German logistics company Deutsche Post DHL does not expect freight costs to ease this year and is advising customers to agree longer-term contracts as a hedge, the head of the DHL freight business said in an interview.

“The short-term rate will rise a little in air and ocean freight, the long-term rate will probably remain at the 2021 level,” Tim Scharwath told Reuters.

“In air freight, the rate might even go up a little bit more in the short term, there is even tighter capacity there.”

The COVID-19 pandemic has severely disrupted global supply chains, slowing flows of raw materials, parts and consumer goods.

Shortages of freight capacity – both ocean and air – have pushed up shipping costs globally, with the pandemic also extending port waiting times due to labour shortages and traffic disruptions.

U.S. rival FedEx Corp (FDX.N) warned this month that rising cases of the Omicron coronavirus variant has caused staff shortages and delays in shipments transported on aircraft.

“In sea freight, we will not return to the rates we had before the coronavirus crisis,” Scharwath said.

“If you want to sell a stool for 10 euros from China, then this can become a problem due to the transport costs,” he said. “This will also force a review of some business models.”

Scharwath recommended that customers sign contracts for two to three years to hedge against future price rises: “You buy stability through long-term commitment.”

The DHL freight unit expects the high rates to continue to buoy profits in 2022: “Our goal is to keep the operating result at least at the high level we had in the first nine months of 2021,” Scharwath said.

The division, which employs more than 42,000 people and was once the group’s problem child, has become a profit generator under Scharwath’s direction.

He wants to keep the operating margin above 5.5% by 2025. The unit recorded a margin of 5.7% in the first nine months of 2021.

DHL says its freight division is the market leader in the air freight market ahead of Kuehne+Nagel (KNIN.S), and number two in sea freight among logistics firms behind that company.

Source: Reuters