Shipping Costs Are Rising: 5 Ways to Protect Your Supply Chain During Global Conflicts
March 17, 2022
It’s no secret that the COVID-19 pandemic upended the global supply chain, causing delays, shortages, and increased costs for sellers and consumers alike. But many were hopeful that the impacts would be short-lived as the world begins to navigate an endemic world. Unfortunately, rising global conflicts are bringing new economic challenges to the supply chain and shipping costs are skyrocketing to a new record high.
Why Are Shipping Costs Still Going Up?
One of the biggest causes of increased shipping costs is the ongoing COVID situation in China. While the rest of the world embraces an endemic strategy, China still has a strict zero-COVID policy, and factory shutdowns cause massive disruptions on a global level.
Because the supply chain for so many countries begins in China, any problems that affect work there are going to be felt around the world. In England, businesses are finding that goods from China are taking twice the time to arrive. This poses massive problems. Beyond that, the slow goods are also far more expensive: some sellers have even found that shipments are four times as expensive now compared to before the pandemic.
But there are also global issues unrelated to COVID that are impacting the supply chain. One of these is the current conflict between Russia and Ukraine. The movement of ships through the Black Sea is being restricted, making it much harder for goods to travel internationally. Shipping companies are also getting worried about the loss of oil from Russia, leading them to jack up prices.
Both of these issues also promise to begin rising inflation costs. All of this combined has the chance to severely impact your eCommerce business. So what can you do now to get ahead of these rising costs and keep business flowing?
A Snapshot of the Current Global Supply Chain Strain
Before we take a look at how you can strengthen your business in the face of these global crises, it’s worth taking an even deeper look at what is going on around the world. These issues are complex, and coming up with a solution in the face of them is not easy. COVID in China is a situation that is going to evolve with time, and the same can be said for the Russia-Ukraine conflict.
Russia/Ukraine conflict upends global trade
Russia’s invasion of Ukraine has gripped the world and crippled the already strained global supply chain. One of the biggest problems here is port closures. Many of the major cargo ship companies send their bulk supplies – think food, oil, and other important commodities – through the Black Sea. With so many ports closed along the Black Sea route, ships can no longer travel as they normally would.
Even for supplies that do not travel across the Black Sea, they’ll still feel the effects because that is the usual path that bulk oil is transported. The entire supply chain needs oil to function, and Black Sea ports being closed means a restriction on the transportation of oil. This effects everyone.
Shipping companies are beginning to raise their prices in light of this. They are retrying to recoup their losses from rerouting their ships. This may impact as much as 47% of global container shipping.
The conflict is also raising costs through sanctions being imposed on Russia to help support Ukraine. While this idea may end up causing the conflict to end sooner, it will cause the economic strain felt around the world to increase as Russia becomes unable to trade with other countries.
The raw materials from Russia can no longer be sent internationally due to these sanctions, and this has made the demand exceed the supply. It doesn’t take an expert to understand why this means that prices are going up. And not only that, but stocks are plummeting too.
China COVID-19 outbreak leads to shutdowns, delays
While China isn’t undergoing any instability near the level of what is being seen in Russia or Ukraine, the pandemic is still wreaking havoc on the country’s supply chain. This is mainly due to the nation’s zero-tolerance policy towards coronavirus. While other nations are comfortable allowing small outbreaks to occur, China is aiming for having no COVID at all. This means that any factory or business that has a coronavirus case shuts down, causing extreme delays.
One of the major problems that this is causing has to do with ports. Just like in Russia, many ports are being shut down across China whenever COVID flares up in the adjacent areas. They do this because workers are not allowed to come and operate the ports, but they are also closing some ports preemptively.
In order to prevent COVID transmission from even beginning, some ports and shipping centers are also limiting the amount of cargo that comes to them. This has had a major impact on items traveling from China to Europe; one source found that the average shipping delay increased by a total of six days for most shipments.
But beyond factories and ports being shut down, there is also another problem that China is facing: a truck driver shortage. Even when trucks are allowed to transport goods, it can be hard to actually find people that will drive the shipment. This has caused a massive slow down on goods in all kinds of niches, and things are only getting slower and more expensive as time drags on.
Unfortunately, it’s hard to see an end to these delays in China. Sellers can’t just wait for a wave of COVID to end, as the zero-tolerance policy is in place whether there is a delay or not. The only thing to really do is hope for things to get better.
How to Optimize Your Supply Chain During Disruptions
The situations in Russia and China are disrupting supply chains across the world, and this is undoubtedly affecting anyone who sells items online. For the most part, these problems are outside the jurisdiction of any small business. Sellers can’t solve geopolitical issues or global pandemics.
Sellers can, however, make sure that their own supply chains are optimized to the fullest extent. This won’t stop the delays, but it will make them less impactful. Here’s what can be done.
1. Order inventory in larger batches to lock in lower prices
One of the first steps in the supply chain of any business is actually ordering the items. Because of the issues in the global supply chain, though, ordering items is only becoming more expensive. Ordering larger batches of items or prepaying for future orders is one way to lock in lower prices.
While buying more may seem like a counterintuitive solution to the high cost of goods, it can actually help save a lot of money. Because shipping costs are so high right now, ordering large batches all at once will reduce the number of shipments that need to happen. That means that the average shipping price paid for each item will go down.
Sellers should also aim to start investing in safety stock to help avoid stockouts. With the instability of the supply chain in mind, it’s a no-brainer to get lots of items in storage to make sure that future delays don’t impact you as much. This is also a great way to get a leg up on competitors who haven’t thought about this strategy yet.
There’s only one problem here: getting together these funds to buy large batches of inventory at one time. Most sellers are used to spacing out their orders, so they may not have money on hand to pay for these bigger shipments. Here at 8fig, we’ll fund 95% of your inventory orders to fund future growth and free up your revenue to focus on other areas of your business.
2. Source a local supplier to avoid stockouts caused by shipping delays
If you’re buying items internationally right now, you are going to have to deal with some delays. Even the most clever planners will still need to deal with the fact that the situation around the planet is out of their control.
So what can you do to help with this? Well, one solution is to use local suppliers. Working with suppliers that are close to you allows the items to get to you faster, and it also means that there is less of a chance of them being delayed. This can help you avoid stockouts that would otherwise cripple your business.
Sadly, local suppliers are generally more expensive than international suppliers from China. If you find that you can’t afford them, you can always just keep them in your contact book as a backup solution if delays do happen in the future. And if you find that you want to invest in a local supplier despite not having the funds currently, the 8fig Growth Plan is a great way to fund this alternative production method.
3. Find flexible technology that lets you adapt to real-time demands
The supply chain situation is inherently unstable right now. It is changing every day, and your business needs to be able to adapt in order to stay nimble and on top. That means that you need to find technology that suits the current global situation so that you can alter your business models in real-time.
One way to do this is to find 3PL partners that work for you. These companies have access to multiple warehouses and ports, and that means that you are never relying on just one shipping location. If there is ever a delay in one warehouse or port, a good 3PL organization can quickly pivot to another one to make sure that your shipment isn’t delayed too much.
Finally, 8fig’s Growth Plan is a great solution to the ever-changing nature of the supply chain. It can be changed in real-time whenever there are delays or other shifts in the chain. This means that your cash flow is going to stay optimized, and your customers won’t be frustrated as you scramble to work with technology that doesn’t work well.
4. Get smart with how you advertise delivery delays
If you acknowledge that delivery delays are inevitably going to occur, that means you also need to find a way to keep your customers happy once they happen. And no, you can’t just ignore the problem. A few negative reviews from dissatisfied customers can make your business seem way less popular… even if their complaints aren’t fully your fault. That means that you need to come up with a strategy to keep them feeling good despite delays.
One way to do this is by simply being as transparent as possible when it comes to delivery dates and delays. Don’t try to sugarcoat things; if a customer is ordering something that will likely see a delay, tell them that. If you just tell them the best-case scenario and cross your fingers, they might feel like they’re being lied to. Be as honest as you can.
Free shipping is also a very useful tool here. Everyone loves free shipping, and it can feel like a worthy consolation prize for anyone that is upset about their long shipping times. Offering it when you tell them that there will be delays is a smart idea, but it can also be used to offset customer anger if it pops up.
Finally, you should consider how you advertise your pre-orders. Stocking out of an item can be a disaster, but if you work your marketing correctly, it doesn’t need to be the end of the world. Come up with great campaigns if you know that you are going to face a stockout and use it as an opportunity to build a business in the future.
5. Negotiate and compare rates with suppliers, shipping partners
Shipping prices are going up. But that doesn’t mean that you have no power to negotiate and find a lower rate. You can’t really just sit around and wait for all prices to decrease, so it’s best to compare multiple different companies to see who will offer you the best bang for your buck.
If you really want to start thinking outside of the box, you can even adopt an entirely new shipping method. If air shipping is too expensive, start calling up some ocean freight companies to see if you can get a better price. You might be surprised at what you can save if you’re willing to make a big change.
You should also be ready to negotiate with companies. They don’t want to lose your business, particularly in unstable times like now, and that gives you some power. If you find a better price with a new company, let your current shipping company know that you’re thinking about taking your business elsewhere. They may offer you a discount.
Although the global supply chain situation is currently far from ideal, there are still things that sellers can do to mitigate the damage it has on their business. Ecommerce is all about making wise decisions ahead of time, and smart planning now can really mitigate the impact that shipping delays will have on an online shop.
Build an 8fig Growth Plan to infuse your supply chain with continuous, flexible capital to stay nimble today.
Karlyn is an eCommerce writer and Content Marketing Manager for 8fig. She's on a mission to democratize online retail by empowering small and medium-sized businesses with resources and tools they need to compete in dynamic marketplaces.