It is an interesting time working with a supplier for freight and couriers right now. Price rises are prevalent for many businesses right now. Much of this is the result of the COVID-19 pandemic. Service levels have also taken a beating. On top of all this, there have been global takeovers of local companies and cyber threats at another.
For years now, the freight and couriers industry has been in a race to zero (margin). Many operators have unprofitable routes and have cut operational costs and service levels to the bone to compete.
COVID-19 has been a game changer for many industries and freight is no exception. The grounding of commercial air traffic. Many people working remotely. Increased precautions around delivery. All this has led to significant price increases as operators look to survive and respond to a new normal.
So have prices increased and how?
Anecdotal feedback and actual price increase data is showing significant increases of late. While some is due to COVID-19 surcharges – there is also opportunistic price increase behaviour occurring.
Double digit percentage general price increases are everywhere. And we have heard of these being passed to some of the largest freight consumers in the world. That is significant in an industry that rarely sees more than 5% in a year. We expect more to come. Pricing on certain routes has also increased over 100% – if you can get the goods shipped at all.
Freight forwarders are also relearning daily how best to get freight in. Right now, it is not unusual for products coming from China to Australia to take a round the world trip before arriving.
Some of our customers are also seeing opportunistic changes to zones and routes. This is akin to discontinuing unprofitable products under contract for new ones – or the same ones – only with a new name and price.
Whether we will see these prices and especially surcharges come off after the pandemic passes remains to be seen.
A broader impact
There have also been delays as the industry responded to people working remotely.
Rather than delivering a cache of parcels to people in an office – there are more couriers on the road than ever. Delivering to people at home one by one takes more time. More deliveries to more addresses means more kilometres and higher service costs. This is basic supply and demand.
But another impact beyond price has been to pick ups for those working remotely. No more can you drop a parcel at the mailroom and expect it to be taken care of. Decentralised courier use by non-experienced people requires higher service levels.
Where components or goods are suffering, it is obvious that this is having an impact on revenue. Delivery of core just-in-time components and goods is being affected and transit times are longer. It may be time to look to other solutions through other carriers.
As many of you would be aware, one of our major freight companies in Australia, Toll, was recently hit with not one, but two cyber incidents.
The first incident had a significant impact on operational services. The second to contract, commercial and HR data.
We have seen a number of our members move away from Toll as a result of the second attack. Noting that for many of those members who moved – freight was not always a core need for them. But two impacts to service levels in recent months has caused people to question their contracts.
Don’t put all your eggs in one basket.
Think for a moment, if your goods are not able to ship? And then the flow-on impact to production or service. Or, maybe this is just the last straw. It might be time to opt for a range of solutions rather than a one size fits all.
In the post-COVID world (whenever that will be) – flexibility is the key. Like many industries – no one provider has complete coverage. Some of your packages are sub-contracted out to a local driver or competitor for last mile delivery already. So why not consider a managed service that can tap into a range of operators and provide the flexibility you need?
And like in many industries – there will be a tightening of pricing processes. Loss leader or unprofitable routes historically used to win tenders is likely to be a thing of the past. This is especially possible with new global players in the market.
So where to from here for Freight and Couriers?
A good option would be to utilise an aggregator or managed service provider who can manage your requirements across a broader range of providers. It also provides an added service layer to make sure you minimise wasted time for staff to organise deliveries.
Or have a range of contracts in place. But then you need to add the operational time and cost to manage them and the operational side. Will that deliver savings?
Given where things have been and will be for a while – reducing risk may be a better short term goal. A choice of many providers reduces risk. And, may deliver operational savings above and beyond a one-contract, one player approach.
And, when the ‘fit hits the shan’ – you have more options available which may well be a good thing right now.