Inflation, overstocked inventory and rising energy costs explain part of the reason why prices are still high. There is finally a bit of relief for businesses regarding supply chain costs. However, shoppers are likely not going to see any additional savings this holiday season.
The cost of ocean rates globally has cooled from record highs hit during the pandemic. When Covid hit goods manufactured in Asia outstripped supply. At the peak in mid-September 2021 the average rate to secure a container on a ship seen a 15-fold increase from early January 2020 according to data from Freightos Baltic Index.
The reduction in ocean rate costs is welcomed by retailers and consumers, although a number of factors are impacting retail decisions to lower costs of their goods including; overstocked inventory, preemptive holiday buying and rising energy prices.
A consumer product analyst Mike Graziano who works for consulting firm RSM based in the USA commented on the ongoing crisis. “This price drop will help consumers, it’s just a matter of when its going to help, this will really depend on the product being sold and the company selling the product.”
Why were ocean freight rates high to begin with?
When the pandemic first hit it changes the lives of everyone around the world were immediately affected. Global lockdowns forced everyone into their homes and took away chances to spend money on nights out socializing, holiday planning and consumers ultimately fed the economy by shopping online. The sudden demand for goods caused operational costs to soar – most notably, freight container rates from Asia.
With only a few major operators in complete control of this market their ocean rates suddenly doubled, tripled, quadrupled and beyond! E2open’s CEO Michael Farlekas said the lockdowns suddenly changed consumer behaviour in a way no one in the industry could have anticipated.
What’s causing freight rates to drop now?
Like everything in life situations and circumstances change over time, this is no different. The demand for new products is low. Vendors, manufacturers and retailers aren’t ordering as much from Asia, in part because consumer behaviour has changed dramatically. With the increase in inflation has forced shoppers to be more strategic about how they spend their money.
Will prices ever drop?
Experts have been suggesting they will go down, but it will take time. Inflation, especially high labor and gas costs is still putting the pressure on companies. The steep decline in ocean rates will eventually soften pricing. In theory it is simply a lag time experts have said that needs to wash through the system.
Other supply chain headaches await, and that could offset any hope of lower prices in the next few months in the run up to Christmas. In the holiday season of the year, trucking becomes a preferred supply chain mode because of online holiday shopping. Logistics experts are already warning that a shortage of capacity and truck drivers plus rising demands for goods will likely drive rates up. Consumers will likely see an increase in price for their goods online.