The reasons why logistics costs are on the rise

These days, most industries around the world have faced business interruptions due to the coronavirus pandemic. And in that regard, it’s easy to see why logistic costs are on the rise. But the logistics costs of the pandemic aside, the expenses in this sector have risen by significant margins in the past two years. Why are logistics costs on the rise, and what can industry professionals do about it?

Manpower Issues

Most managers in European logistics will tell you that they’ve been seriously understaffed when it comes to drivers in the past few years. The reason for that is relatively simple – new avenues are being opened up for people with this skill set, and they’re becoming less inclined to work with average to low wages and incredibly long hours. Motor carriers have been forced to absorb this and other spikes in costs across their supply chains, seeing as shippers haven’t proven willing to do their part; problematic in this era of record declines.

Costs are rising all around, and yet carriers must still cooperate with shipping clients that simply do not accept higher rates. In fact, shippers are still waiting for reductions in supply chain expenses, even though the reality of the situation points towards those costs steadily rising over the course of the next decade.

What The Future Holds

These low margins and mounting costs won’t have positive results – the fallout for the logistics industry will spread world-wide, and in many ways it already has. With the economy being fully globalized in 2020, and companies like being as important in the supply chain as a European motor carrier — what affects one of them affects all of them.

Unfortunately, not all providers have proven capable of coping with the rising expenses, and many have been forced out of the business. The COVID-19 situation has, in the short term, wreaked havoc on global demand, which means even more pressure for those who can stay in business to perform.

In the near future, it’s predicted that congestion is bound to increase both in ports and on roads. When Europe is concerned, European governments are expected to combat this congestion through road tolling and new pricing schemes that are aimed specifically at motor carriers. Their hope is to force freight carriage onto trains and off the roads, though this probably won’t happen in any significant volume due to infrastructure. At the end of the day, all this will do is increase the costs of motor freight carriage.

Currently, ports and warehouses are facing a lot of congestions as well. Most COVID-19 stories indicate that the pandemic is the main cause of this; but it’s a problem that has existed in past years as well. Crucial European sea ports have been clogged with Chinese shipments for years, and a lack of new capacities is what’s mainly causing this.

As for local regulation, new directives on recycling and waste are expected to come into effect after extensive work by the European Commission. Although Brexit likely means that these directives won’t become law for the United Kingdom, the reality of the matter is different. Britain carriers do a lot of business with Europe, and their supply chains are basically one whole. With that in mind, British businesses will likely work to remain in compliance with these standards as well.

COVID-19 Impact

While we’ve mentioned how the coronavirus pandemic has sporadically impacted the global shipping and logistics industries; it’s worth taking a closer look at why logistic costs are on the rise. More specifically, it would be most useful to focus on how the pandemic has affected China. Not because this is where the virus has originated, but more because of China’s role in the worldwide logistics sector.

For decades, China has been the centre of world’s manufacturing, due to their (rising but still) cheap labour expenses. Thus, China was well-positioned to become the export hub of the world. While the country does import a lot of consumer goods, particularly cars — it’s a minuscule volume compared to their exports. And when they were severely hit by the pandemic at the beginning of this year, their lockdown affected carrier companies all around the world, from the UK to Africa and the US. Conversely, now that their economy is starting back up and commerce is flowing once more, they will have a positive impact on the global logistics scene. As warehouses are starting to empty out, trade is getting the kick start it needs.

The Bright Side

While we’ve had a terrible downturn due to the coronavirus, there is good news as well. As the world comes out of lockdown and normal operations resume, the economies of most world countries will experience a gradual recovery. When it comes to express carriers, this is great news due to renewed commerce all around. Freight forwarders can also look forward to a brighter market environment; though they’ve successfully been profiting from increases in global traffic already.

What to Do

So, what can logistics companies do in order to combat rising costs in the coming years? First of all, they should examine their transportation efforts in the context of a wider supply chain, and its efficiency. For instance, vendor compliance would go a long way towards allowing products to go through their distribution centres more efficiently. This means going up the global supply chain and cooperation on an unprecedented scale, but it would definitely have its benefits.

Implementation of newer technologies in supply chain management is also showing results, for the carriers willing to go through change. While all of these companies are looking to remain ahead when it comes to their “hardware” and quality of service — using software solutions for all kinds of management processes would mean more accurate data, and thus cost estimates and planning.


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