How is raising shipping cost affecting Businesses?
5 min readShipping costs have been going up so fast that companies are being forced to raise their product prices. This is not good for consumers as it will drive the price of everything else up, therefore, moving people into a financial burden. For example, if Company X has been selling their product for $20 for the past year and they were making a 5% profit from those sales, this means that each customer bought on average 200 units a year which brought them a total revenue of 1000$.
Now assume that they decided to raise shipping costs by 25%. This would mean that Company X would need to make more money to compensate for the additional cost. Now you buy one unit from Company X, and the cost of shipping is $4. This means that Company X needs to net a total revenue of over 1400$ from your purchase to break even with what they were making before. In turn, this drives up the price of its product from 20$ per unit to 25$.
If shipping costs keep rising, companies will be forced to raise prices, and in turn, we will all end up paying more. This may be a very long-term situation, so there is no telling how much prices for everything will rise. The companies that have been able to cope with these rapidly increasing costs have been big corporations with excellent financial backing, so it may not be safe to assume that all businesses will survive for an extended period if these circumstances continue.
The following are a few of the main reasons for these increasingly higher shipping costs:
- Currency exchange rate
To keep their business operating, companies have been forced to buy their supplies in different countries. In turn, when they do so, the cost of buying in a foreign currency is more expensive than before, which means that these corporations will need to pay more money to get what they want. This can be pretty daunting and may eventually lead some companies out of business if it keeps increasing.
- Transportation demand has increased
With an increased demand on how many units one company sells and the number of things that need to be transported and delivered, transportation demands have dramatically increased. Also, since transportation charges are almost always on a percentage basis, this means that as more shipments take place, the transportation cost becomes even higher.
- The volatility of fuel prices
The volatility of fuel prices is one of the biggest reasons why shipping costs have increased so much. This is because oil and gasoline are crucial in transporting items from one place to another, and the demand for them has dramatically surpassed what it used to be. The result is that since supply and demand can no longer provide us with the amount we need, now we end up paying more for those products, which eventually affects how much companies will pay for shipping.
- How many people work at each company has decreased
With an increase in technology, machines can now do some of the tasks that people used to do, which has led to a decrease in the number of people needed. As a result, not as many people are assigned to deliver goods, and this causes transportation costs to increase because the fewer employees there are, the more each one will need to carry out their tasks without any help.
- Rising fuel prices affect everything
Since fuel is such an essential part of running companies, it makes sense that higher fuel prices would affect how much they can spend on shipping costs. This means that since oil is now trading at $100 per barrel, whatever company needs oil to run its business or whatever product that industries need oil to produce may have a hard time doing so because all those expenses add up, which unfortunately includes transportation charges. The price of oil is a huge reason why shipping costs have become more expensive.
Other reasons
Even though many reasons may come to mind when thinking about the cause of this problem, it seems that most companies can attribute their rising expenses due to fuel prices and currency exchange rates. In turn, both these factors affect transportation costs, leading to higher shipping fees for businesses and consumers alike. Because of these developments, our society has been forced to spend more money on some products than we would have before, while some corporations have been forced out of business altogether, which results in a loss of jobs. As a result, everyone will need to start spending less if they want to be able to cope with these ever-increasing prices while jobless workers look for employment elsewhere.
Currency exchange rate and changing from one currency to another makes it more expensive as per RemoteDBA.com. Transportation demand has increased -more stuff is being shipped around the world as the global economy expands and economies of scale become prominent.
The volatility of fuel prices -the volatility of oil/gasoline means that the market forces dictate what we pay for these necessities which can cause price swings that makes us pay more or less than what we should be paying
How many people work at each company has decreased -fewer employees equals more tasks per person so it’s difficult to see how they will have time to deliver all their goods without help from any other sources, thus creating a need for more vehicles and more fuel which will then affect the shipping cost
Rising Fuel prices -since oil is necessary for almost everything, it’s tough to lower costs since we can’t produce oil so quickly, thus making transportation even more expensive. Another reason why transporting goods has become increasingly complex over the years includes how globalization has led to the massive demand for most products worldwide; this means that enormous amounts of items are shipped every. The result is that since supply and demand can no longer provide us with the part we need, now we end up paying more for those products, which eventually affects how much companies will pay for shipping.
How many people work at each company has decreased. With an increase in technology, machines can now do some of the tasks that people used to do, which has led to a decrease in the number of people needed. As a result, not as many people are assigned to deliver goods, and this causes transportation costs to increase because the fewer employees there are, the more each one will need to carry out their tasks without any help.
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