Furniture Industry News Archives - Domificus - Home Furnishings Consulting

Are Freight Rates Stabilizing in 2022?

domificus — Sat, 05 Feb 2022 11:20:06 +0000

Are Trucking Freight Rates Stabilizing in 2022?

Here’s What You Need To Know

The world is currently experiencing a high demand for… well, everything. That, in conjunction with the harsh restrictions, limitations, and uncertainties that governments create, is a recipe for disaster for companies who need to transport products to the end consumer.

We’ve been seeing the results of that every day—and they’re not good.

Let’s take a look at what’s going on with trucking freight, how it’s affecting companies and consumers alike, and what are the predictions for 2022.

The current state of freight rates

Where did it all start?

As you can assume, it all started at the beginning of the pandemic, in 2020. Forced to spend much more time at home, people had all sorts of things delivered to their home—some picked up projects like redecorating their homes (furniture was a big part of that), others took up new hobbies, others learned cooking, and so on and so forth.

The bottom line is that the demand in products sky-rocketed nearly overnight and it put a heavy strain on the supply chain.

In theory, it sounds pretty good, right? A high demand is good news. However, there’s the other side of the coin: the chaotic schedules or workers, restrictions in ports and customs, multiple-day delays etc. Almost 100,000 truck drivers had been laid off due to the economic crash in 2020, not necessarily by the employers’ choice as much as the need.

To be able to transport goods in due time – whether by sea or truck – became a luxury. Therefore, the prices started to reflect that. That’s how freight rates sky-rocketed, and they’ve been very high for almost 2 years.

How is it going?

The trucking industry is a crucial part of the supply chain—in the US and in the rest of the world.

Faced with high demand, companies were forced to find ways to move products in a more efficient and fast way. They changed strategies, hired truck drivers, and turned to technological improvements to track and manage the steps of the end-to-end supply chain.

However, the trucking freight rates – both spot and contact freight – are still extremely high, and they’re expected to go even higher until mid 2022.

Here’s an overview of the current trucking freight rates:

What issues are the most prevalent?

Increase in Fuel Prices

Not only are the companies struggling to keep afloat despite the premium trucking freight rates and the chaotic shortages they experience, but they also have to deal with the increased fuel prices.

In this table from TCI, you can see how the diesel fuel prices (Dec 2021 – Jan 2022) have increased compared to a year ago.

Lack of drivers

Between illness and restrictions, e-commerce companies found themselves at a loss of truckers.

Therefore, companies have been offering better work conditions, chosen lifestyle support, and other benefits truckers want in order to attract them.

Being a truck driver affects a lot of aspects of a trucker’s life, and the pandemic changed many mindsets that are related to relationships, life, and time. Companies had to adapt to that in order to get truck drivers.

Supply and Demand Imbalance

As mentioned above, a high demand is, in theory, a good thing—however, an extraordinary surge in demand during a global pandemic is a nightmare.
Manufacturers, especially smaller ones, are having an extremely hard time keeping up with the demand while battling delays and other shortages.

As a general advice, manufacturers and retailers should strive to keep a good relationship with the carriers. Working together, options can be created, but if you lose a carrier, you’re in for a very wild ride.

Increase in Consumer Goods Prices

We left this one for last because it’s basically the result of everything that’s going on for the manufacturers and retailers.

Given the fact that trucking freight rates increased, on top of the other types of expenses and investments companies have to make to keep afloat, manufacturers are having a hard time getting profits out of their companies. Therefore, consumer good prices have to go up.

According to the New York Times, food and furniture prices have increased tremendously. It’s not a surprise. Furniture and food manufacturers and retailers, especially smaller ones, have to make some tough decisions in order to make a profit.

Outlook in 2022

The trucking industry will experience a higher pressure in 2022 because it will become more and more important, getting ahead of rail and ocean freight. That also comes with a boom in expected revenue for the industry, and we’re talking up to 66 percent more than 2021 thanks to the expected increase in freight tonnage by 24 percent.

This calls for better road infrastructure, better compensation for drivers, and new technology to help with tracking and managing the different levels of the supply chain.

The fuel prices are expected to keep rising until the end of the year, but then good news is on the horizon: they should then start declining.

As for the truck drivers shortages, the problem still remains in 2022, but companies are on a constant hunt for them, which means they are willing to offer good benefits for truck drivers.

Final Thoughts

You could say it’s the best and worst of times for the trucking industry. It’s expected to boom by 66% in 2022, but companies will have a lot of hard work to do in order to take advantage of that.

Truck drivers are in for better job offers, consumers have to pay higher prices for furniture, food, and other goods, and companies have to deal with historical-high trucking freight rates, restrictions, and chaos.

The good news? We might just see the light at the end of the tunnel by the end of 2022.

The post Are Freight Rates Stabilizing in 2022? appeared first on Domificus - Home Furnishings Consulting.

Freight Increases – No End in Sight?

domificus — Fri, 21 Jan 2022 22:00:41 +0000

All-Time High Ocean Freight Costs. How Does It Affect Furniture Retailers?

We are finding ourselves in what seems like a never-ending pandemic situation. 2022 has been seen as the year the world finally comes back to normal, but many industries are still struggling with the lurking consequences of the pandemic.

One industry that is severely hit by the ongoing changes is supply chain, primarily ocean freight.

In this blog post, we will focus our attention on the exponential increase in ocean freight costs—why it is happening, what researchers are predicting for this year, and how it all affects furniture retailers and manufacturers alike.

The Current Situation of Ocean Freight

Whether you ship (or buy) shoes, toys, or furniture, the products are coming to you by sea/ocean. Especially as buyers, we don’t really think about how the products get to us, but, these days, it’s probably a concern all of us should have—because all of us are impacted.

Because of the dramatic changes the pandemic has ignited, the ocean freight processes are highly unstable. It all started in 2020 when, forced to stay home, people began buying massive amounts of products, so there was a sudden increase in demand that strained the supply chain.

Companies are still experiencing extremely high demand, but are left to deal with getting their products to their customers however they can. Between the lack of workforce, long-lasting delays, and limited access in key ports, leaders have to channel their efforts into paying huge rates as well.

Just to give you a better idea of how much the rates have increased, take a look at Freightos’ insightful pricing trends comparison (January 21st 2021 vs. January 22nd 2022):

Freightos calculates the Freightos Baltic Index (FBX), which is the leading international Freight Rate Index, in cooperation with the Baltic Exchange, providing market rates for 40′ containers (FEUs).

As you can see in the image, there’s an increase of ~ 43,5% in price compared to last year.

To further expand the on the situation, Freightos also posted an update about the ocean freight rates for the first week of January 2022:

Global freight rates decreased 5% to $8,917, but it’s still 140% higher than this time last year

Asia – US West Coast rates decreased 14% to $12,524, but it’s still 218% higher than this time (week 1 of January) last year
Asia – US East Coast container rates stayed basically the same as the last week of 2021 at $16,495, but it’s still 232% more expensive than last year
Asia – North Europe container shipping rates also remained level, decreasing 2% to $14,240, almost double last year’s rate
North Europe – US East Coast rates decreased 10% to $6,230, but this is nearly 240% higher than December 2021

Long story short: It’s not looking good.

However, industry experts often mention the Lunar New Year in China, and the possibility of ocean freight costs going down once it’s over.

The Lunar New Year gets mentioned both for the peak demand during the holiday season in China, and for the shortage of Chinese workforce to handle manufacture and shipping during the holiday–which is an obvious imbalance. This will, most likely, further increase the ocean freight prices, but the consequences are yet to be determined.

Sources like Chris Edwards (group MD at Auckland-based Go Air Land Sea Logistics), however, predict that the global surge in freight cost will not slow down at least until Quarter 4 of 2022.

What does it mean for furniture retailers?

According to a report by UNCTAD (United Nations Conference of Trade and Development), the furniture and furnishing industry are heavily impacted.

Not only will the furniture freight costs (import and export) be higher, but the production costs will rise as well, which can raise consumer prices and slow national economies. When it comes to low-value-added items such as furniture, clothes, textiles etc, the report predicts that consumer prices will be 10.2% higher.

The US imported furniture comes from Asian marketing like Vietnam and China—this being the case for roughly two-thirds of all imported furniture in the US.

An article from Shipping Watch, based on research done by Sea-Intelligence, says that the price of shipping a 40-foot container with assembled furniture from Asia to the US West Coast is currently so high that freight rates make up almost 100 percent of the furniture’s retail value.

According to the same research report, items that have low retail value (furniture is considered to be in this category) will have a very hard time generating profit after the rates that have to be paid to ship them.

Between the severe restrictions in Asia, related to COVID-19, and the extremely high demand in the US (and in the world, for that matter), the average cost of a standard 40-foot shipping container is 5x higher than last year, going from ~ US$2,000 to ~ US$10,000.

What does this increase in furniture freight costs mean for furniture retailers and manufacturers?

Well, what’s clear is that trying to ship or receive furniture is extremely expensive. And not only that, but manufacturers also report sending products, but the carriers are not fulfilling their tasks. In short, it’s a mess, so be prepared to jump through a lot of hoops.

Besides the high cost, it’s hard to say. But there seems to be an increase in the number of people that restore old furniture and/or buy furniture from local, smaller manufacturers, so that’s work keeping in mind.

The general consensus seems to be that there is a light at the end of the tunnel in 2022. When? We don’t know, but it’s good to know that this mess will finally come to an end soon.

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