Transportation of goods is one of the main tasks of modern business. Different products and resources around the world are delivered to customers every day by sea and land modes of transport. The market for logistics services is very dependent on external factors. The productivity and return on investment are affected by many factors. This research paper aims to analyze the sources that determine the cost and rate of price increases for transportation services and how businesses can reduce the impact of these factors.
Each logistics company determines the rate for the cost of transporting a particular product or passenger based on the calculated costs. Consumers are often familiar with the proposed tariffs, as this ensures the safety of the transaction. Transportation costs have a significant impact on the structure of economic activity as well as on international trade. Empirical evidence shows that a 10% increase in transport costs reduces trade volumes by more than 20% (Rodrigue & Notteboom, 2021). The list of major transportation costs includes fuel prices, driver’s services, state transportation politics, and various geopolitical events (Chan, 2017). Rising costs in each of these sectors have a very rapid and negative effect on the freight market. The researcher should consider each of these factors in more detail.
Rising fuel prices harm logistics tariffs because most vehicles use fossil fuels, especially petroleum-based fuels such as diesel or gasoline. Any unrest in the market causes a simultaneous reaction. For example, Russia’s invasion of Ukraine provoked an unprecedented jump in energy prices. World Bank economists Justin-Damien Guenette and Jeetendra Khadan note that the World Bank’s fossil fuel price index has shown a 26.3 percent increase over the past six months and a 50 percent increase through 2021 (2022). In absolute numbers, the prices of coal, gas, and oil rose by 350% from 2020-2022. It is the highest growth rate for such a period since the most famous fuel crisis of 1973, caused by the Doomsday War (Guenette & Khadan, 2022). Such negative processes in the global market cannot avoid the freight sector, significantly increasing the associated costs and reducing the activity of logistics companies.
The next important factor affecting the profitability of trucking, and the policy of players in this market, is the attitude of companies to their employees. Labor issues can have a tangible impact on the rate of price growth. An eloquent example of this situation is the case of FedEx, which increased its FedEx Express shipping rate by 6.9% in 2022 (Barry, 2022). Courts have ruled that employees have the right to bring class action lawsuits against their employer to transfer them from contractors to the employees. For the company, this means that the company’s drivers are now entitled to benefits and wage levels previously unavailable. After analyzing this case, people can see how workers in this market sector are affected by the trucking industry’s rates.
The public policies of different countries in transport mobility and infrastructure are the third important factor influencing prices in delivery and logistics. For example, the EU introduced changes to the Mobility 2022 package on February 21, 2022 (Wolf, 2022). These changes relate to rest requirements for drivers, who now cannot work more than four weeks, which automatically increases the industry’s need to hire more employees. This point in the mobility package reflects how government agencies, not just companies, can influence the labor market. In addition, there is a massive shortage of drivers in the EU and Britain. Germany is short 80,000, Poland 124,000, and across the continent 400,000 people to saturate the industry fully (Wolf, 2022). These two factors together have a tangible negative effect on the growth rate of transport.
The world economy, including the transport services market, is also strongly influenced by global events. Two such events are the war in Ukraine (mentioned above) and the global coronavirus pandemic that began in 2019. They have caused severe disruptions in the worldwide supply chain. The closure of the Suez Canal and the imposition of an absolute lockdown in China, amid a strong rise in covid disease, have created notable supply chain bottlenecks (Wolf, 2022). On the U.S. East Coast alone, not counting the huge Chinese ports, more than 100 container ships with various goods critical to the economy were idle by the end of 2021 (Wolf, 2022). Every hour of downtime of such an expensive to maintain transport negatively impacts the financial situation of companies.
Businesses and governments must combine their efforts to minimize the risks from such a severe crisis in the global transportation market. On the part of government agencies, there should be an active policy of supporting the transport industry, and fighting geopolitical challenges, because transportation is the economy’s lifeblood. It is especially relevant in the modern world when different companies actively promote the idea of cooperation in creating end products. In turn, logistics companies, such as FedEx, UPS, or DHL, need to offer their employees high-quality working conditions to raise the profession’s priority. To provide this support, business structures have to free up the money that goes into giving vehicles fuel, introduce environmentally friendly modes of transportation, and move away from fossil fuels wherever possible. These investments will only pay for themselves in a few years but will significantly reduce costs in the future.
All in all, the market for transportation services is very volatile, as this study shows. Many factors affect the stability of this economic sector, so it is very important to respond to possible triggers on time. Then it will reduce the sub-optimal transportation costs and give the industry the opportunity for dynamic development.
References
Barry, F, C. (2022). Rising transportation costs – and what to do about them. F. Curtis Barry and Company.
Chan, M. (2017). 8 key factors that influence Freight Costs.Unleashed Access Company.
Guenette J-D., Khadan J. (2022). The energy shock could sap global growth for years.Word Bank Blogs.
Rodrigue, J-P., Notteboom T. (2021). Transport Costs.The Geography of Transport Systems.
Wolf, J. (2022). Freight rates continue to rise dramatically in 2022. Saloodo!