As with all areas of the current economy, there is considerable pressure at the moment on domestic freight costs.
There are two key factors at play here. The first is excess demand for freight services. And the second is reduced supply of freight services.
With higher freight volumes over the past few years than we’ve seen in decades, the amount of freight in the network continues to be significant. This has been driven by an increase in goods consumption, thanks in part to the lockdowns that formed a part of life up until recently.
While we’re starting to see movement shift back towards some service-consumption, we’re still seeing increased pressure on the freight network.
Let’s take a look at the reasons why domestic freight costs are rising in Australia.
Industrial Action and the Supply Chain
Industrial action is causing a reduced supply of freight resources.
In the last 12 months we’ve seen industrial action across many major freight carriers, and freight doesn’t move when transport workers strike – but it still needs to move when the strike is over.
The knock-on effect is a freight backlog, which puts pressure on supply and demand and ultimately brings up the price of moving freight.
The Ongoing Impact of COVID on Freight
The supply challenge throughout the last year has been compacted with COVID now out in the community.
With COVID-positive cases continuing to peak, impacted freight drivers end up in isolation. As a result, the already challenging freight environment becomes even more challenging.
Lack of Staff in the Freight Industry
In addition to staffing shortages being directly influenced by the infection rate of the COVID-19 pandemic, the labor workforce generally relies heavily on migrant workers. But migration came to a complete standstill for 24 months during the pandemic, and while migration laws have relaxed in the past 6 months, migration has not yet returned at its full capacity. Many industries, including the freight industry are having trouble getting staff because there’s not enough new labor coming into the market. To attract people to (and then keep them in) freight related roles, employers are having to deliver increased wages and better benefits, all of which is being passed on throughout the supply chain.
The Rising Cost of Fuel
We’re all being impacted by the global rising cost of fuel at the moment, and the freight management industry is certainly not immune.
With the majority of freight transport in Australia occurring by road, it’s no surprise that increases in fuel prices are impacting the cost of moving freight. Fuel is a variable freight cost and these costs are being passed on by freight transport companies.
Investment in Green Freight
The freight and logistics industry contributes an enormous amount of carbon and waste. As we strive to become more environmentally friendly (which we should all be doing), we will see some increase in costs.
This is because companies are offsetting their transport emissions as well as investing in green technology like electric fleets of freight vehicles.
Climate Change Impacts
We’re steadily seeing an increase in climate events such as flooding and fire, that are putting pressure on freight services.
Flooding in particular causes the closure of some carrier depots, which means other depots have to hold extra stock. It also causes closure of certain delivery lanes, meaning that less efficient delivery journeys have to happen when floods are occurring.
What do Rising Costs Mean for the Freight Industry?
As a result of the increasing costs associated with supply chain logistics, freight companies are being very particular about the sort of freight profile they are willing to work with.
Freight rates are being readjusted on lower margin accounts, and this tends to be happening across the board.
How Freight People Can Deliver a Better Freight Solution
If you’d like to manage your freight more effectively, and better mitigate the risk of freight costs, we can help you find the right carrier mix to deliver just that.
We have years of experience in freight management and can give you independent advice that will improve your supply chain, supported by our leading technology that delivers real-time reporting to help you make better freight decisions.
If you’re looking for a freight broker to partner with your business, get in touch with us today and find out how Freight People’s experience can be your competitive advantage.