Shippers Opt for Lower-Cost, Slower Services: A Strategic Shift

In the ever-evolving landscape of global logistics, shippers are increasingly opting for lower-cost, slower shipping services. This strategic shift is driven by a combination of economic pressures and the need to optimize supply chain efficiency. However, this decision comes with its own set of risks and opportunities that shippers must carefully navigate.

The surge in maritime transport costs, exacerbated by the Covid-19 pandemic, has forced shippers to reevaluate their logistics strategies. Rising transport costs have reversed the trend towards globalisation, favouring localization instead. This shift is evident in the findings of a study that evaluated the impact of the 2021–22 surge in rates for containerized and bulk shipping costs. The study revealed that a 10% reduction in transport costs could boost the volume of trade by 20%, highlighting the significant impact of transport costs on global economic activity.



One of the primary drivers behind the shift to lower-cost, slower shipping services is the need to reduce operational expenses. According to a research paper on transport cost determinants, distance is a determining factor in the cost of transport, along with the degree of competition on the route, the volume of freight, and the quality of transport infrastructure. Shippers are therefore incentivized to choose slower, more cost-effective shipping methods to mitigate the financial burden of high transport costs.

However, this cost-saving strategy is not without its risks. Delayed deliveries and increased inventory holding costs are potential downsides that shippers must consider. The research on shippers’ choice of transport modes in Southeast Asia found that while cost is the most important factor when choosing carriers/forwarders, other factors such as time and environmental considerations also play a role. Shippers might change to the short-sea shipping (SSS) mode when the importance weights of cost and CO2 emission increase, and to trucking mode when the weight of time decreases. This indicates that shippers are willing to consider slower, more cost-effective shipping methods, but only if the time savings from faster shipping do not outweigh the cost savings.

The long-term strategic implications for shippers who prioritize cost over speed are significant. While this approach can lead to short-term savings, it may also result in increased reliance on slower transport modes, longer delivery times, and potentially dissatisfied customers. Shippers who prioritize cost may also face challenges in responding quickly to market changes or disruptions, potentially falling behind competitors who are more proactive in their approach.

Moreover, prioritizing cost may impact a shipper's environmental footprint. The research notes that CO2 emission is not an important factor at the current stage for shippers. However, if governments impose financial measures such as fines or taxes for CO2 emissions, shippers who have not considered eco-friendlier transport modes may face additional costs and regulatory challenges. This could further erode their competitive positioning if they are unable to adapt quickly.

In conclusion, while opting for lower-cost, slower shipping services can result in significant cost savings, shippers must carefully consider the potential risks and long-term strategic implications. The decision to choose slower shipping methods should be based on a comprehensive analysis of the trade-offs between cost savings and the potential impacts on delivery timelines, inventory management, and environmental sustainability. As the global logistics landscape continues to evolve, shippers must remain agile and adaptable to maintain a competitive edge in the market.