Author: Jen Pollard, Data Analyst

The rising cost of shipping

The rising cost of shipping has been one the main strains on growth for online retailers in the past year. With businesses across the planet embedded in an intricate, but vast system of global trade, hazards that occur thousands of miles away can easily impact supply. Shipping by sea is considered to be one of the most cost-effective methods of moving large volumes of products around the world, but recent developments have called this into question. 

Source: Statista, 2024

You can see in the graph above that freight shipping rates dipped down to their lowest level in October 2023, when the rate for a 40-foot container was at $1,342 (£1,095 at the time). Since then, the global freight rate has risen to $4,200 in May 2024, despite trending downwards from a spike in January 2024. 

What's causing the costs?

Global supply chains are profoundly fragile, one disruption can have a knock-on effect further down the line. Every step is vital in what is called a ‘Just in Time’ operation. Issues that arose from COVID-19 still linger, as container shipping took a particularly hard hit from port closures, congestion, labour shortages and increased demand for new shipping containers. However, recent geopolitical flashpoints around critical shipping lanes have brough the costs up to record levels. 

The Red Sea is one of the world’s busiest shipping lanes, leading up to the Suez Canal that sees 17,000 ships go through to the Mediterranean each year, 12% of global trade. Once the main hunting ground for pirates, a new threat from Houthi militants attacking commercial ships has appeared in the waters surrounding Yemen. Ships require more protection travelling through the area or reroute around Africa, but both countermeasures are adding to the cost of shipping. The compromised route means goods take longer to arrive, ports become overcrowded with ships arriving off schedule, and problems caused by domestic customs clearance and borders add to the growing burden. 

Andrew Thompson, CEO of Cleveland Containers, told us: “Major shipping lines are having to take alternative routes due to the issues in the Red Sea, extending the length of the journey significantly, resulting in delayed container arrivals to all major ports - and longer waiting times for customers. There is a shortage of shipping containers available as a result. Lead times for containers (from build slot to arrival) have extended from 8 weeks up to 6 months, and the cost of a container has inflated by over 20% in recent weeks with further increases expected in the coming months.  Volatility in freight rates continues across all shipping channels, presenting a significant challenge which ultimately impacts the end user. Many retailers will find they can’t absorb the scale of the freight cost increases imposed - meaning higher prices for consumers.”

A complex mix of the issues emerging from COVID-19, strenuous Brexit border issues, and the ripple effects of the conflict in Gaza in the form of Houthi attacks on commercial shipping have created the perfect storm for shipping providers at every link in the chain. 

What does this mean for retailers?

Demand for products is at a huge high, and supply is down, meaning keeping shelves stocked in the UK is becoming more of a challenge for all retailers. In the run up to peak periods, this is a scenario no retailer wants. Running out of items on the run up to, or on Black Friday, could mean the difference between a successful and unsuccessful trading weekend. When planning for key dates, it’s essential to keep these issues front of mind, and it may be time to start putting in measures. Creating warehouse space to start storing bulky items, forecasting your stock levels to see what lines are selling fast, and preparing for a potential further increase in freight rates are some ways to combat the cost of shipping. Other measures that involve your customers could include returnable packaging, self-locking boxes to cut down on tape, or scaling up a certain box size order that you use frequently. 

“Great retailers know that you can’t predict every crisis, but by having a back up option in mind and teams ready to go, consumers are less likely to be impacted.” - Ashley Wright, Chief Commercial Officer at Visualsoft

Unfortunately, online retailers are at the mercy of their supply chains, and in an increasingly-unstable global economy, sudden spikes and shifts should be considered inevitable. Taking steps to stay a step ahead of any possible fluctuation is the best way to steady your own ship in the choppy waters of online selling. 

¹Bounce Rate Benchmarks: What’s a Good Bounce Rate, Anyway? - CXL