What's a "Good" Ocean Freight Rate?
A rate that’s initially ‘good’ for a shipper will not be so good in the long term in the event the carriers disappear, or make an effort to stay solvent by interim measures such as slow steaming or cancelling voyages, the issue remains - just what is a ‘good’ rate?
ocean freight rate
If you’re a shipper, the immediate solution is that a ‘good’ freight rates are a low one, although your carrier will really disagree. But today’s realm of ocean freights and trade lanes can appear far more complex than it used to be where both shippers and carriers have to fully understand that changes should be made in order to move container cargo worldwide mutually profitably.
Ocean freights can be a commodity. Similar to grain, oil, and the metals traded around the London Metal Exchange, ocean freights go up and down 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 issues that can be either forecasted or hedged, government support of failing carriers skews supply & demand by giving bargain-basement freight rates designed more to boost cash than chance a going concern. Is the recipient of such a rate may be ‘good’ in the short term, however the ‘good’ disappears if the shipping line goes under along with the remaining carriers increase the rates.
Therefore a rate that’s initially ‘good’ for a shipper may not be so good in the long term if the carriers disappear, or try and stay solvent by interim measures like slow steaming or cancelling voyages, the issue remains - just what ‘good’ rate?
A Zero-Sum Game?
Clearly the present shipper - carrier relationship is unhealthy and needs to be examined by each party. Prolonged low rates that create 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.
Although many companies ship bulk of TEU's globally, the consequence of this volume is frequently 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 capacity to negotiate competitive ocean freight rates as well as making it difficult to see whether the rates paid have been in line with their competition.
There were 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.
But as shippers and carriers worked together to be able to develop the concept of Just-in-Time deliveries, perhaps the next concept adopted with the logistics world needs to be that of benchmarking, where ocean freight minute 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 most successful for both shippers and carriers; carriers often need independent verification that this rates requested from the shippers do in fact exist in order for the negotiations to become finalized, while shippers need independent verification that the rates they accept on their many smaller lanes parallel those as reported by larger shippers on those self same lanes. Benchmarking provides the information essential to answer the question of what's a ‘good’ ocean freight rate: a ‘good’ minute rates are one which is lower, or otherwise the same, as your competitors.
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