How Inflation Is Affecting Your Shipping Costs

September 1, 2022

No matter where you are today, you must have already noticed the painful increase in everyday prices. Whether it's food, gas, or that flagship phone you wanted to buy last Christmas, prices are soaring non-stop. That is inflation. Unfortunately, this current inflation period is higher than usual and is hurting the economy. 

In this article, let's explore and understand the current inflation period we are all facing and find ways to negate its effect, particularly in the shipping and logistics industry. 

 

The Effects of Inflation Are Everywhere

 

Before focusing on how inflation affects shipping costs, let's first examine the role of inflation in general. 

Inflation, as established above, is the increase in prices. You can also think of it as decreasing one's purchasing power. This phenomenon is normal, and a small amount of it is actually healthy for the economy. In fact, the Federal Reserve recommends and targets a 2% inflation rate. 

Unfortunately, at the time of writing, we are facing an 8-10% inflation rate worldwide. Gas prices soared from $1.93 per gallon in April 2020 to $5.03 in June 2022. Consequently, groceries and utilities have increased as well.

 

Shipping Has Been Particularly Hard Hit by Inflation

 

Now, although inflation affects everything, it's not the same for every industry. Some may be more affected than others; in this case, the shipping, logistics, and transportation industries are punished severely. Here's why:

Fuel Prices and Shortages of Drivers All Contribute

As stated, gas prices soared from just $2 per gallon in 2020 to $5 this year. That $3 increase is already painful for the everyday car owner; imagine how excruciating that might be for fuel-hungry engines. A container ship alone consumes over 60,000 gallons a day! This is not to mention trucks and airplanes, which logistics companies also heavily depend on. 

Gas isn't the only factor driving the price increase in logistics services. The workforce is another severe issue. When you hear there's a shortage of truck drivers, there's not. The truth is, being a truck driver is just not a job that anyone would like to have. Period. 

According to Steve Viscelli, University of Pennsylvania labor expert, "There is no shortage of truck drivers. These are just really bad jobs." The fact that you have to drive for at least 11 hours each day to get 10 hours of rest in a cramped compartment while continually fearing theft as you park your truck in isolated areas is reason enough to dishearten applicants. 

 

These Are Issues That We Don't Have Control Over

 

Many factors caused the inflation period we all face today. Besides the war in Ukraine affecting fuel prices, there's also a shipping container shortage, pushing container prices to skyrocket from $1,800 in 2020 to $3,500 for a new one today. 

How? Why?

Well, we can thank the pandemic for that and the Suez Canal (disrupting $58.2 billion in global trade). To top it all off, one of the biggest reasons for the high inflation in the logistics industry is the simple fact that there's just more demand than ever. The pandemic was the core catalyst for people to opt for eCommerce.

 

How Do We Fight the Costs of Inflation?

 

For clarity, we're going to give our two cents to businesses, not consumers. For Surus, the most practical way to fight the cost of inflation is to focus on efficiency and operations improvement. Increasing product or service prices should never be the first option. 

Now is the perfect time to reevaluate your current processes and approach to dealing with your customers. For manufacturers, reassessing supplier options and undertaking equipment upgrades may be your most viable option. For retailers, only taking on quickly sellable items may be an immediate fix, while personalization, assortment, and putting more effort into digital marketing may be critical to long-term sustainability.

How AI and Technology Fights Inflation

We strongly advise business owners to embrace AI, technology, and digitalization as a core part of their business. AI can help you with better forecasting and automates product personalization, dramatically increasing the chance of sales. 

Some technologies help your business identify new opportunities to market your products and services, while others are focused on giving accurate pricing recommendations based on your customers' behavior (demand for products). 

Last but not least, going digital allows you to improve your brand awareness, gain feedback from your customers in real-time, and increase profit by becoming less dependent on brick-and-mortar stores. 

When your business counts on it. Count on Surus.
© Surus, LLC.