Fuel Prices & Freight Forwarding Shipping Rates: Understanding the Relation
Logistics costs in large part are determined by the underlying price of fuel. Over the past decade, fuel costs have dramatically increased, which has increased the cost of ocean, air and road freight. While 20Cube, a freight forwarder in Australia, goes above and beyond to streamline logistics processes and help customers save money, fuel prices are set by macroeconomic supply and demand forces beyond the control of any one industry actor.
In this article, 20Cube shares three factors that influence shipping costs, giving you a better understanding of the market so you can anticipate changes early and be prepared.
1. Increased Fuel Prices
Fuel is the backbone of the shipping industry, so when fuel prices increase, shipping costs do too. If it costs more for the shipper to transport, it will cost more for the receiver to make up for the difference. Over the past four months, MGO (marine grade oil) bunker prices have risen by 50%. This is on the back of increases already experienced throughout 2021.
(Information provided by Ship & Bunker: Global Average Bunker Price Retrieved 14/02/2022)
2. Product Inflation
In addition to fluctuating shipping costs, the cost of fuel impacts just about every other level of the supply chain. Rising fuel costs have a snowball effect on the economy, politics, environment, and technology industries. If fuel costs increase and shipping costs increase, product costs typically increase because manufacturers need to make more money to cover the cost of shipping and production.
3. Service Areas
As fuel costs rise, freight forwarders will re-evaluate their service areas to optimise shipping routes. For example, 20Cube provides air freight, ocean freight and shipping over roads and railways. If fuel costs for shipping air freight have significantly risen, it may be more cost-effective to use ocean freight for a particular shipment instead. This has to be balanced against increased transit time and other factors.
The Big Picture
Fuel costs have a trickle-down effect on the rest of the logistics and manufacturing industries. However, things are changing with regards to the kinds of fuels being used around the world, particularly by ocean carriers.
Many carriers are taking up the call to find ways to implement fuels that pollute less than bunker oil. Some are investigating natural gas and others biofuel (synthesised from cooking oil). On older ships, scrubbers are being fitted (similar to catalytic converters) that are converting toxic pollutants to less harmful substances.
20Cube is working with several carriers that have prioritised fuel cleanliness and emission reduction and we are happy to introduce these to our clients.
Moreover, 20Cube’s digital logistics platform provides end-to-end visibility into your shipment and costs, so even as the market fluctuates, you can still make the most cost-effective decisions for your company. The MyHub platform tracks more than 25 key milestones in a single shipment, helping you streamline shipping and reduce freight costs.
To get an estimate about the cost to ship and store your products, set up a consultation with 20Cube, the leading digital freight forwarder in Australia.