What’s a “Good” Ocean Freight Rate?

Shipping rates
A rate that’s initially ‘good’ for a shipper is probably not so good in the long term if your carriers disappear, or make an effort to stay solvent by interim measures like slow steaming or cancelling voyages, the issue remains – just what ‘good’ rate?

freight rate benchmarking
If you’re a shipper, the immediate response is that a ‘good’ freight rates are a low one, although your carrier will really disagree. But today’s arena of ocean freights and trade lanes can appear far more complex than it was previously where both shippers and carriers need to fully understand that changes are important in order to move container cargo worldwide mutually profitably.

Ocean freights can be a commodity. Similar to grain, crude oil, and the metals traded on the London Metal Exchange, ocean freights fall and rise based on supply and demand issues. With ocean freights, the availability & demand issue is primarily cargo volume measured against container and ship availability, plus bunker price changes, currency fluctuations, and insurance surcharges as a result of piracy in the major trade lanes.

While most of these are economic conditions that can be either forecasted or hedged, government support of failing carriers skews supply & demand by offering bargain-basement freight rates designed more to increase cash than manage a going concern. To be the recipient of such a rate could be ‘good’ in the short term, however the ‘good’ disappears if the shipping line goes under along with the remaining carriers increase the rates.

If a rate that’s initially ‘good’ for any shipper may not be so good in the long term if the carriers disappear, or try and stay solvent by interim measures such as slow steaming or cancelling voyages, the issue remains – what is a ‘good’ rate?

A Zero-Sum Game?

Clearly the actual shipper – carrier relationship is unhealthy as well as to be examined by each side. Prolonged low rates that can cause carriers to lose money and threaten their financial stability are as unhelpful in the long run as are high rates that price the shipper’s products out of their intended markets.

Even though many companies ship large volumes of TEU’s globally, the effects of this volume is often diluted by the have to ship a wide array of products over an equally large number of shipping lanes and ocean carriers. This weakens management’s capability to negotiate competitive ocean freight rates as well as making it difficult to know if the rates paid come in line with their competition.

There are some worrisome indicators that the container business is now considered a zero-sum game where ocean freight rates and sailing times are viewed battlegrounds in the fight for freight rate supremacy.

Speculate shippers and carriers worked together so that you can develop the concept of Just-in-Time deliveries, possibly the next concept adopted through the logistics world should be that of benchmarking, where ocean freight rates are compared and rated over trade lanes and cycles.

Benchmarking: It’s All Relative

Benchmarking enables a shipper to accurately answer the key questions asked in the shipping business: “Am I paying of the right freight rate? Is my rate competitive?”

Ocean freight benchmarking is very useful for both shippers and carriers; carriers often need independent verification the rates requested through the shippers do in fact appear in order for the negotiations to get finalized, while shippers need independent verification that the rates they accept on their many smaller lanes parallel those as reported by larger shippers on the same lanes. Benchmarking provides the information important to answer the question of what’s a ‘good’ ocean freight rate: a ‘good’ rate is one which is lower, or otherwise the same, as your competitors.

Have a look at Q1 2016 Shippping Rates | How Do Your present Rates Compare to the marketplace?

Join us for our Webinar on April 6 – “Q1 2016 Shipping Rates At a Glance”.

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