When it comes to the transportation of goods, transportation is the highest operational expense. According to F. Curtis Barry & Company, inbound freight costs that are domestically sourced normally range from 2% to 4% of gross sales. For imported products, inbound freight typically costs 6% to 12% of gross sales. Then outbound transportation can average from 6% to 8% of net sales.
Prime Logistics has been in a transportation-based business for many years. With access to a global network, we have learned how to work with the rise and fall of transportation costs. Additionally, we know that these costs will continue to rise. Parcel carriers will often adjust their rates at the end of the year, meaning that announcements will be made within the next few weeks.
Transportation Costs in Supply Chain Management
Companies braced for increased shipping and logistics prices after the mess that the pandemic caused. Many transportations and logistics providers are seeking big boosts in the prices for different contracts in the upcoming year. This is due to the market’s inflationary pressure driven by high demand and tight capacity. The high demand outweighs the tight capacity across the freight industry.
Sectors within the freight industry, such as parcel delivery, trucking, shipping, and warehousing, have seen price increases recently. Most contracts are negotiated annually, but some larger companies enter multi-year contracts.
Outside of the rising shipping costs, there is a range in pricing in most transport and logistics markets. These typically range between largely stable long-term contracts and spot-market pricing, which is more flexible to the shifts in demand and availability.
According to Cass Information Systems, Inc., domestic shipping rates for ground transportation in the U.S. have risen about 23% since 2020. Many companies have noted their costs rising and mentioned the increase in salaries as they are looking for more workers in a tight labor market. Transportation costs for sea containers are likely to reach record numbers under the annual contracts that often get negotiated earlier in the year before the peak shipping season.
Prime Logistics’ Solutions
As a worldwide logistics company, it is part of our job to keep up with and prepare for the latest pricing and demand trends. Our high-quality services provide solutions for travel by air, ocean, and land.
Air cargo is commonly used by global import and export companies that need to get their goods to their destination quickly and efficiently. While many goods are transported by sea, air freight connects companies faster. This cuts 20 or more days of travel time compared to shipments done by sea. Air freight shipping is calculated by weight and volume, and the volumetric weight becomes the chargeable weight.
Ocean freight shipping is priced per volume of goods and not by weight. Other common charges which can be seen in the quote include:
- Custom security surcharges
- Container freight stations
- Terminal handling charges
- Customer brokerage
- Pickup and delivery
- Accessorial charges (fuel surcharges, handling hazardous materials, storage, etc.)
- Routing charges
This is often a cheaper form of transportation used for large items that are not time-sensitive. It is beyond a single truck picking up a single delivery. It’s an entire network of trucks and terminals, a process that has a lot in common with the Pony Express. Rates are normally based on the weight of the parcels.
Contact Prime Logistics today to learn more about how companies like ours are navigating the rise in transportation costs.