The Impact of Price Volatility

Apr 11, 2023 | Supply Chain Problems, Transportation and Supply Chain News

It’s been a perfect pricing storm for shipping and logistics companies. COVID-19 and subsequent rebounds, labor unrest, and supply chain disruptions have led to massive price volatility and wildly fluctuating shipping rates. For brands that rely on a steady supply chain, these pricing swings have been problematic—the trucking industry and other businesses that rely on a steady supply chain, for starters.  

For the trucking industry, recent Pacific labor unrest led to slowdowns for many trucking companies, as East Coast ports struggled to keep pace with overflow from West Coast ports. The more backed-up ports became, the longer vessels waited, with less immediate cargo being loaded onto and delivered via truck.  

Also impacted: shipping companies that launched amidst sky-high pricing in 2021 and 2022. With rates returning to a more comfortable mean, these teams can no longer afford to charter ships at above-average rates, even with full shipping loads.  

Beyond that, many of these businesses are sitting on massive inventories they overpaid for just a year or two ago. With each charter, they’re losing money on both the charters themselves and the often-reduced rates for their existing inventory. Layer in market common market delays—with them, narrower windows surrounding holiday shopping and other peak periods—and the problem compounds even more.  

Factors Impacting Shipping Rates

Labor considerations, price fluctuation, and inventory over-spends are just a piece of the volatility puzzle. Supply and demand naturally play a significant factor in shipping fees—the more in-demand a product, the more demand for freight services to move that product. As demand for space rises, so do prices. This constant push and pull between rising demand for specific goods paired with limitations on shipping capacity can impact volatility. During peak COVID-19 periods, decision-makers also needed to factor in lockdowns which disrupted cargo movement by delaying or reducing trips.  

Also impacting pricing volatility:  

  • Bunker Adjustment Factor (BAF) is a surcharge for shipping operators that compensates for fuel price changes. Implemented by the IMO, BAF was intended to cover all fuel charges—but the immediate trickle-down impacts overall price volatility.  
  • Carrier costs have been consistently on the rise. Many carriers are adding charges to account for port congestion and environmental considerations. With more and more ports experiencing significant delays, carriers potentially lose out on other opportunities. These increases protect businesses should mass slowdowns happen. 
  • Peak season surcharges happen during the holiday season. During these peak periods, carriers raise rates along with the spike in demand. In China, Chinese New Year is a major consideration for shipping fees—demand before and after this period tends to increase significantly, with people focused on getting goods to their final destinations as quickly as possible.  
  • Trade agreements, strikes, wars, and other political events can cause ports to close down or even goods to become increasingly scarce in specific markets. This, then, drives demand and shipping prices up.  
  • Global exchange rates can also impact pricing. In weaker currency countries, imports and exports become more expensive, while stronger domestic currencies readily increase international shipping and benefit from these less-expensive rates.  

The Volatility Winners: Agile Supply Chains

While many businesses struggled to keep pace—and keep profitable—during pricing swings, others found ways to accelerate their growth and profitability. These companies specifically adjusted operations to account for pricing fluctuations, making them more profitable and competitive. With agile supply chains, these organizations were better equipped to handle rapid changes without missing a beat.  

The takeaway, then? Price volatility will always be an X-factor in the shipping industry. To remain operational during these ups and downs, businesses must stay agile, rapidly adjusting to shipping rates and supply chain disruptions. This is especially true for trucking companies and other businesses that rely on a steady supply chain to remain profitable.  

Achieving this level of agility, though, doesn’t happen overnight. Organizations must reassess their inventory management practices to avoid overpaying for inventory during high-rate periods. New technologies and partnerships with more agile logistics providers can help companies navigate price volatility hurdles better. By being proactive and implementing these best practices now, organizations can be prepared—and remain operational—in the face of future disruptions.  

Sign up for The Saturday Shipper

It’s a weekly newsletter that breaks down all of what’s happening in the shipping industry. We promise to only send it out once on Saturdays!

Take me there!

OL-USA Joins U.S. EPA SmartWay Transport Partnership

04/19/24 OL-USA today announced that it joined the SmartWay® Transport Partnership, an innovative collaboration between U.S. Environmental Protection Agency (EPA) and industry that provides a framework to assess the environmental and energy efficiency of goods...

Green Miles Ahead: Partnering with SmartWay-Certified 3PLs for Sustainable Logistics Success 

In today's fast-paced business world, where efficiency and sustainability are paramount, the transportation and logistics industry plays a crucial role. As businesses strive to reduce their carbon footprint and enhance operational efficiency, certifications like...

Safeguarding Your Electronics: The Role of 3PL in Handling Fragile Goods

In the fast-paced world of the electronics industry, where innovation thrives and technology evolves at lightning speed, the journey from manufacturer to consumer is a critical one. Proper handling and logistics play an indispensable role in ensuring that cutting-edge...

Inventory Management Challenges: Typical Q2 Inventory Hurdles

In the realm of business operations, navigating through the second quarter (Q2) often brings forth a myriad of inventory management challenges. These challenges stem from various factors such as fluctuating demand, seasonal promotions, and potential disruptions within...

Navigating Supply Chain Challenges: Why Now Is the Time to Embrace Just-in-Case Inventory Strategies 

In the world of logistics and supply chain management, the ability to adapt and respond to disruptions is paramount. Recent events, such as carriers avoiding the Suez and Panama Canals, have underscored the importance of reevaluating traditional inventory acquisition...

The Game-Changer: Artificial Intelligence in Logistics 

In the intricate dance of supply chains and logistics, where precision and efficiency reign supreme, the emergence of Artificial Intelligence (AI) stands as a beacon of innovation, fundamentally reshaping the landscape of an industry deeply entrenched in tradition....

Navigating Rate Negotiation Season 

In today's dynamic freight industry, effective rate negotiation between shippers and third-party logistics (3PL) providers is more crucial than ever before. As we enter 2024, amidst fluctuating market conditions and evolving customer demands, mastering the art of...

Navigating the Future: How AI is Revolutionizing 3PL Operations in 2024 

In an era marked by unprecedented technological progress, the logistics industry finds itself at the forefront of transformative change. As supply chain dynamics continue to evolve, embracing innovative solutions has become more than just a strategic choice – it's a...

Sustainable Shipping Solutions: How 3PLs Drive Eco-Friendly Contracting 

In today's rapidly evolving business landscape, sustainability has transcended its status as a mere buzzword to become an indispensable pillar of modern business practices. As concerns about climate change and environmental degradation continue to mount, companies...

Spring Cleaning Your Supply Chain: Streamlining Operations with 3PL Solutions 

As the flowers bloom and the temperatures rise, it's not just nature that's undergoing a transformation—your supply chain is too. With the arrival of spring, businesses face a myriad of challenges that can disrupt operations and impede efficiency. But fear not,...