Monday, December 20, 2021

"Shipping and Logistics Costs Are Expected to Keep Rising in 2022"

No relief yet for shippers and thus consumers.

From the Wall Street Journal via Hellenic Shipping News, December 21:

Companies are bracing for more steep increases in shipping and logistics prices next year after supply-chain costs soared in the scramble to move goods during the Covid-19 pandemic.

Transportation and logistics providers are seeking big boosts in prices for contracts for the coming year, signaling that the inflationary pressure driven by strong demand and tight capacity in freight markets is likely to persist.

With high shipping demand still far outweighing tight capacity across the freight sector, industry experts say transport operators have leverage to raise prices when negotiating new contracts. Ocean-shipping executives say they expect the rates set in many annual contracts will double compared with agreements struck earlier this year, before supply-chain bottlenecks squeezed capacity. Some trucking companies project double-digit growth in contract rates for 2022.

Prices have been rising across the freight sector, including in parcel delivery, trucking, ocean shipping and warehousing. Most freight-transportation contracts are negotiated annually, although many large shippers may have multiyear agreements with a variety of carriers.

“I think folks are a little shell-shocked at the moment,” said Todd Bulmash, a logistics executive and board member at the Council of Supply Chain Management Professionals. “They’re preparing for the worst.”

Pricing in most freight transport and logistics markets generally slides between largely stable long-term contract rates and spot-market pricing that is more sensitive to shifts in demand and the availability of capacity. Prices in spot markets for ocean shipping, trucking and other logistics services have escalated sharply this year.

Overall, domestic shipping rates for moving goods by road and rail in the U.S. are up about 23% this year from 2020, according to Cass Information Systems Inc., which handles freight payments for companies.

A separate measure in the Logistics Managers’ Index that tracks overall logistics prices, including transportation, warehousing and inventory prices, reached a record in November, up 3.4% from October and a 14% increase year-over-year. The index was launched in 2016.

Trucking companies and other logistics firms note their own higher costs, including rising salaries as they have sought workers in a tight labor market.

“As long as we have underlying inflation across the economy, you’re going to see that inflation reflected in the cost of goods and services to include trucking,” said Derek Leathers, chief executive of Omaha, Neb.-based truckload carrier Werner Enterprises Inc.

Mr. Leathers, who said contract rates could rise by high single-digit to mid-double-digit percentages in 2022, expects price increases to moderate as transportation demand eases and companies finish replenishing depleted inventories. However, he said, “We don’t foresee that until 2023. All of 2022 we view as a capacity-constrained market with inflationary pressure and with significant equipment disruptions.”....


So we are at the point where prices are rising because prices are rising.

That is not the definition of transitory.