Shipping Problems Bring Rising Costs, Transportation Issues for Manufacturers

Manufacturers rely on transportation companies to deliver incoming materials and ship finished goods to customers. While some manufacturers may have their own transportation fleet, many small to medium-sized manufacturers have been alarmed by significant transportation challenges that surfaced during the COVID-19 pandemic began. Rising costs and a shortage of trucks and shipping containers have left manufacturers scrambling to service their customers quickly and cost-effectively.

What is Driving the Cost Increase?

In general, the COVID-19 pandemic has led to significant costs increases for many products and services. Lumber, steel, and plastic resins are just a few products whose rising costs have been heavily publicized through national and industry news. Shipping costs – while less widely publicized – have also increased significantly, causing considerable impact for manufacturers, both in receiving products and shipping products to customers. Drivers of these cost increases include:

• An increase in online shopping, fueled by stay-at-home orders and some shoppers’ desires to avoid crowds, has led to more goods being shipped with less efficiency.
• An increase in discretionary income, due in part to stimulus payments and child tax credits, has led to some increase in discretionary spending, thus fueling more product purchases that require shipment at some point in the supply chain.
• Labor availability and rising compensation costs have affected many industries and businesses, and the transportation industry (as well as supporting industries) is no different. A shortage of drivers and shipping and receiving personnel has left the industry struggling to ship as efficiently as they did pre-pandemic.
• Lumber, the primary material for wooden shipping pallets, saw soaring costs in the spring, affecting transportation costs. The lack of transportation availability also caused pallet costs to soar, since potentially reusable pallets could not be moved to another location for their use to continue.

Actions to Consider:

Manufacturers who do not have their own transportation fleet and are battling rising shipping costs should consider taking the following actions:

• Plan ahead. Businesses seeking shipping services may look to plan those shipments as far in advance as possible, to ensure carrier availability. Planning will also allow businesses to shop for the best rates, although commitments may need to be made quickly in order to reserve the needed pick-up or delivery date.
• Consolidate your shipments. Full truckload shipments are generally easier to source, even pre-pandemic.
• Work with customers or vendors to determine if full truckload shipments can be made that will reduce the overall cost of the shipment. Work with customers and vendors to establish flexible shipping dates. Some carriers will discount shipments if they have flexibility on when to deliver.
• While plastic, steel, and other commodity prices are also rising, returnable packaging may be an option in the right scenario. Plastic pallets, plastic totes, or steel racking may replace wooden pallets for certain goods. Make sure to think carefully about when to have these products returned, though, to ensure arrival before the returnable packaging products are needed again.
• Consider your transportation vendors as partners. Work with them the same way as you work with your strategic vendors. Determine if there are ways to create savings, schedules, or other benefits that can help both businesses meet their goals.
• Consider your prices. Are you charging customers for the increase in shipping costs? Some manufacturers may strategically determine that they do not wish to increase their sales prices. Others may need to consider sharing or passing along the increase in cost.

To understand the impact that rising shipping costs have on your business, please contact a member of HBK Manufacturing Solutions at manufacturing@hbkcpa.com or 330-758-8613.