How logistic prices skyrocketed during Covid

While the threat of COVID-19 is winding down, the global pandemic has forever changed the way that people live and work. Logistics have also been transformed. How enterprises get goods from point A to point B is no longer the same as it once was, pre-pandemic. Now importers and exporters must contend with rising logistics costs, increasing price volatility, and new forms of supply chain disruption. 

All of these changes mean that businesses must also reinvent themselves. Those who cling to old models of supply chain management will fall by the wayside. Those who adapt, becoming as agile as this environment demands, will thrive. In order to innovate, enterprises must first understand the fundamental shifts that COVID-19 has brought to logistics.

Logistics changes during COVID and beyond 

Rising logistics costs 

The law of supply and demand accounts for why logistics costs rose so sharply throughout the pandemic. With people confined at home, there was greater demand in everything from home office supplies to hand sanitizer and face masks. Despite these consumer needs, there were fewer vessels to shuttle products across markets because the maritime industry was also impacted by the pandemic. There were also fewer ports of entry, as many markets reduced inflows into their borders, or even closed them altogether.  

As a result, the logistics costs for nearly all the popular supply chain corridors rose significantly, with many, such as China to South America or West Africa, reaching all-time highs. These prices are bound to continue: Many logistics companies are negatively impacted by the coming recession, which means that the increase in various inputs related to sea-based shipping, will be passed on to their customers, importers, and exporters. 

Increasing price volatility 

While logistics prices have gotten more expensive over time, they have not gone up in a perfectly linear manner. In other words, there are still sharp peaks and valleys that occur, even as the costs go generally upward. The cost of logistics, in short, has become increasingly volatile, and this volatility will remain for the near future. This is in keeping with the description of the modern world as one shaped by the forces of volatility, uncertainty, complexity, and ambiguity (VUCA). 

While volatility is beneficial for certain industries, such as investors in the stock market - this attribute is negative for any enterprise in the supply chain. Volatility makes it difficult to plan. How can a business make any financial projections involving logistics when associated costs are continually going up and down? These price fluctuations demand greater attention to logistics costs, which creates operational strain on a business and takes attention away from core business activities. Importers and exporters, after all, should be focused on bringing goods in or out of a market, not on monitoring shifts in logistics prices. 

Supply chain disruption 

If enterprises have one takeaway from the pandemic as it relates to their supply chain, it should be this: expect the unexpected. During the height of the pandemic, we saw this fact in that some markets shut down their borders, bringing trade to a standstill. Some reopened trade to importers and exporters, only to shut it down again a few weeks or months later, as cases of COVID-19 spiked once again. This cycle of supply chain disruption after disruption was common, as countries struggled to contain the pandemic and develop policies that were sensible for businesses that operated across their borders.

Even if the world does not experience another pandemic like COVID-19 in our lifetime, these kinds of supply chain disruptions are here to stay. Why is this the case? Though globalization is generally only spoken about in favorable terms, it also brings a host of problems. As the world becomes more interconnected, it becomes easier for one nation’s problem to affect the region or even the whole world. We saw this during the pandemic, with COVID-19 originating in China, before quickly spreading to dozens of other countries through international travel. 

The rapid spread of a problem applies not only to public health issues like pandemics, but may just as well apply to warfare, recessions, disasters, and other issues of national import. Any of these issues could lead to supply chain disruptions, which will make logistics costs rise even more and become more 

An action plan for rising logistics prices 

Fortunately, for as much as logistics prices have risen, there is also significant innovation in the supply chain space. There are many solutions that help businesses address these issues through technology. One such example is invoice financing platforms, which can help both sides of the marketplace thrive in this new economic environment. 

Better terms for importers

Importers often focus exclusively on the purchase price of vendor goods. While this is of course an essential factor to succeeding as an importer—you want to keep these prices down, after all, so you can maximize revenue when reselling to the local market - it should not be the end all, be all consideration. Take the case of an importer in Canada that imports apparel. During negotiations with an exporter in India, the importer spends the bulk of the process pushing for a 2.5% discount. When the discount is helpful, the importer has only 30 days to pay the full cost of the goods. 

Importers need to expand this myopic view. Rather than concentrate solely on purchase price, they should also think about payment terms. Gaining better payment terms - such as the ability to pay up to 90 or even 120 days later, can be as significant a difference-maker as any discount. While exporters cannot offer such favorable terms willy-nilly on their own, as they may need to prioritize cash flow themselves, the aid of an invoice financing platform can help.

To gain these better terms, importers provide an export receivable to the invoice financing platform. The invoice financing platform will pay this receivable immediately, while the importer gets up to 120 days to pay back the full face value to the provider. In this way, the importer benefits in two crucial ways: One, the money saved in the short- to medium-term represents capital that can be deployed to other revenue-generating activities. Two, the importer maintains a healthy business relationship with their exporter since the invoice financing platform paid that enterprise off immediately. 

Cash flow for exporters 

Like importers, exporters can focus disproportionately on the sale price of their goods. This is similarly counter-productive: a small increase in the price of exported goods does not matter much if the business will be paid significantly later. Cash in hand is much better than cash on the books. Money in a bank account can be deployed to other business activities - money that exists as a line item on a finance or accounting spreadsheet cannot. 

Despite this truth, many exporters still prioritize revenue on paper over cash flow. Fortunately, with a trade financing platform, exporters do not have to negotiate a trade-off between the sale price of their goods and payment terms. They can enjoy both higher revenues and better cash flow. 

To achieve this goal, exporters can ship their goods to their partner importer and then provide the export receivable to an invoice financing platform, which will pay 90% of its face value upfront, and the remaining 10% minus the fees after the buyer’s repayment. By going through an invoice financing platform, exporters can have cash in hand in as little as 2 days from uploading their receivable, compared to having to wait as long as 120 days in the legacy process. With greater cash flow, exporters can invest more resources into the business, such as buying more raw materials, improving their infrastructure, or even hiring more key talent.  

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