Pavel Lisitsin comments on pricing and new realities in the delivery of goods
The crisis year of 2020 and the unpredictable year of 2021 didn’t have the best effect on almost all spheres of the economy. Sea transportation was no exception, which became more complicated due to a number of circumstances. This led to a change in prices for this type of transport. Pavel Lisitsin, the head of one of the largest logistics companies in Ukraine, told in detail what the increase in cost is connected with, as well as what makes up the price for sea transportation in general.
Pavel Lisitsin: How the cost of shipping is formed
The cost of any transportation includes distance, volume of cargo, hazard of cargo, seasonality and additional risks. Pavel Lisitsin says that the longer the distance, the larger or heavier the cargo needs to be delivered, the more expensive the transportation will cost.
Also, the cost of transportation by most types of transport is influenced by the season. In winter, transportation becomes more difficult and, as a result, more expensive. But, as for the volume, Pavel Lisitsin emphasizes that it is more profitable to deliver large batches of cargo, since carriers often give a discount on the delivery of large consignments.
Sea transportation is traditionally considered one of the most affordable options, since ships have a huge carrying capacity, and the price for transporting an individual unit of cargo is low.
Pavel Lisitsin says that in Ukraine, in the process of trade with China (the largest trading partner of our country), it is the sea transport that is used most often.
It’s worth dwelling separately on the formation of prices for the use of this type of freight transport. The cost of shipping includes:
- freight (transportation tariff);
- insurance;
- commission for the work of the shipping agent;
- fees for additional services.
Pavel Lisitsin says that the final cost can also be influenced by the amount of cargo, distance and route, class of the vessel and a number of other factors.
What are the advantages of sea freight transport? Pavel Lisitsin highlights the following key advantages:
- Profitability. As already mentioned above, sea vessels are traditionally considered one of the cheapest modes of transport, since they have a large carrying capacity. Thanks to this, the cost of delivery of each individual unit of cargo is significantly reduced.
- Safety. Water transport is considered one of the safest, since the cargo is almost always insured, and cargo containers ensure the complete safety of the goods. Pavel Lisitsin notes that the ship can deliver not only ordinary goods but also bulk, liquid and perishable goods in special containers.
- Flexible routes. It’s easier to create routes for freight transport, and it is also easy to predict the delivery time, since there is no reference to the situation on roads.
Pavel Lisitsin on the changes in prices for sea transportation
No matter how popular sea transport is, since last year this type of transportation has gradually become more complicated, which forces many logistics companies to look for alternative options. Pavel Lisitsin explained why water transport has ceased to be profitable for many companies.
As expected, the pandemic has hit the shipping industry. Coronavirus restrictions, port disruptions, terminal closures have all negatively impacted logistics and triggered supply chain disruptions. Pavel Lisitsin said that in some large cities, the operation of port terminals was stopped for some time, which led to an increased load on other ports, and as a result to new delays.
In 2021, a new logistics crisis began. Due to the “trading boom” as a result of deferred demand, a lot of freight containers left from China to Europe and the United States, but didn’t return, creating a severe deficit. According to Pavel Lisitsin, the carriers were not ready for the dramatically increased volume of exports from China, which caused a serious delay in the dispatch of ships, as well as an increase in transportation prices several times.
The second unexpected factor in the increase of prices for water transport was the accident of the container ship Ever Given, which ran aground in the Suez Canal. Pavel Lisitsin recalls that because of this, the shortest route from China to Europe was blocked. Transportation prices increased again as companies were forced to send ships on a less convenient route.
While large companies could still afford to deliver at ultra-high prices, many smaller businesses were forced to look for alternatives. Pavel Lisitsin says that many retailers and logistics operators have turned their attention to air and rail transport.
However, changes in price have affected alternative types of transportation too. This is also due to the lower throughput of other types of transport. According to Pavel Lisitsin, the new realities of the industry will stay for a long time, and businesses will have to plan their work based on this.
