Are High Apparel Freight Costs from Southeast Asia Hurting Your Bottom Line?
Container shipment companies reported record profits in Q4 2021. According to Freightos, transpacific ocean rates are 8-9X higher than pre pandemic levels. Bloomberg recently noted that spot rates for a 40-foot container from Asia to the U.S. exceeded $20,000 in 2021, while early 2022 rates are lower they are still at unprescedented levels. Prior to the pandemic, these rates were under $2000. It is expected that these rates will remain high for the foreseeable future leaving many brands vulnerable to increased freight costs.
While businesses and governments seek to mitigate the root causes of these increases, brands are challenged to develop cost saving measures that can help offset increased freight rates. Improving transport packaging efficiencies for Southeast Asia (SEA) sourced apparel can help brands reduce overall freight costs.
Covid19 Caused a Downturn in Consumer Demand
The pandemic that hit the world in 2020 created what can only be described as global chaos and suffering. The world went into survival mode, many businesses ceased contact with external development partners and focused purely on themselves. We all saw financial reports of some of the world’s most popular companies and brands haemorrhage to the point of bankruptcy. Countries started shutting down, people were thrown into isolation and in person .
How Did Southeast Asia Product Factories Respond to the Pandemic?
The world of manufacturing changed, the world of logistics changed, and our patterns of consumption changed. The world turned from ‘Just-in-Time’ to ‘Just-in-Case’.
Global distribution centres started to stock-up, even to the extent of hoarding containers in their parking areas to hold more stock. Demands on shipping and containers rose, lead-times lengthened, and patterns regarding who would prosper from the global pandemic began to emerge.
Large Retail Players Were Best Positioned to Combat Rising Freight Costs
Those companies that were close to the supply chain and negotiated global shipping contracts did well to keep their additional costs down, but others started to see a dramatic rise in container shipping costs. By the end of 2020, the average China to West Coast US freight costs had exploded from $3,500/$4,000 for a 40HC to numbers anywhere between $9,000-$15,000. European shipments rose by the same scale. The world was now seeing freight hikes of way over 300% from the previous year.
2021 continued with a vengeance. Freight costs, already undergoing astronomical price increases, continued to rise. Raw material price increases and a tight labour market exasperated supply chain shortages. Big players in the retail market continued to use their leverage in negotiations, but smaller players had to dive deep into capital reserves to cover soaring costs. By the end of the year, prices for a 40HC had exceeded $20,000 for China to West Coast US. Even shorter shipping journeys within Asia were seeing costs going from a European shipping and haulage reached the same epic proportions spurred not only by the pandemic but also by a political split in European trading due to Brexit. By Q4 2022 the shipping industry as a whole was reporting record high profit whilst the rest of the world suffered — all the way down to the consumer.
How Can Apparel Brands Help Mitigate the Rise in Freight costs?
When apparel brands shift their paradigm from thinking of packaging as overhead and think, instead, of how packaging plays an integral role in safely delivering products to consumers, they may also look for ways to proactively minimise packaging costs. Below are ideas that can help your company reduce packaging and freight costs.
Optimising Your Packaging can Improve Container Utilization by 15%
Well, that operational component that just costs more can actually help you save money! The right design built in at conceptual stage, the right selection of performance materials, something that is designed to fit both container and your supply chain requirements. Something that isn’t over-size that blocks your distribution areas. Let’s just do a simple calculation based upon our daily expertise.
You ship 1000 containers annually to the US. In 2019, each container cost on average $4,000 but today those same containers have spiralled up to $20,000. The impact of this price increase is startling – going from $4,000 to $20,000 increases each 40HC freight cost by $16,000. Admittedly, consumer prices have risen and can help mitigate these price increases by a percentage or two. But a bigger impact comes for doing things right, starting with the packaging design phase, at the right time. By utilising 15% more of an average container space, you automatically reduce your shipment by 15%. That is $3,000 back to the bottom line. But it doesn’t necessarily stop there. Not only is container utilisation beneficial but pack-count comes into play. If you can increase your item pack-count per box by using the correct material specifications, you then start getting into the realms of further container reductions. By just two or three more items per box that fits into your container, that is now fully utilised, you now start to appreciate the contribution packaging can make to improve your bottom line.
Hindsight is a wonderful thing. Back in 2020, when doors where being closed to outside partners and companies were taking cover to survive, there where ways that some of these costs could have been mitigated. These ways are still there, the expertise is still in play. Many brands that ship goods out of SEA either rely on their OEM to provide packaging or completely overcompensate with non-sustainable material. What does this create? Over-size transportation cartons that do not utilise container fill. The prediction for 2022 is that container prices will not reduce. The shipping industry claims several justifiable reasons for their price increases. So, can you do something now to help yourself? Yes, start viewing packaging not just as an after-thought, but as an integral component of customer satisfaction (getting products to customers safely). Help your organization shift their view that packaging is not merely overhead, but a value-added contributor to your overall supply chain. When viewed strategically, packaging can help you significantly reduce freight costs.