Freight Costs Approach Record Highs, Prices Could Keep Spiking

Negotiating New Contracts

A conference is being held in Long Beach, California this week, where shipping companies and importers are negotiating freight contracts. Typically these are year-long obligations. The average price to ship a 40-foot box from China to the west coast of the United States is expected to hit a record high.

During the last two years, demand for goods soared and there simply weren’t enough ships available. COVID-19 outbreaks also contributed to labor shortages affecting on-ground delivery, as well as the ability to warehouse goods. Analysts say these disruptions left importers more tolerant of higher pric

The Consolidated Industry

Market observers say the shipping industry recorded steep losses after the financial crisis of 2008. Ultimately, the largest companies ended up merging in 2016 and started sharing facilities, and even the ships themselves. This has crowded out smaller companies and zapped competition.

Transportation specialists explain how this has a major impact on pricing. One analyst notes how the shipping industry’s five largest firms control 75% of container capacity. Shipping rates are considered highly unlikely to fall back to pre-pandemic levels due to the way these companies have banded together into a more cohesive unit.

Consumer Products Being Affected

The impact of shipping costs on consumer prices is evident when listening to company executives discuss the issue. Under Armour (UAA) says freight costs are its biggest obstacle for expanding gross margins. Toy maker Hasbro (HAS) has scheduled price increases this year to offset higher freight costs.

In a broader sense, almost all of the products for sale at IKEA, Walmart (WMT), and on Amazon (AMZN) could soon be priced higher as a result of increased shipping costs. Analysts note more than 25% of all shipping containers are carrying products for large importers. Clothing, cars, and appliances are all exposed to price increases which, in the end, will impact consumers.

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