As if COVID-19 hadn’t caused enough shipping problems for Amazon FBA sellers importing from China, we now have to deal with the Brexit disaster and even some snowstorms to top it all off!
Any Amazon FBA seller who imports from China knows that 2020 saw some HUGE increases in shipping rates, with costs increasing by up to ten times. Typically, shipping a 40ft container would’ve cost between $1,500-$2,000 but we’re now seeing ocean freight rates of $10,000-$15,000 for the same 40ft container.
And that’s not all, my fellow Amazon FBAers! Consider you pay import VAT on the total amount of the goods you’re importing, including shipping, so the government adds insult to injury with your higher VAT bill, too.
It goes without saying that this has had a huge effect on margins and profitability and for many Amazon FBA sellers has meant having to increase their prices. The only saving grace is that this shipping nightmare affects everyone importing from China: not just you, but your competitors, too.
What’s causing these increases in shipping costs for Amazon FBA?
These increases were initially caused by carriers reducing capacity in the early stages of the Covid-19 pandemic last year by introducing “blank sailings”, which basically means a cancelled sailing. This can be the entire sailing being cancelled or the removal of certain ports on the route.
The outcome is that a lot of importers had their goods stranded and they had to find another free vessel with space so they could ship their products. And with this happening on a large scale, coupled with increasing ecommerce and Amazon FBA sales, demand for shipping containers skyrocketed globally and there simply wasn’t enough empty containers in China to meet this demand.
And as we all know, increased demand and decreased supply only means one thing – higher prices!
The issue worsened and worsened, reaching its worst point in Q4 last year when there were severe congestion problems at some of the major port hubs in Asia, which then spread to Europe and the UK, in particular Felixstowe port, which all saw severe delays.
I saw first hand the effect this had on businesses here with some Amazon Sharks members having their products stuck both at port and then again at Amazon FBA fulfilment centres as the delays caused a huge bottleneck. Despite all this they managed to hit their biggest Q4 sales ever, so just imagine what it would’ve been without the shipping problems!
Now I know what some of you may be thinking – “if there’s such high demand why not just produce more shipping containers?” Simple right?
Well sadly, no – it doesn’t work like that. For a variety of reasons, covid of course being no.1, container production in 2020 was actually down compared to 2019 (H1 2020 container production was 40% less than H1 2019). This decrease in production coupled with the sudden increase in demand has led to a significant drop in global container availability.
And this is really the problem at the moment – there’s simply not enough containers, along with congestion and delays caused by COVID-19 which is causing a number of further issues, including:
- Delays in the return of containers to China.
- Lower productivity at ports and terminals.
Take Felixstowe port, for example, which was hit particularly bad in the busy Christmas season last year. They’re currently moving 22-23 containers per hour, down from the usual 28-30.
That might not seem like a huge difference but these bottlenecks add up and cause more delays, exacerbating the problem further and further. And with the big 3rd wave of COVID-19, it’s really not a surprise – there were 250 staff off from covid at Felixstowe at one point, though this is now down to 130.
I’ve seen a few people online suggesting this and in theory it makes sense. After all nearly all factories are closed for most of February so there’s no production and no new shipments, which will allow the backlog to be cleared…
Won’t Chinese New Year clear the backlog and get everything back to normal for your Amazon FBA business?
Well, sadly, no. While there will be a drop in shipping volumes for a short while, March will see another big increase as all the delayed orders are shipped out. Sorry to be the bearer of bad news, but if anything I expect the problems to worsen after Chinese New Year.
What about shipping using other methods? Or ordering from suppliers in another country?
I’ve had a lot of people messaging me asking these questions and the short answer is it won’t really help.
While, yes, the problem is being caused by sea freight, this has spread and affected both air freight and even rail shipping from China. And it makes sense, because those who can switch to air freight have done so, thereby increasing demand and affecting pricing and services.
I would still suggest speaking to your freight forwarder about this option, because it could be the case that while sea freight costs for you have doubled, air freight is only 50% higher… so it might still be worthwhile switching.
Then in terms of ordering from other countries, by now this is a global issue with nearly all ports and hubs being affected, so that’s not really an option to save on shipping.
So that’s it? Are we stuck paying $15,000 for a 40ft container?
Well, no, and thankfully I can finally give some good news.
Speaking to Andy Ball, the Director of Trade for Asia for Woodland Global and he told me that the general feeling moving into 2021 is that “carriers operating ocean freight services have learned some harsh lessons since the outbreak of COVID 19 and in the main, the best lesson they have learned is that it’s no longer a race to the bottom in terms of rates. They are managing their utilisation much better and are limiting the amount of business they want to take on of lower rated contracts thus forcing the considerable surplus freight to move on higher rated spot contracts, meaning they don’t necessarily have to have their vessels full to make profit.
The general feeling is that rates will come down at some point this year as the current levels simply cannot be sustained but they will not return to the levels that have previously been enjoyed with the general consensus being that 40ft/HC rates settling around USD 5000-6000 mark but again there is no timeframe as to when this will happen and it’s only a feeling being shared amongst forwarders.”
So there you have it. If nothing further goes wrong, rates should start to settle and while we won’t enjoy the same prices as before, we also won’t have to pay the current exorbitant fees.
What should Amazon FBA sellers do?
I’ve spoken in depth to a number of Amazon Sharks members to try and help them navigate through this and my answer is really that it depends on your induvial business and there’s no one blanket suggestion that will apply to everyone.
This is the plan of action I would suggest:
- Speak to your supplier / freight forwarder about alternate shipping options and see what they say. Compare air freight and sea freight quotes and see what makes sense for your business. You will always pay more for air freight, but it does offer a number of benefits to Amazon FBA sellers, such as much faster shipping times (especially important now when sales are up) and decreased storage costs as you don’t have to hold as much stock, either yourself or with Amazon.
- Re-asses your margins and pricing.
Again, this is very specific to each individual business as it depends on how much your shipping costs have increased, your margins before and after, your competitors and whether they’ve increased their pricing etc.
But you have to make sure you know all these numbers! Please don’t be one of those sellers who blindly charge the same amount while their costs have increased, not even knowing their margins and net profit. Work it all out and then make the best decision for your business.
One final piece of advice is that now, more than ever, it’s so important that you work with a good freight forwarder. And my suggestion is Woodland Global.
I’ve recommended them countless times on this blog and to my Amazon Sharks members and I’ll continue to do so as their service is always fantastic. They’re sending out a lot of emails keeping us all up to date and you can also check their page here for more info: https://www.woodlandgroup.com/news/news/global-shipping-update/
Last but not least for today’s post, I do want to point out that it’s not all doom and gloom!
Yes COVID-19 has meant much higher shipping costs but it’s also meant much higher demand for ecommerce and Amazon FBA goods! Many of my students hit new sales records in November without spending a penny on PPC. That resulted in big jumps in NET PROFIT in one month, so the opportunities for Amazon FBA sellers really are bigger than ever.
Until next time!
All the best,