As geopolitical tensions between the East and West rise, sanctions and souring relations could have lasting impacts on business globally.
Container freight rates from Asia have surged from roughly $2,000 to over $10,000 as demand for consumer goods soars.
International shipping costs to Europe have also risen, and many businesses are feeling the pinch.
But what has triggered this astronomical rise in prices, and is there anything your company can do to protect itself from increased costs in 2021?
Why have international shipping costs skyrocketed?
While it isn’t the only catalyst for the rapid rise in international shipping costs over the last year, there can be no doubt that the coronavirus pandemic can be attributed to a good proportion of the increase.
At the height of the pandemic in the first quarter of 2020, global supply chains were upended as countries began to close borders. This left some container carriers stranded off Singapore and other countries enacting the most stringent coronavirus measures. This caused shipping lines to slash capacity and some firms to operate near empty routes.
On top of this, the pandemic has caused online shopping to explode over the past 12 months, further unbalancing traditional supply lines.
Container shortagesThe disruption caused by the coronavirus pandemic has also created an imbalance in global trade routes, with the shutdown in global shipping in early 2020 resulting in containers not circulating quite as freely as normal.
With an increased number of containers being waylaid in Europe and the US, major exporting countries are facing a shortage, which is limiting shipping capacity and driving up prices.
In addition, businesses are facing increased costs for packing and shipping materials, such as wooden pallets and cardboard. The switch to online shopping during lockdown created an explosion of demand for simple boxes, and the return to lockdown in many nations at the start of 2021 has resulted in a continuation in the online shopping boom and increased demand for cardboard.
UK port delays and disruptionMajor disruption at the UK’s largest ports at Felixstowe, Southampton, and London Gateway Port through the last quarter of 2020 caused not only a logistical nightmare for UK businesses importing and exporting goods, but has also contributed to increased shipping costs over the past few months.
This is a result of operational failings at the ports, which have then been exacerbated several times over by the surge in demand.
Ports and warehouses were inundated by arrivals towards the end of the year, with a perfect storm of massive orders of PPE, backlogs from earlier in the year, the normal holiday rush and businesses seeking to stock up on goods before Brexit.
Aside from causing major bottlenecks in UK trade flows, this has also seen business face congestion surcharges for goods imported through the worst affected ports.
Brexit red tapeDespite PM Boris Johnson proclaiming that the Brexit trade deal signed between the UK and EU on Christmas Eve would ensure ‘no non-tariff barriers’, UK-based exporters and importers have found this to be far from the case so far.
Our clients have highlighted a number of issues they’re facing post-Brexit, most notably the increased costs they’re having to shoulder due to a massive increase in paperwork requirements and the delays this is causing at the border.
Reports suggest that as a result of these ‘teething problems’ exports to the EU have fallen as much as 68% through the first month of 2021.
For some firms the red tape has made their business unviable, whilst others are weighing up the costs of relocating parts of their operations to the continent.
Over in the EU a number of UK supermarkets have seen empty shelves as their stocks run dry, with one popular and longstanding supermarket in Belgium having to close for the first time in its history.
Here to help minimise the impact of rising shipping costsUnfortunately, it seems inevitable that UK businesses will be burdened by both a rise in international shipping costs and additional admin outlays in 2021.
Therefore it will be more vital than ever for businesses to make any savings they can elsewhere.
As a market-leading currency provider, we can help businesses cut the costs of their international payments with our highly competitive exchange rates, wide range of services, and expert support from dedicated currency specialists.
We offer a range of tools and services which can help businesses manage their FX exposure and currency risk, allowing them to maximise profit margins while shielding themselves from any currency volatility.
Any firms particularly worried about how future shocks in the currency market could impact their business may want to explore our forward contracts offering. With a forward contract you can fix an exchange rate in advance of making a transfer, ensuring future international payments don’t increase due to unfavourable shifts in the currency market.
Similarly, your business could also use limit orders to target exchange rates stronger than the current market level. You simply state the rate you want to achieve and your transfer will be triggered automatically if the market moves to that level.
Last year proved just how volatile exchange rates can be, but our rate alert service and daily currency updates can keep your business up-to-date with the latest currency developments, helping you to make informed decisions on when best to time your transactions.
Our market-leading online service also strips away the hassle of managing your company’s FX requirements, helping to cut down on admin at a time when the amount of red tape elsewhere is only growing.
At Currencies Direct we understand the challenges businesses face with increased shipping costs and the need for flexibility during these uncertain times.
Get in contact with one of our currency specialists today to see how we could help your business help minimise international costs: email [email protected] or call +44 (0) 20 7847 9400.
Currencies Direct is one of Europe's leading non-bank providers of currency exchange and international payment services. Since we were formed in 1996, we've maintained our focus on providing innovative foreign exchange and international currency transfer services to corporations of all sizes, online sellers and private individuals. We have also expanded our services to provide dynamic and pioneering "business to business" solutions to help companies, tier 2/3 banks and other non-bank financial institutions to process their international payments. Our headquarters are in the City of London (United Kingdom) and we have operations in continental Europe, Africa, Asia, and the United States. Currencies Direct is jointly owned by private equity firms Palamon Capital Partners and Corsair Capital.