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Effect of high freight cost on importers and consumers

Effect of high freight cost

With the pandemic COVID-19, the perception of doing everything has revolutionized. Businesses got new ways of doing them differently and efficiently. E-commerce businesses have increased drastically, especially in the post-pandemic period. The increase in demand for goods and medical supplies was due to the product shortages during the pandemic. Retail businesses have seen a decline in business, as people now prefer to shop on online e-commerce platforms. Consumers are now less interested in physically shopping for the product as they like to stay at homestay safe. More and more companies are entering the E-commerce business due to the high profits involved. 

China has been the primary source of E-commerce products across the world. Being one of the largest suppliers of E-commerce puts much pressure on seaports and airports that handle the cargo. Cargo is loaded at the Chinese seaports and airport, from where it is delivered across the globe. These containers offload products at the destination port and return to the Chinese port for the next order loading. If there is congestion at the Chinese port or the port destination during this process, this will result in bottlenecks and disruptions. The disruption in the supply chain creates shortages of the product. Also, it has increased its demand. The elevated need for the product results in higher shipping freight by the ocean carriers. Due to the higher freight cost, the supplier of the product increases the sale price of the product.

So any increase in freight cost ultimately results in a higher cost to the consumer for the product.

In our today’s blog, we will try to understand how this increase in cost resulted in the first place. How it is now affecting the importer and consumer of the product. The current increase in freight cost is due to the covid-19 pandemic. The covid-19 pandemic has affected the supply chain processes of particularly small businesses. It is because the ocean carriers have increased the freight cost of the containers. The increased freight rates have resulted in increased shipping costs for the supplier. The supplier in return has increased the cost of the product to the consumer. The importer and the consumer have to bear for the increased freight cost of the product.

Consumer satisfaction is the ultimate goal for any successful supply chain process. Higher ocean freight by ocean carriers badly affects the end consumer of the product. Following are the effect of higher costs on consumers:

  1. The increased freight cost has resulted in higher production rates. The higher product rates have badly affected the purchasing power of the consumer. The salary or income of the consumer has either reduced or stagnant during the pandemic. And it is hard for the consumer to buy these products. So the consumer is compelled by his budget shortage to buy a few products.
  2. The increased freight rates are disruptions, port congestion, and container shortages. The consumer has to wait longer to deliver the product even after paying higher freight rates.

In E-commerce businesses, the role of an importer is vital. The importer is one of the most affected segments of the supply chain process. Importer arranges ocean shipping of it produced from the supplier. Following are the effect of higher freight costs on importers.

  1. The increased freight rate by the ocean carrier results in a higher cost for the importer. The higher price of the product to be imported means higher capital investment in import. The increased investment will result in increased financial costs for the importer.
  2. Higher freight rates mean less purchasing equal volume or products with the same investments. The lesser volume of imported products on investment means reduced gross profit. So higher freight costs will result in gain lost by the importer. 

CONCLUSION:

The pandemic covid-19 has changed the way business was done. It further resulted in increased cost of freight due to supply chain distortion and congestions. The increased shipping cost has to be borne by the importer and consumer. Also, it will result in reduced purchasing power for the consumer and importer. The end consumer is the worst-hit segment of the supply chain due to increased freight rates.

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