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Price Volatility: The Impact of Inflation, Freight Rates, and more on eCommerce

Jake Rheude
Jake Rheude
Jun 17, 2022
10
Min Read

Inflation, diesel prices, freight rates, and container availability are eCommerce professionals' latest areas of surprise and heartburn. These elements are bucking typical trends and create higher volatility in the total costs you pay to get your goods to warehouses and 3PL partners, and the final consumer. As a result, everything is going to stay very, very complicated.

However, more significant trends are emerging that can help you understand the market better. Nothing can predict the future, but there are signposts. Rates often follow demand and inflationary pressures, so we may see them decline. Rising fuel costs mean the declines won't be as steep as expected after the year-end holiday demand but don't appear to complete offset rate reductions.

To help you understand a little more, let's dive deeper into rates, consumer spending and fears, energy, and ongoing health risks.

Topsy-turvy freight rates

Depending on where you look, rates are either climbing or dropping. Freight rates are tumultuous because there's no clarity on demand, supply, port delays, and other aspects of the freight market. Dry van rates in the U.S., for example, were climbing again in May but remained lower than in April 2022 and April 2021. Likewise, flatbed rates stayed high while refrigerated unit loads also dropped.

What we've seen in the U.S. that is also worth noting is that spot rates are declining, and there are more open spots than in recent months. Contract rates, however, are staying higher and seeing more engagement. But, again, this is because eCommerce and traditional retailers are trading certainty for cost savings. After all, they still see some demand in the space.

Reliability is still at the top of the list for sellers when calculating their needs. That's essential as we move into mid-year sales with changing seasons and as companies start to build up capacity demands with carrier partners, hoping to ensure they'll secure this capacity during the year-end crunch.

Inflation and consumer habits

Inflation is rising rapidly around the globe, hitting 8.5% in April in the U.S., the highest recorded since 1981. This is troubling when taken with higher consumer prices in general and tightening budgets related to recession concerns, according to a detailed look at freight rates and consumer spending. Surveys find as many as 84% of Americans are looking to cut back on their spending, with more than half saying they plan to reduce impulse purchases.

Reductions in spending will likely be pressured by global inflation rates but also shifting economies and local realities. For example, different locations open up or lock down as new coronavirus variants move. In addition, there are risks that spending habits shift again as people hold onto more money over fears of scarcity (which drove up pricing in many areas even before inflation rose).

For eCommerce shops, this means the need for a messaging change and potentially more targeted advertising. You'll need to overcome traditional pressures, competition, and generalized anxiety over future spending. Offers like free shipping may help you tackle some of these fears. You may need to position yourself as a reliable brand that will help them feel confident, as a worthwhile escape or cost, or as other comforting messaging. Observe if "retail therapy" shifts and look for patterns to capitalize on as the consumer's world shifts again.

Energy costs from the porch to port

Global supply chains hoped they would be significantly more resilient than smaller chains. While that's true in some cases, we also see how global pressures can compound costs as chains grow larger. One of the biggest challenges is the price and availability of energy.

Russian energy is under the microscope after the country invades Ukraine. Before the war, Russia supplied 12% of the world's crude oil and 17% of the world's natural gas, and 40% of natural gas used in EU countries. Sanctions have halted much of that energy flow, increasing the cost of oil and gas used to heat homes and power the ships, trucks, and cars used to move people and goods—the cost of services increases at each step in your product's journey. In addition, inbound shipments on ocean, rail, and truck have higher prices—carriers performing last-mile delivery charge significantly higher fuel surcharges to compensate for this.

In the U.S., significant carriers were charging between a 16.75% and 20.75% fuel surcharge for ground and express ground packages on top of other costs. In contrast, small regional carriers said they might need to raise tariffs above 50%.

The cost of your goods is increasing in multiple ways, which means you may need to reduce your margins or try to find ways to pass on this cost. But unfortunately, those exact energy costs significantly affect how much your audience has to spend on your products. According to Philip Orlando, chief market strategist at Federated Global Investment Management, one stat that may haunt your dreams is that for every $0.01 increase in the price of gasoline, consumer spending declines by $1.18 billion annually.

You're both being squeezed by global costs and trends.

Demand, lockdowns, and uncertainty are the future

Shanghai locked down roughly 25 million people at the end of Q1 2022 due to COVID concerns, shutting down much of China's ability to produce and move goods. The Port of Shanghai handles roughly 20% of all Chinese freight traffic, and more than 100 ships were waiting in waters outside the port at the height of its delays in early 2022.

This shows the global supply chain that eCommerce companies rely on does not have a handle on COVID responses. When a lockdown is imposed, you may see substantial delays or unavailability. If it lingers on, we may also return to a time when ocean liners are shipping back empty containers to China because it is faster than waiting for full containers. This restricted the ability of producers in other countries to sell goods. The longer that occurs, the more likely they'll have less money to spend on imports.

Demand hinges on a variety of availability in production, import/export, and what's in stores or warehouse shelves. Disruptions create uncertainty, and the longer that goes on, the bigger the risk that companies and individuals will pull their spending and shift it to local options.

eCommerce companies will want to look at alternative sourcing options and additional carrier partners to try and avoid some of these concerns. If you can shrink your supply chain, consider doing so, at least for the products in the highest demand domestically.

Stick to your risk mitigation strategies and cut excess where available. This might mean lowering SKUs you offer, pulling slow-moving inventory, or tailoring new offerings to specific, smaller markets. Shifting freight rates, inflation, and other market issues are the latest problem you're dealing with. Take a slow and steady approach that has served you well so far, and you'll be in good shape to weather this storm too.

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Jake Rheude is the Vice President of Marketing for Red Stag Fulfillment, an eCommerce fulfillment warehouse born out of eCommerce. He has years of experience in eCommerce and business development. Jake enjoys reading about business and sharing his expertise with others in his free time.

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Jake Rheude is the Vice President of Marketing for Red Stag Fulfillment, an eCommerce fulfillment warehouse born out of eCommerce. He has years of experience in eCommerce and business development. Jake enjoys reading about business and sharing his expertise with others in his free time.
Jake Rheude is the Vice President of Marketing for Red Stag Fulfillment, an eCommerce fulfillment warehouse born out of eCommerce. He has years of experience in eCommerce and business development. Jake enjoys reading about business and sharing his expertise with others in his free time.
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hm.com, operated by H & M Hennes & Mauritz AB, is an internationally-focused online store that generates eCommerce net sales primarily in Germany as well as in the United States and the United Kingdom. With regards to the product range, hm.com achieves the greatest part of its eCommerce net sales in the “Fashion” category.
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Jake Rheude is the Vice President of Marketing for Red Stag Fulfillment, an eCommerce fulfillment warehouse born out of eCommerce. He has years of experience in eCommerce and business development. Jake enjoys reading about business and sharing his expertise with others in his free time.
Jake Rheude is the Vice President of Marketing for Red Stag Fulfillment, an eCommerce fulfillment warehouse born out of eCommerce. He has years of experience in eCommerce and business development. Jake enjoys reading about business and sharing his expertise with others in his free time.
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