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6 Reasons Freight Rates are Record-High

A busy cargo bay

Every business that needs to rely on hiring others to transport goods has recently been under a ton of pressure. Freight rates have continued to climb, presenting a worrying challenge to their finances. However, why is this trend continuing? Well, to answer that question, let us discuss more closely the 6 reasons freight rates are record-high.

A fueling station with high prices, which is one of the reasons freight rates are record-high.
Some countries, such as Panama, are doing admittedly better than others in dealing with fuel costs.

Fuel costs

The first of the reasons freight rates are record high nowadays is the sky-high fuel prices. This issue is becoming increasingly urgent since the near overwhelming costs make it hard for businesses to run normally. For logistics companies to break even, they’ve had to bump their prices considerably. And this, naturally, reflects poorly on freight rates worldwide. Anyone who tries to follow news about logistics can tell that this trend needs to change quickly. However, solutions are few and far between, even as some countries step forward in an attempt to regulate fuel costs. Of course, they are still in the minority, and logistics is hardly the only field of business hit by what is happening. Even farmers are starting to suffer from the effects of high fuel prices as they struggle to feed their work machines.

Operating costs

The fuel costs are hardly the only expenses that have shot up through the roof for anyone trying to get into the freight business. With the rising transport cost, the value of all goods has shot up. This, in turn, feeds back into a rather vicious cycle and directly impacts logistics companies. Even just the maintenance of current equipment is growing unbearably expensive. Let alone the acquisition of new ones! This is, naturally, not just one of the reasons freight rates are record-high but even contributes to the lowered quality of services rendered when hiring one of these companies. Those that try to maintain their previous service quality are hit by even more expenses. Which, as the experts associated with the database can attest to contributing to a growing decline of those companies. Ironically, paying attention to customer satisfaction is currently almost punishing.

Truck fleet maintenance costs have gotten especially high.

Supply chain inefficiencies

There is a lot being done to fix the global supply chain. However, the situation before the pandemic is still hard to remedy, even if several years have passed. In the past, delivery route optimization, as well as warehouse unification, was not a priority. This often led to a situation where, instead of just heading to its destination, a delivery truck would need to visit several different warehouses, which might be frustratingly far away, before getting sent on its way. This, naturally, wastes both time and resources. An even worse situation was an over-reliance on foreign production since distance had not posed nearly as much of an issue as today. However, with the increased operating costs and the common causes of logistics delays, these inefficiencies seriously hamper business and even go on to be one of the reasons freight rates are record-high.

Higher demand

Of course, a simple spike in demand is one of the simple reasons freight rates are record-high. With the breakdown of global logistics, which we are still dealing with, the difficulty of transporting goods has considerably grown. This, of course, makes all businesses that can do it reliably much more valuable. Be it to deal with the previous problems we had mentioned or as a means of leveraging this newfound necessity, freight service providers are increasing their prices. Even if there is a hard limit on how much prices can rise as a result of interest due to competition, with the gradual increase across the board, this still hits hard the wallets of those depending on logistics companies.

Lack of skilled workers

Interestingly enough, one of the reasons freight rates are record-high is a surprising lack of skilled workers. Before all the changes brought on by the pandemic, skilled workers in the logistics business, such as warehouse workers or truckers, were admittedly not valued as much. However, nowadays, a skilled worker can eliminate a lot of inefficiencies, properly maintain equipment and reduce maintenance costs, and more. This makes their worth to logistics companies considerable and their absence noticeable.

The operation costs, which we’ve already discussed, jump further when companies are forced to hire inexperienced personnel. At the same time, things have practically devolved into a bidding war over the most skilled employees. Previously low interest in these positions, as well as the fact that it takes time, effort, and money to train up newly hired personnel, mean that there is a very limited number of true ‘professionals’ in the field.

The problem facing logistics

There’s a final contributor to the thorny freight rate issue, which is a threat facing all smaller logistics companies: bankruptcy. Everything we’ve discussed has made the world of logistics a shockingly competitive business market. The more prominent companies can afford to weather the current expenses, hire better personnel, and dominate the market. On the other hand, the smaller competitors have none of these conveniences. A small logistics company with barely any savings will be forced to declare bankruptcy soon after a major accident happens. There are some ways to mitigate risk, such as the role of artificial intelligence in logistics, but not enough to make a real difference. Which, of course, leaves only the bigger competitors in the market. Competitors would then be free to take full advantage of previously discussed demand and further ramp up prices. This is the most distressing of reasons freight rates are record-high.

Final thoughts...

You should now understand the 6 reasons freight rates are record-high a bit better. This, of course, leaves us with one burning question: when will things get better? Unfortunately, there is no real answer to this. In order for an improvement to happen, several underlying problems need to be solved. One of the biggest being the soaring fuel costs. And yet, the current outlook for this happening any time soon is not very good.


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