Troubles that brought the supply chain to an abrupt halt during the pandemic have been resolved, but shipping prices remain high.
Key Details
- During the pandemic, a shipping container could take 120 days to travel from a warehouse in China to one in the U.S. Now that same journey takes around two weeks.
- Along with faster shipment times, prices have declined from their highs of $20,000 per container to around $1,200, The Hustle reports.
- Despite these changes that undoubtedly relieve difficulties for suppliers, shipping prices remain elevated—a contributing factor to persistent inflation, Bloomberg reports.
- Though shipping from China has become much less expensive, shipments from Europe are elevated to nearly three times 2019 prices, The Hustle reports.
Why it’s news
Persistently high shipping costs play a role in increasing prices across the broader economy. While the cost associated with shipping may have declined, shipping companies are still holding to previously set prices for several reasons.
Many shipping companies negotiate prices based on long-term contracts. These prices are typically only adjusted a few times each year, and individual agreements may leave longer times between negotiations. While shipping costs have decreased, the prices remain firmly fixed.
Overseas shipping may be changing, but other shipping factors once products arrive state-side are elevating prices. Lower warehouse vacancy rates have driven storage prices up, and the price of diesel is nearly double its 2020 prices.
Adding to shipping companies’ troubles is the difficulty in hiring and retaining employees. To convince employees to stay, many have had to raise salaries, resulting in costs pushed onto the consumer. Even with higher pay rates, employee retention remains a difficulty.
Industry leaders don’t expect prices to fall until at least the end of this year. However, shipping executives are meeting this week to discuss ways to reassure customers of the supply chain’s strength.
Backing up a bit
Nestlé, the owner of more than 2,000 food brands, says that its prices on basic items will increase this year. Though the company increased its prices 8.2% last year, it says that these increases were not enough to offset rising production costs, which are eating into profit margins.
“We are still in a situation where we’re repairing our gross margin and, like all the consumers around the world, we’ve been hit by inflation, and now we’re trying to repair the damage that has been done,” Nestlé CEO Mark Schneider explains.
The planned price increases will be “very targeted” and only affect the areas Nestlé says are necessary. Schneider did not share which of the company’s 2,000 brands would be affected. Nestlé’s catalog of brands covers everything from chocolate to dog food to baby formula.
Other companies such as Coca-Cola, Pampers diapers producer Procter & Gamble, Colgate-Palmolive, and brewer Heineken have all announced price increases as the companies deal with higher production costs, energy, and labor.
Raw materials like dairy are still expensive, though prices have declined from peaks last year. Consumers can expect prices on nearly all food items to increase this year, CNN reports.