In the wake of pandemic-induced disruptions, businesses are grappling with soaring logistics expenses, presenting unprecedented challenges across global supply chains.
To illustrate the current landscape, major logistics giants UPS and FedEx implemented a 5.9% rate hike in 2021, marking the first increase surpassing 4.9% in nearly eight years. This surge extends to shipping costs, with container prices skyrocketing up to 10 times higher than those recorded two years prior.
Despite hopes for a reprieve in 2022, the challenges persist. Shipping services continue to operate at elevated rates, compelling logistics providers to transfer the burden of expensive operations to sellers.
In an industry where marginal gains hold significant value, the reduction of logistics costs stands as a pivotal strategy for attaining commercial success.
Understanding Logistics Costs: Logistics costs encompass all expenses involved in the movement, storage, and delivery of product components. These costs typically consume approximately 7% to 10% of production expenses.
These expenses may encompass internal costs related to moving raw materials to factories and finished products to end consumers. Additionally, they may include fees paid to logistics firms—such as shipping carriers and third-party providers—managing various aspects of the logistics process.
Logistics firms, owing to their expertise and global reach, serve as preferred partners for numerous companies. For instance, global entities like Apple, which operate extensive supply chains spanning over 200 suppliers across nearly 50 countries, find value in collaborating with logistics firms.
Even for smaller supply chains, employing a logistics solution like Alibaba.com Freight can prove advantageous, particularly in international trade scenarios involving global buyers.
As integral components of production costs, logistics expenses directly impact the final pricing of goods and services. Elevated logistics costs compel businesses either to pass these expenses on to consumers or absorb them, consequently affecting overall profitability.
Breakdown of Logistics Costs: Logistics costs comprise various expense components:
Transportation and shipping: Accounting for up to 58% of total logistics expenses, this covers all aspects of moving goods between destinations. Warehousing: Approximately 11% of logistics expenses are attributed to warehouse rent and maintenance costs. Inventory carrying: These costs fluctuate based on the quantity and nature of stocked goods, covering storage, depreciation, and accounting expenses. Supplies and equipment: Expenses related to equipment such as shelves, pallets, and specialized storage tools for specific goods. Labor wages: Encompassing payroll, benefits, insurance, and workers’ compensation for personnel engaged in handling goods. Impact of the COVID-19 Pandemic on Logistics Costs: The COVID-19 pandemic’s global impact has been unparalleled, significantly affecting various sectors, including logistics.
Global supply chains, which crisscross the globe due to globalization, became heavily reliant on logistics firms for cost-effective product movement across borders. While this enabled access to quality components and affordable labor, it also exposed the fragility of these intricate value chains during times of crisis.
The pandemic’s onset in early 2020, notably in China—a pivotal global industrial hub—triggered disruptions due to health and travel restrictions. Consequently, freight forwarders, carriers, truck drivers, cargo handlers, and port operators faced operational halts, leading to significant backlogs at major ports.
The breakdown of long-haul trucking in China from January to February 2020, responsible for transporting over 80% of the country’s goods, exacerbated transportation unavailability and high costs. The subsequent global lockdowns further hindered shipping, impacting both suppliers’ ability to ship products and customers’ capacity to receive them.
Supply Chain Squeeze in 2021: While hopes were pinned on the development of COVID-19 vaccines, 2021 witnessed persistent challenges within the logistics sector:
Escalating transportation costs: Shipping expenses soared across ocean, air, and land freight. Reports indicated a 75% increase in shipping a 40-foot container from Shanghai to Los Angeles by December 2021 compared to the previous year. Labor shortages: Health challenges, post-pandemic uncertainties, and labor actions resulted in a scarcity of workers. In response, companies, such as Amazon, offered exceptionally high wages to attract truck drivers. Rising warehouse rents: Inflationary pressures amid the pandemic drove up warehouse rental costs, with landlords capitalizing on the boom period. Global component shortages: An unexpected surge in consumer demand led to shortages in various essential components, from computer chips to shipping containers, disrupting inventory sourcing and driving up expenses. Addressing High Logistics Costs: To navigate these challenges, businesses are exploring ways to curtail escalating logistics expenses:
- Audit logistics costs: Conduct comprehensive reviews to identify all logistics services, associated costs, and additional fees. Periodic audits ensure ongoing cost optimization.
- Eliminate unnecessary fees: Reduce avoidable expenses by scrutinizing delivery options, cutting down on accessorial fees, and optimizing packaging purchases.
- Prioritize closer sourcing: Optimize shipping routes and consider sourcing from closer suppliers to reduce shipping expenses.
- Consolidate shipping loads: Consolidate shipments and prioritize profitable products for cost-effective transportation.
- Proactive customer service: Minimize costs related to returns and disputes by ensuring transparent communication and swift conflict resolution.
- Explore creative options: Explore alternative shipping methods and leverage shipping zones to minimize expenses.
- Leverage digital tools: Employ logistics management systems and digital solutions to streamline operations, identify inefficiencies, and improve collaboration across departments.
Alibaba.com Logistics Services: In addition to the aforementioned strategies, B2B e-commerce sellers can leverage Alibaba.com’s digital logistics solution—Alibaba.com Freight—for a seamless shipping experience.
Alibaba.com Freight offers a comprehensive logistics solution that streamlines the process of finding, comparing, booking, and managing freight through an intuitive platform. This solution simplifies coordination with carriers, freight forwarders, agents, and customs clearance.
The platform facilitates shipping from China and other countries to nine locations across North America and Europe, offering options for ocean freight, air shipping, or air express based on customer requirements.
Moreover, Alibaba.com Freight ensures complete visibility through end-to-end tracking and live updates, while enabling sellers to view and compare prices from twelve providers, ensuring transparency and competitive pricing.
In conclusion, navigating the current landscape of soaring logistics costs requires strategic approaches that prioritize efficiency, cost reduction, and innovative solutions. Leveraging digital tools and comprehensive logistics solutions can provide businesses with the edge needed to mitigate these challenges and optimize operational efficiency in a post-pandemic era.
