.
Choose the Right Shipping Model
Choosing an effective shipping model can help you tackle the problem of high freight rates. For example, FCL shipping, or full container load shipping, is an efficient shipping service for small businesses that require space for cargo to fill an entire container. Business owners have the flexibility to choose between a 20-foot container if they do not require a 40-foot one.
Industry leaders recommend FCL shipping for businesses looking to send bulk cargo at a lower cost. Besides affordability, FCL shipping offers the benefits of speed, simplicity, safety, and reliability.
Optimize Cargo Packing
Another strategy to reduce shipping costs is to optimize your cargo packing. Using the precise size of cartons and the exact amount of bags and boxes can eliminate wasted space. You can even customize your packaging material to fit the size of the container. Custom packing can also reduce the chance of damage by reducing movement during transit.
Plan Effectively
Effective planning is about clearly understanding the scope of your business, the nature of goods, the quantities being shipped, and the frequency of shipments. Planning effectively can help you negotiate with carriers, bringing forth best-value quotations to business owners who know what they want and how to ask for it.
Final word
Undoubtedly, small business owners have struggled with the significant rise in ocean freight costs over the past year. Bigger corporations have the option to switch to air freight alternatives, but for small businesses, that option is often too unaffordable.
Fortunately, small business owners can enhance resilience and adaptability by implementing these robust strategies until global stability resumes and prices normalize again.
