Why Shipping Costs Could Become a Bigger Issue for American Businesses
For American businesses that depend on imported goods, shipping is becoming harder to treat as a predictable operating expense.
Ocean freight rates have risen sharply on some major routes as geopolitical disruptions force ships to take longer journeys, while insurance and fuel costs have also increased. The cost of transporting a 40-foot container has recently reached about $4,526, roughly double its level a year earlier, according to reporting by the Financial Times. (ft.com)
The increase matters because freight is embedded in the cost of thousands of products sold in the United States. For some businesses, higher shipping costs can be absorbed through margins. For others, they can influence prices, sourcing decisions, inventory levels and even whether a product remains commercially viable.
The bigger issue is not simply that shipping is expensive. It is that companies are finding it harder to know what transportation will cost several months from now.
The geography of trade has become more expensive
Modern global trade depends heavily on a small number of maritime chokepoints. The Suez Canal connects Europe and Asia, the Panama Canal links the Atlantic and Pacific, while the Strait of Hormuz is central to global energy shipments.
When a major route becomes unsafe or difficult to use, ships can be redirected. But the alternative is rarely costless.
Ships traveling from Asia to Europe, for example, have been rerouted around the Cape of Good Hope during Red Sea disruptions. The longer voyage requires more fuel, more time and more vessel capacity to move the same amount of cargo.
UN Trade and Development estimates that rerouting caused global shipping ton-miles—the amount of cargo multiplied by the distance transported—to rise by nearly 6% in 2024, substantially faster than the increase in trade volumes. It also reported that freight rates remained elevated and volatile amid geopolitical tensions and changing trade policies.
The economic mechanism is straightforward: when ships spend more time at sea, the effective supply of shipping capacity falls even if the number of vessels has not changed.
That can push freight prices higher.
Geopolitics is becoming a logistics cost
The latest disruption around the Middle East illustrates how quickly geopolitical risk can enter a company's cost structure.
Shipping insurers have sharply increased premiums for vessels operating in high-risk areas. The Wall Street Journal reported that insurance costs for ships operating in the Persian Gulf had risen to between 3% and 6% of a vessel's value, compared with roughly 0.25% in normal conditions. Red Sea insurance costs have also increased. (wsj.com)
For American importers, the effect can appear indirectly.
A retailer does not necessarily pay the ship's insurance premium itself. Instead, higher carrier operating costs can feed into freight rates, surcharges and contract negotiations. The importer then faces a higher landed cost—the total cost of getting a product from its origin to its destination.
This is particularly significant for businesses with low margins or products that compete primarily on price.
Tariffs add another layer
Shipping costs are becoming more important at the same time that trade policy is changing the economics of importing.
A tariff is calculated on the value of imported goods under the relevant customs rules, but transportation costs still influence the overall economics of bringing those goods into the country.
Companies therefore have to consider several variables simultaneously: the cost of the product, tariffs, freight, insurance, warehousing and the amount of capital tied up while merchandise is in transit.
This encourages businesses to rethink supply chains.
A company might source from a cheaper overseas supplier but face higher freight and tariff costs. Another might choose a more expensive supplier closer to the U.S. market because transportation is faster and less exposed to maritime disruption.
The lowest factory price is consequently becoming a less reliable measure of the lowest delivered cost.
Inventory is becoming a financial decision
Shipping uncertainty also changes how companies manage inventories.
When freight is cheap and predictable, businesses can operate with relatively lean inventories. When transportation becomes unreliable, holding additional stock can provide insurance against delays.
But inventory is not free. Products sitting in warehouses tie up working capital, require storage and can become obsolete.
For retailers, the problem is particularly difficult. Ordering too early can create excess inventory if consumer demand weakens. Ordering too late can leave stores without products during important selling periods.
Some companies may therefore diversify ports, suppliers and transportation routes even when those alternatives are more expensive under normal conditions.
The objective is not necessarily to minimize transportation costs on every shipment. It is to minimize the risk-adjusted cost of keeping the business supplied.
Not every business will feel the same pressure
The impact will vary substantially across industries.
Large multinational companies can often negotiate long-term freight contracts, spread logistics costs across large volumes and use multiple suppliers. Smaller businesses may have less bargaining power and fewer alternatives.
Companies importing bulky, low-value goods are particularly exposed because transportation represents a larger share of the product's final cost. High-value electronics or specialized equipment may have greater capacity to absorb freight increases.
Manufacturers face a different challenge. A factory may depend on imported components arriving at precise intervals. A shipping delay can therefore disrupt production rather than simply increase the cost of one shipment.
This is why freight volatility can affect productivity as well as prices.
The shipping industry has its own counterforce
Higher rates do not necessarily remain high indefinitely.
Container shipping companies have ordered large numbers of new vessels following the strong earnings of recent years. The current order book is equivalent to more than 40% of the existing fleet, according to the Financial Times. If those ships enter service faster than global demand grows, excess capacity could eventually push freight rates lower. (ft.com)
That creates an important distinction between a structural increase in shipping costs and a temporary spike caused by disruption.
If major maritime routes become safer and vessels return to shorter routes, effective capacity could increase and rates could fall. If disruptions persist, however, longer voyages and higher insurance costs could continue supporting elevated prices.
The outcome will also depend on global trade volumes, fuel prices, fleet growth and the ability of ports and inland logistics networks to handle changing routes.
A new calculation for American companies
The strategic response is unlikely to be a wholesale retreat from global trade.
International production remains economically attractive for many industries, and ocean shipping remains one of the most efficient ways to move large quantities of goods over long distances. Instead, companies are likely to place greater value on flexibility.
That can mean multiple suppliers, alternative ports, larger safety stocks, diversified sourcing and greater visibility into goods while they are in transit.
The broader lesson is that shipping has moved closer to the center of corporate strategy. For decades, globalization allowed businesses to treat transportation as a relatively predictable bridge between low-cost production and high-value consumer markets.
That assumption is becoming less secure.
For American businesses, the important question is no longer simply how cheaply a product can be manufactured. It is how reliably and predictably that product can reach the customer.
In a world of longer routes, volatile freight rates and geopolitical risk, the cost of moving goods is becoming part of the cost of managing uncertainty itself.