Seko Logistics, an Itasca, Ill.-based freight forwarder, says its contracted rate to ship a 40-foot container from Asia to the U.S. West Coast could double next year to between $6,500 and $7,000. In 2019, the firm paid ocean carriers about $1,500 for the same service.
“The carriers are fully in control and the rest of us are sitting on our hands waiting for the carriers to tell us what to do,” said Craig Grossgart, senior vice president of global ocean freight for Seko.
Gordon Downes, chief executive of New York Shipping Exchange Inc., which monitors and enforces ocean contracts, said talks between some carriers and customers have already started, rather than waiting until the new year, because shippers who waited to the last minute during the last negotiating period found carriers had already run out of space.
In trucking, the outlook for higher rates next year follows a sharp run-up in the contract prices that businesses negotiate with trucking companies and freight brokers. Last month the average contract rate reached a record $2.51 per mile excluding fuel surcharge, according to online freight marketplace DAT Solutions LLC.
To avoid competing for scarce trucking capacity on the open market, some retailers and manufacturers are rolling over existing contracts with carriers for 2022 in exchange for moderate price increases, said Chris Caplice, chief scientist at DAT and executive director of the Massachusetts Institute of Technology’s Center for Transportation and Logistics. “If you go out to bid, you can expect your rates will be 10% to 15% higher, on average,” Dr. Caplice said.
The cost of storing goods is also set to rise more quickly as warehouse labor costs are increasing and facility owners seek price increases to replace expiring leases that had allowed companies to sidestep sharply rising rents during 2021.
Prices to lease industrial properties have jumped 25% on average nationwide over rates tenants paid at the end of five-year leases that expired in the third quarter, real-estate firm CBRE Group Inc. said in early December.
Landlords are even reluctant to agree to new long-term leases that bake in the current market rates, reasoning that tight capacity will lead to rising prices in the coming years, said Carolyn Salzer, head of industrial and logistics research in the Americas at real-estate firm Cushman & Wakefield. “Five years down the road rents are going to be higher,” she said. “So it’s in the better interest of the investor owners to do a short-term lease right now.”
Third-party logistics operators that provide outsourced distribution and fulfillment services are also passing higher labor costs on to their customers as competition for warehouse workers boosts wages.
Shippers are trying various ways to keep the transportation inflation at bay, such as consolidating more loads to minimize truck trips and renting truck trailers for storage rather than paying rising warehousing rents.
But experts say companies have little choice other than absorbing the cost or passing it along to their customers.
Overall, transportation rarely exceeds more than 7% of the cost of goods being shipped, said Satish Jindel, president of SJ Consulting Group Inc. For most companies, “the value of the product you’re selling and the importance of that sale is much greater than a slight increase in transportation costs,” Mr. Jindel said. “You don’t want to say you lost a sale because you were trying to find a cheaper way of getting it there."