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Why the only way is up for freight rates

This year has seen the biggest fall in freight rates in history – which has been some relief to the retail sector when cost of product to market has been under huge pressure. However, this is now in reverse and in the same way that rates crashed in the first quarter of the year, they are now rebounding skywards at even greater velocity.

There are two main reasons for this: first, the carriers (shipping lines and airlines) are haemorrhaging cash. Second, it is a case of supply and demand. The carriers have decommissioned vessels and aircraft at a rate never previously seen and 15% of the world’s container shipping is now sitting idle. Throw in the traditional ‘peak’ period and demand has exceeded supply from Asia, resulting in a plethora of surcharges being levied to take advantage of the market – and this is without the actual freight rate increases that are widely expected to continue northwards in September and October. Generally if you don’t pay, you don’t get your product moved from origin, or at least it becomes low priority.

So where does that leave the retail sector in 2010?

In short, the answer is with higher shipping costs for products manufactured overseas, although I anticipate that this will be a much more stable market when sustainable freight rates prevail. Factor in the rate of exchange disadvantage against 2008 and rising costs within the supply chain of raw materials and it is unavoidable that these increases are going to have to be passed on to the consumer.

Next year will have its own challenges, and one of them will be cost control within the supply chain and manufacturing of product, so ensure that your budgets and supply chain models reflect this so that there are no shocks for stakeholders in your business.

  • Grant Liddell is retail development director at logistics business Uniserve Group

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