Freight prices and their impact on business

Freight prices can be a significant expense for businesses that rely on shipping to move their products. Understanding the factors that contribute to general freight prices can help businesses to better manage their shipping costs and make informed decisions about their shipping strategies. Today, Shipping Industry will explore some of the key factors that contribute to general freight prices and how your business can limit their effects.

Fuel prices

Fuel prices are one of the most significant factors that contribute to general freight prices. The cost of fuel can account for up to 30 per cent of the total cost of shipping, and fluctuations in fuel prices can have a significant impact on shipping costs.

The price of fuel is affected by a range of factors, including global oil supply and demand, geopolitical events, and weather conditions. Businesses that rely on shipping should monitor fuel prices and adjust their shipping strategies accordingly to manage costs.

Capacity constraints

Capacity constraints are another factor that contribute to general freight prices. During periods of high demand, carriers may experience capacity constraints, which can lead to longer lead times and higher costs.

To mitigate the impact of capacity constraints, businesses can consider alternative modes of transportation, such as intermodal or air freight. Intermodal transportation involves using multiple modes of transportation, such as trucking and rail, to move shipments. This can help to reduce transportation costs and improve shipping times.

Seasonal demand

Seasonal demand is another factor that contributes to general freight prices. During peak seasons such as the holiday season, carriers may experience high demand, leading to capacity constraints and higher shipping costs.

To manage the impact of seasonal demand, businesses can plan their shipping strategies well in advance and work with their carriers to secure capacity early. Businesses can also consider alternative modes of transportation, such as air freight, to ensure that shipments are delivered on time.

Distance

The further a shipment has to travel, the higher the shipping cost is likely to be. This is because carriers have to cover the cost of fuel and other expenses associated with transporting the shipment over a longer distance.

To control the impact of distance on shipping costs, businesses can consider consolidating shipments or using a hub-and-spoke shipping model. Consolidating shipments involves combining multiple shipments into one larger shipment, which can help to reduce the cost of transportation per unit. A hub-and-spoke shipping model involves using a central hub to consolidate shipments from multiple locations, which can help to reduce shipping costs and improve delivery times.

Accessorial charges

Accessorial charges are fees that carriers charge for additional services, such as lift gate delivery, inside delivery, or special handling. These charges can vary, depending on the carrier and the type of service requested, and can significantly increase shipping costs.

To limit the impact of accessorial charges on shipping costs, businesses should carefully review their carrier contracts and negotiate favourable rates for any additional services they may require. Businesses can also consider alternative carriers that offer lower accessorial charges for the services they need.

Regulatory compliance

Carriers are subject to a range of regulatory requirements, such as safety regulations, environmental regulations, and customs regulations, which can increase their operating costs.

Businesses should work with their carriers to ensure that they are compliant with all regulatory requirements to manage the impact of regulatory compliance on shipping costs. This can help to minimise the risk of delays or fines, which can increase shipping costs.

Understanding the factors that contribute to general freight prices is essential for businesses that rely on shipping to move their products. By monitoring fuel prices, managing capacity constraints, planning for seasonal demand, managing the impact of distance, negotiating favourable accessorial charges, and ensuring regulatory compliance, businesses can manage their shipping costs and make informed decisions about their shipping strategies.