Dear Jason,

I read your recent article regarding global freight prices with interest last week, and whilst I would not normally respond to an opinion piece of this kind, I do believe that this deserves a warranted answer from the perspective of a components manufacturer at the top end of the supply chain.

As you describe, the extreme cost increases in freight charges since 2020 have been a huge challenge for our sector. At one point, the cost for port-to-port shipping, which pre-pandemic hovered around the $1500 mark, hit highs of $20,000. This massive increase meant that most importer businesses had no choice but to implement surcharges, as you say in your article.

As a company that imports a lot of material into the UK, we have always maintained complete transparency regarding our freight surcharges, and on our website, we not only list the latest surcharge information, but also the method by which surcharges are calculated. You can find these here.

Surcharge calculations are based on the latest data we have to hand so that we can provide sufficient time for customers to prepare for the changes, and as global freight prices have decreased, we have watched our surcharges decrease month-on-month.

We use the data from Freightos Baltic Index (FBX) to work out an average for the month, which then creates the surcharge pricing for the following month. For example: on 1 January, we work out the average freight surcharge cost for the month of December and the updated prices are then implemented from 1 February. It does mean there is a slight lag between the index number and the real-time cost, but this is the reality of the ever-changing market. Based on the December freight prices our February surcharges will be back to zero and we do not expect them to return in the short to medium term.

We also need to remember that surcharges are a non-profit item – there is no margin for a supplier who implements them, they are simply a cost that has to be passed on. It may be that some suppliers have not given the right level of transparency or explanation behind surcharges, but we completely agree that they should be decreasing as freight pricing settles.

Of course, the next big challenge for us all is energy costs, and those companies who aren’t lucky enough to be in a fixed contract will see spiralling energy costs this year. The government’s support, albeit massively reduced, combined with falling wholesale gas prices, will help, but many companies are still likely to see a trebling of their energy costs this year. The industry should expect to see surcharges, especially from manufacturers who have high-energy usage, which again will be those towards the top of the supply chain – extrusion and systems houses, glass manufacturers and composite door suppliers. We have already seen surcharges from at least one of the systems houses being announced in the last week, and now the government’s position has been clarified, and more are likely to be announced in the coming weeks.

I think if there is a lesson for the supply chain – it is to be completely honest and transparent about surcharges so that customers can see where costs are being passed on and have clarity on what’s changed when they eventually start to see savings.

The last 5 years have seen a raft of surcharges being applied as unprecedented increases in costs have hit. Some of these costs such as exchange rates are now proving to be more permanent and over time these have been included in prices.

Surcharges are a reaction to unprecedented cost increases that only come with the market uncertainty we have experienced over the last few years – who saw freight prices reaching those levels or energy costs tripling, even with Government support?

No one really knows what’s coming next, and the only way to overcome those challenges is by maintaining open and transparent relationships throughout our entire supply chain.

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