What is the shipping rate?
Shipping rate is the fee you charge your customer to ship the items to them. The shipping rate is normally not included in the cost of the product. Shipping rates are different based on weight, distance, delivery time requirements, etc.
Here is why shipping rates fluctuate
Shipping rates fluctuate to reflect the market situation. When there are more products to ship but fewer carriers in the market thus, the shipping rate is going up and vice versa. The shift of Shipping rates is the shipping market’s self-adjustment to reach market equilibrium.
What Factors affect shipping rates?
Many factors affect shipping rates. Item’s size, weight, and shipping distance are constant factors. These factors decide how much is the cost of shipping, but not the variation of the shipping rate one day from another. 4 major factors that cause shipping rates to go up and down are: seasonality, fuel price, labor cost, market situation.
Seasonality
The shipping rate is more expensive during the holiday season. More products need to ship out but only a certain numbers of carriers are in the market, so the shipping rate has to go up to keep the balance of supply and demand.
Fuel Price
Fuel price changes daily. Every time you go to a gas station, their price is different. 32% of shipping rate associated with fuel price. For example, a truck’s cost is $6500 from California to TX. there is 32% fuel inside this $6500, which is $2080. if the fuel price drops 2%, then the total truck cost is about $6300, almost $200 lower than the original shipping price. Fuel prices contribute a lot to the fluctuation of the shipping rate.
Labor cost
Pandemic not only caused labor shortage but also high labor cost. When there are fewer laborers available, employers have to pay a higher price to attract people to work for them either in the warehouse or at the terminal.
Shippers need to pay a high cost for someone to sort products, pack the item thus, handling costs will go up. in turn, the shipping rate will go up too. If there is a lot of demand for shipping and workers have to work during the weekend, the labor cost is going to be even higher.
Vise versa if there are plenty of workers available in the market, then the labor cost will go down, so does the shipping rate. labor cost is another factor that contributes to the shift of the shipping rate.
Market Situation
The market situation is also a very important factor to influence the shipping rate. If the market in the area is hot then the shipping rate will go up.
For example, right now there are so many ships in Los Angeles, long beaches waiting to dock. Thousands of containers need picked up and ship to their destinations. The shipping market in the California area is hot, so the shipping rate is high in this area. Whether you ship from LAX or ship out LAX, the truck rate is much more expensive than in many other states.
How often do shipping rates change?
The shipping rate can change as often as daily or weekly. Nobody knows how often the shipping rates will change because no one can predict the market. The shipping market situation decides the shipping rate. If the fuel price changes daily then the shipping rate will follow. If the labor shortage still exists and the labor cost goes up, so does the shipping rate. Shipping rate will change following fuel cost, labor cost, seasonality, and market situation.
Do shipping rates vary by state?
Shipping rates vary greatly state by state. Generally speaking, states that are in the middle center of the USA have a more stable and reasonable shipping rate than states away from mainland.
States in the middle of the USA benefit from their geographic location because they are close to air, rail, and truck. Many of them are hubs of airline, railway, or truck companies. There are many truck companies headquartered in Kentucky, Illinois, Indiana. There are more trucks in and out from these states, so their shipping rate is lower than in other states.
The shipping rate to Hawaii is probably the most expensive one. You have to either by boat or air to get to Hawaii, there is no other transportation that can get there. Ship to Hawaii is not only expensive but also takes longer than ship to mainland states.
California and New York also have higher shipping rates than other states, because they are major ports of the USA. They have more cargoes that need to ship out than the carriers they have in these two areas.
Some other states’ shipping rates fluctuate also during their product season. It is cheap to ship in Florida than ship out in summer because they have lots of produces moving out during summer. Idaho’s shipping rate follows its onion and photo market. Georgia, Mississippi, Nebraska .. etc, many states have their produce season shipping rate.
Pros and Cons of Fluctuate shipping rate
Pros
- Shipping rate reflects what the real market is
- More carriers will join when the market is hot, shipping rate is high and profit is big, but eventually the market will rebalance itself
Cons
- High shipping rate create a burden for many business
- It is hard for a business to calculate their profit margin with fluctuated shipping rate
- Swing shipping rate might hindered some opening of new business
